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** **

 

** **

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-Q**

 

**(MarkOne)**

 
| **x**                                                  | ** ** | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE  ACT OF 1934**  |
|--------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------|
|                                                   |       |                                                                                                     |
| **For the quarterly period ended June 30,  2010** |
|                                                   |
| **OR**                                                 |
|                                                   |       |                                                                                                     |
| **o**                                                  | ** ** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE  ACT OF 1934** |

 

**For thetransition period from                            to                             **

 

**Commission file number 001-32389**

 

**NTS REALTYHOLDINGS LIMITED PARTNERSHIP**

(Exact name of registrant asspecified 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 telephonenumber, including area code)

 

**Not applicable**

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

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe 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 tosuch filing requirements for the past 90 days.  **Yes** x  **No** o

 

Indicateby check mark whether the registrant has submitted electronically and posted onits corporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 ofthis chapter) during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files).  **Yes** o  **No** o

 

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

 

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

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act).  **Yes** o  **No** x

 

**APPLICABLE ONLY TO CORPORATEISSUERS**

 

Asof August 11, 2010, there were 11,380,760 of the registrant’s limitedpartnership units outstanding.

 

 

 

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**NTS REALTY HOLDINGS LIMITEDPARTNERSHIP**

 

**FORM 10-Q**

 

**TABLE OF CONTENTS**

 
| **PART I —  FINANCIAL INFORMATION**                                                                                | **4**  |
|------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                         |   |   |   |
| Item 1                                                                                                                       |   | Financial  Statements | 4 |
| Condensed  Consolidated Balance Sheets as of June 30, 2010 (Unaudited) and  December 31, 2009                      | 4      |
| Condensed  Consolidated Statement of Equity as of June 30, 2010 (Unaudited)                                             | 4      |
| Condensed  Consolidated Statements of Operations for the Three and Six Months Ended  June 30, 2010 and 2009 (Unaudited) | 5      |
| Condensed  Consolidated Statements of Cash Flows for the Six Months Ended June 30,  2010 and 2009 (Unaudited)           | 6      |
| Notes to Condensed Consolidated Financial Statements                                                                         | 7      |
| Item 2                                                                                                                       |   | Management’s  Discussion and Analysis of Financial Condition and Results of Operations | 21 |
| Item 3                                                                                                                       |   | Quantitative and  Qualitative Disclosures About Market Risk | 30 |
| Item 4                                                                                                                       |   | Controls and  Procedures | 30 |
|                                                                                                                         |   |   |   |
| **PART II — OTHER INFORMATION**                                                                                    | **31** |
|                                                                                                                         |   |   |   |
| Item 1                                                                                                                       |   | Legal Proceedings | 31 |
| Item 1A                                                                                                                      |   | Risk Factors | 31 |
| Item 2                                                                                                                       |   | Unregistered  Sales of Equity Securities and Use of Proceeds | 31 |
| Item 3                                                                                                                       |   | Defaults  Upon Senior Securities | 31 |
| Item 4                                                                                                                       |   | Reserved | 31 |
| Item 5                                                                                                                       |   | Other  Information | 31 |
| Item 6                                                                                                                       |   | Exhibits | 32 |
| Signatures                                                                                                                   | 34     |

 

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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’sDiscussion and Analysis of Financial Condition and Results of Operations (“MD&A”),constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, asamended (the “Securities Act”) and Section 21E of the Securities ExchangeAct of 1934, as amended (the “Exchange Act”). These forward-looking statements include discussion and analysis of ourfinancial condition, including our ability to rent space on favorable terms,our ability to address debt maturities and fund our liquidity requirements, thevalue of our assets, our anticipated capital expenditures, the amount andtiming of anticipated future cash distributions to our unit holders and othermatters.  Words such as “may,” “anticipates,”“expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “would,” “could,”“should” and variations of these words and similar expressions are intended toidentify forward-looking statements and indicate that it is possible that theevent may not occur.  If these events donot occur, the result, which we expected, also may, or may not, occur in adifferent manner, which may be more or less favorable to us.  We do not undertake any obligation to updatethese forward-looking statements.

 

Any forward-looking statements included in MD&A, or elsewhere inthis report, are not historical facts, but reflect the intent, belief orcurrent expectations of our managing general partner based on its knowledge andunderstanding of the business and industry, the economy and other futureconditions only as of the date of this report and may ultimately prove to beincorrect or false.  These statements arenot guarantees of future performance, and we caution unit holders not to placeundue reliance on forward-looking statements. Actual results could differ materially from those expressed or forecastin any forward-looking statements as a result of a number of factors, includingbut not limited to the factors listed and described under “Risk Factors” in ourfilings with the Securities and Exchange Commission (the “SEC”), particularlyour most recent Annual Report on Form 10-K, for the year ended December 31,2009, as filed with the SEC on March 29, 2010.  We intend for these forward-lookingstatements to be covered by the applicable safe harbor provisions created bythe Private Securities Litigation Reform Act of 1995 or Section 27A of theSecurities Act and Section 21E of the Exchange Act.

 

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**PART I — FINANCIAL INFORMATION**

**Item 1 — FinancialStatements**

 

**NTS REALTY HOLDINGS LIMITED PARTNERSHIP**

CondensedConsolidated Balance Sheets as of June 30, 2010 (Unaudited) and December 31,2009

 
| ** **                                                                                                                             | ** ** | **(Unaudited)**        | ** **  | ** **                 | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|-------------|----------------------------|------------|
| ** **                                                                                                                             | ** ** | **June 30, 2010** | ** **  | **December 31, 2009** | ** ** |
| **ASSETS:**                                                                                                                            | ** ** | ** **             |        |                       |       |
| Cash and equivalents                                                                                                                   |       | $                      | 908,305     |                       | $          | 11,233,735 |   |
| Cash and equivalents - restricted                                                                                                      |       | 9,911,305              |        | 2,227,744                  |       |
| Accounts receivable, net of allowance for doubtful  accounts of $306,543 at June 30, 2010 and $203,359 at December 31,  2009 |       | 1,495,215              |        | 1,646,142                  |       |
| Notes receivable                                                                                                                       |       | 1,000,000              |        | 1,000,000                  |       |
| Land, buildings and amenities, net                                                                                                     |       | 283,992,323            |        | 291,151,198                |       |
| Long-lived assets held for sale                                                                                                        |       | —                 |        | 5,549,932                  |       |
| Investments in and advances to tenants in common                                                                                       |       | 3,236,820              |        | 4,174,947                  |       |
| Other assets                                                                                                                           |       | 3,949,303              |        | 4,598,167                  |       |
|                                                                                                                                   |       |                   |        |                       |       |
| **Total assets**                                                                                                                       |       | $                      | 304,493,271 |                       | $          | 321,581,865 |   |
|                                                                                                                                   |       |                   |        |                       |       |
| **LIABILITIES:**                                                                                                                       |       |                   |        |                       |       |
| Mortgages and notes payable                                                                                                            |       | $                      | 235,217,491 |                       | $          | 246,088,305 |   |
| Accounts payable and accrued expenses                                                                                                  |       | 2,770,153              |        | 2,875,643                  |       |
| Accounts payable and accrued expenses due to  affiliate                                                                                |       | 724,131                |        | 634,930                    |       |
| Distributions payable                                                                                                                  |       | 569,038                |        | 569,038                    |       |
| Security deposits                                                                                                                      |       | 876,813                |        | 856,384                    |       |
| Long-lived liabilities held for sale                                                                                                   |       | —                 |        | 72,321                     |       |
| Other liabilities                                                                                                                      |       | 4,336,358              |        | 3,754,653                  |       |
|                                                                                                                                   |       |                   |        |                       |       |
| **Total liabilities**                                                                                                                  |       | 244,493,984            |        | 254,851,274                |       |
|                                                                                                                                   |       |                   |        |                       |       |
| COMMITMENTS AND CONTINGENCIES (NOTE 12)                                                                                                |       |                   |        |                       |       |
|                                                                                                                                   |       |                   |        |                       |       |
| **EQUITY:**                                                                                                                            |       |                   |        |                       |       |
| Partners’ equity                                                                                                                  |       | 55,320,093             |        | 61,633,718                 |       |
| Noncontrolling interests                                                                                                               |       | 4,679,194              |        | 5,096,873                  |       |
|                                                                                                                                   |       |                   |        |                       |       |
| **Total equity**                                                                                                                       |       | 59,999,287             |        | 66,730,591                 |       |
|                                                                                                                                   |       |                   |        |                       |       |
| **Total liabilities and equity**                                                                                                       |       | $                      | 304,493,271 |                       | $          | 321,581,865 |   |

 

**NTS REALTY HOLDINGS LIMITED PARTNERSHIP**

CondensedConsolidated Statement of Equity as of June 30, 2010

(Unaudited)

 
| ** **                                                | ** ** | **(Unaudited)**                 | ** ** |
|-----------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                | ** ** | **General  Partner  Interests** | ** ** | **Limited  Partners’  Interests** | ** ** | **General  Partner** | ** ** | **Limited  Partners** | ** ** | **Noncontrolling  Interests** | ** ** | **Total** | ** ** |
| **EQUITY:**                                               |       |                            |       |   |   |   |   |   |   |   |   |   |   |
| Initial equity                                            |       | 714,491                         |       | 10,667,117 |   | $ | 3,131,381 |   | $ | 46,750,444 |   | $ | 5,588,426 |   | $ | 55,470,251 |   |
| Net income (loss) prior years                             |       | —                          |       | — |   | 2,102,522 |   | 31,387,471 |   | (491,553 | ) | 32,998,440 |   |
| Consolidated net loss current year                        |       | —                          |       | — |   | (324,924 | ) | (4,850,625 | ) | (564,679 | ) | (5,740,228 | ) |
| Cash distributions declared to date                       |       | —                          |       | — |   | (1,436,127 | ) | (21,440,049 | ) | — |   | (22,876,176 | ) |
| Current year contributions from noncontrolling  interests |       | —                          |       | — |   | — |   | — |   | 147,000 |   | 147,000 |   |
| Retirement of limited partnership interests to  date      |       | —                          |       | (848 | ) | — |   | — |   | — |   | — |   |
|                                                      |       |                            |       |   |   |   |   |   |   |   |   |   |   |
| Balances on June 30, 2010                            |       | 714,491                         |       | 10,666,269 |   | $ | 3,472,852 |   | $ | 51,847,241 |   | $ | 4,679,194 |   | $ | 59,999,287 |   |

 

The accompanying notes to condensed consolidated financial statementsare an integral part of these statements.

 

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**NTS REALTY HOLDINGS LIMITED PARTNERSHIP**

CondensedConsolidated Statements of Operations for the Three and Six Months Ended June 30,2010 and 2009

(Unaudited)

 
| ** **                                                                       | ** ** | **(Unaudited)**                       | ** ** | **(Unaudited)**                     | ** ** |
|----------------------------------------------------------------------------------|------------|---------------------------------------|------------|-------------------------------------|------------|
| ** **                                                                       | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
| ** **                                                                       | ** ** | **2010**                              | ** ** | **2009**                            | ** ** | **2010** | ** ** | **2009** | ** ** |
| **REVENUE:**                                                                     |       |                                  |       |                                |       |   |   |   |   |
| Rental income                                                                    |       | $                                     | 11,378,324 |                                | $          | 10,291,708 |   | $ | 22,566,125 |   | $ | 20,341,390 |   |
| Tenant reimbursements                                                            |       | 418,772                               |       | 447,653                             |       | 863,611 |   | 903,481 |   |
|                                                                             |       |                                  |       |                                |       |   |   |   |   |
| **Total revenue**                                                                |       | 11,797,096                            |       | 10,739,361                          |       | 23,429,736 |   | 21,244,871 |   |
|                                                                             |       |                                  |       |                                |       |   |   |   |   |
| **EXPENSES:**                                                                    |       |                                  |       |                                |       |   |   |   |   |
| Operating expenses                                                               |       | 3,560,320                             |       | 2,672,463                           |       | 6,416,918 |   | 4,775,565 |   |
| Operating expenses reimbursed to affiliate                                       |       | 1,297,331                             |       | 1,169,938                           |       | 2,620,256 |   | 2,314,452 |   |
| Management fees                                                                  |       | 581,096                               |       | 538,363                             |       | 1,149,855 |   | 1,056,717 |   |
| Property taxes and insurance                                                     |       | 1,602,473                             |       | 1,822,601                           |       | 3,082,657 |   | 3,284,233 |   |
| Professional and administrative expenses                                         |       | 161,262                               |       | 360,968                             |       | 421,969 |   | 648,960 |   |
| Professional and administrative expenses  reimbursed to affiliate                |       | 399,769                               |       | 392,412                             |       | 819,559 |   | 785,393 |   |
| Depreciation and amortization                                                    |       | 4,540,787                             |       | 4,213,914                           |       | 9,082,528 |   | 8,269,730 |   |
|                                                                             |       |                                  |       |                                |       |   |   |   |   |
| **Total operating expenses**                                                     |       | 12,143,038                            |       | 11,170,659                          |       | 23,593,742 |   | 21,135,050 |   |
|                                                                             |       |                                  |       |                                |       |   |   |   |   |
| **OPERATING (LOSS) INCOME**                                                      |       | (345,942                              | )          | (431,298                            | )          | (164,006 | ) | 109,821 |   |
|                                                                             |       |                                  |       |                                |       |   |   |   |   |
| Interest and other income                                                        |       | 38,595                                |       | 75,160                              |       | 64,922 |   | 139,148 |   |
| Interest expense                                                                 |       | (3,205,991                            | )          | (2,847,454                          | )          | (6,456,881 | ) | (5,579,369 | ) |
| Loss on disposal of assets                                                       |       | (53,677                               | )          | (1,407                              | )          | (57,448 | ) | (13,162 | ) |
| Loss from investments in tenants in common                                       |       | (499,326                              | )          | (582,003                            | )          | (938,127 | ) | (1,102,217 | ) |
|                                                                             |       |                                  |       |                                |       |   |   |   |   |
| **LOSS FROM CONTINUING OPERATIONS**                                              |       | (4,066,341                            | )          | (3,787,002                          | )          | (7,551,540 | ) | (6,445,779 | ) |
| Discontinued operations, net                                                     |       | (46,574                               | )          | 25,312                              |       | 28,030 |   | 40,334 |   |
| Gain on sale of discontinued operations                                          |       | 1,248,399                             |       | —                              |       | 1,783,282 |   | — |   |
|                                                                             |       |                                  |       |                                |       |   |   |   |   |
| **CONSOLIDATED NET LOSS**                                                        |       | (2,864,516                            | )          | (3,761,690                          | )          | (5,740,228 | ) | (6,405,445 | ) |
| Net loss attributable to noncontrolling interests                                |       | (257,291                              | )          | (31,852                             | )          | (564,679 | ) | (31,852 | ) |
|                                                                             |       |                                  |       |                                |       |   |   |   |   |
| **NET LOSS**                                                                     |       | $                                     | (2,607,225 | )                                   | $          | (3,729,838 | ) | $ | (5,175,549 | ) | $ | (6,373,593 | ) |
|                                                                             |       |                                  |       |                                |       |   |   |   |   |
| **Loss from continuing operations  allocated to****limited partners**            |       | $                                     | (3,811,054 | )                                   | $          | (3,549,252 | ) | $ | (7,077,450 | ) | $ | (6,041,109 | ) |
| Discontinued operations, net allocated to limited  partners                      |       | (43,650                               | )          | 23,723                              |       | 26,271 |   | 37,802 |   |
| Gain on sale of discontinued operations allocated  to limited partners           |       | 1,170,024                             |       | —                              |       | 1,671,326 |   | — |   |
| Net loss attributable to noncontrolling interests  allocated to limited partners |       | (241,138                              | )          | (29,852                             | )          | (529,228 | ) | (29,852 | ) |
|                                                                             |       |                                  |       |                                |       |   |   |   |   |
| **NET LOSS ALLOCATED TO LIMITED****PARTNERS**                                    |       | $                                     | (2,443,542 | )                                   | $          | (3,495,677 | ) | $ | (4,850,625 | ) | $ | (5,973,455 | ) |
|                                                                             |       |                                  |       |                                |       |   |   |   |   |
| **Loss from continuing operations  per limited****partnership unit**             |       | $                                     | (0.36      | )                                   | $          | (0.33 | ) | $ | (0.66 | ) | $ | (0.56 | ) |
| Discontinued operations, net per limited  partnership unit                       |       | —                                |       | —                              |       | — |   | — |   |
| Gain on sale of discontinued operations per  limited partnership unit            |       | 0.11                                  |       | —                              |       | 0.16 |   | — |   |
| Net loss attributable to noncontrolling interests  per limited partnership unit  |       | (0.02                                 | )          | —                              |       | (0.05 | ) | — |   |
|                                                                             |       |                                  |       |                                |       |   |   |   |   |
| **NET LOSS PER LIMITED  PARTNERSHIP UNIT**                                       |       | $                                     | (0.23      | )                                   | $          | (0.33 | ) | $ | (0.45 | ) | $ | (0.56 | ) |
|                                                                             |       |                                  |       |                                |       |   |   |   |   |
| **Weighted average number of  limited partnership interests**                    |       | 10,666,269                            |       | 10,666,269                          |       | 10,666,269 |   | 10,666,269 |   |

 

The accompanying notes to condensed consolidated financial statementsare an integral part of these statements.

 

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**NTS REALTY HOLDINGS LIMITED PARTNERSHIP**

CondensedConsolidated Statements of Cash Flows for the Six Months Ended June 30,2010 and 2009

(Unaudited)

 
| ** **                                                                                              | ** ** | **(Unaudited)** | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|-----------------|------------|
| ** **                                                                                              | ** ** | **2010**        | ** ** | **2009** | ** ** |
| **OPERATING ACTIVITIES:**                                                                               | ** ** | ** **      | ** ** | ** ** | ** ** |
| **Consolidated net loss**                                                                               |       | $               | (5,740,228 | ) | $ | (6,405,445 | ) |
| Adjustments to reconcile consolidated net loss to  net cash (used in) provided by operating activities: |       |            |       |   |   |
| Gain from sale of discontinued operations                                                               |       | (1,783,282      | )          | — |   |
| Loss on disposal of assets                                                                              |       | 57,448          |       | 13,161 |   |
| Depreciation and amortization                                                                           |       | 9,490,472       |       | 8,743,292 |   |
| Loss from investments in tenants in common                                                              |       | 938,127         |       | 1,102,217 |   |
| **Changes in assets and  liabilities:**                                                                 |       |            |       |   |   |
| Cash and equivalents — restricted                                                                  |       | (7,683,561      | )          | (1,202,622 | ) |
| Accounts receivable                                                                                     |       | 150,927         |       | 39,784 |   |
| Other assets                                                                                            |       | 160,785         |       | (588,983 | ) |
| Accounts payable and accrued expenses                                                                   |       | (103,863        | )          | 541,449 |   |
| Accounts payable and accrued expenses due to  affiliate                                                 |       | 87,221          |       | 383,441 |   |
| Security deposits                                                                                       |       | 20,429          |       | 47,632 |   |
| Other liabilities                                                                                       |       | 509,736         |       | 633,813 |   |
|                                                                                                    |       |            |       |   |   |
| **Net cash (used in) provided by  operating activities**                                                |       | (3,895,789      | )          | 3,307,739 |   |
|                                                                                                    |       |            |       |   |   |
| **INVESTING ACTIVITIES:**                                                                               |       |            |       |   |   |
| Additions to land, buildings and amenities                                                              |       | (1,827,473      | )          | (504,620 | ) |
| Proceeds from sale of discontinued operations                                                           |       | 7,331,729       |       | — |   |
| Acquisitions                                                                                            |       | —          |       | (32,175,459 | ) |
|                                                                                                    |       |            |       |   |   |
| **Net cash provided by (used in)  investing activities**                                                |       | 5,504,256       |       | (32,680,079 | ) |
|                                                                                                    |       |            |       |   |   |
| **FINANCING ACTIVITIES:**                                                                               |       |            |       |   |   |
| Contributions from noncontrolling interest holders  in properties                                       |       | 147,000         |       | 2,479,313 |   |
| Proceeds from mortgages payable                                                                         |       | —          |       | 24,225,000 |   |
| Revolving note payable, net                                                                             |       | 875,552         |       | 6,519,892 |   |
| Principal payments on mortgages payable                                                                 |       | (1,299,891      | )          | (1,641,265 | ) |
| Additional payments on mortgages payable                                                                |       | (2,246,475      | )          | — |   |
| Additional payments on revolving note payable                                                           |       | (8,200,000      | )          | — |   |
| Additions to loan costs                                                                                 |       | (72,007         | )          | (652,652 | ) |
| Cash distributions.                                                                                     |       | (1,138,076      | )          | (1,138,076 | ) |
|                                                                                                    |       |            |       |   |   |
| **Net cash (used in) provided by  financing activities**                                                |       | (11,933,897     | )          | 29,792,212 |   |
|                                                                                                    |       |            |       |   |   |
| **NET (DECREASE) INCREASE IN CASH  AND EQUIVALENTS**                                                    |       | (10,325,430     | )          | 419,872 |   |
|                                                                                                    |       |            |       |   |   |
| **CASH AND EQUIVALENTS, beginning  of period**                                                          |       | 11,233,735      |       | — |   |
|                                                                                                    |       |            |       |   |   |
| **CASH AND EQUIVALENTS, end of  period**                                                                |       | $               | 908,305    |   | $ | 419,872 |   |

 

The accompanying notes to condensed consolidated financial statementsare an integral part of these statements.

 

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**NTS REALTY HOLDINGS LIMITED PARTNERSHIP**

Notesto Condensed Consolidated Financial Statements

(Unaudited)

 

The unaudited condensed consolidated financial statements includedherein should be read in conjunction with NTS Realty Holdings LimitedPartnership’s (“NTS Realty”) 2009 annual report on Form 10-K as filed withthe Securities and Exchange Commission on March 29, 2010.  The Condensed Consolidated Balance Sheet asof December 31, 2009, has been derived from the audited consolidatedfinancial statements of NTS Realty for that period.  Certain information and note disclosuresnormally included in our annual financial statements prepared in accordancewith generally accepted accounting principles have been condensed oromitted.  In the opinion of NTS RealtyCapital, Inc., our managing general partner, all adjustments, consistingonly of normal recurring accruals, necessary for a fair presentation have beenmade to the accompanying condensed consolidated financial statements for thethree and six months ended June 30, 2010 and 2009.  The results of operations for the interimperiods are not necessarily indicative of the results that may be expected forthe full year or any other interim period. As used in this quarterly report on Form 10-Q, the terms “we,” “us”or “our,” as the context requires, may refer to NTS Realty or its interests inits properties and joint ventures.

 

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

 

***Organization and Distribution Policy***

 

We are in the business of developing, constructing, owning andoperating multifamily properties, commercial and retail real estate.  As of June 30, 2010, we owned wholly, asa tenant in common with an unaffiliated third party or through joint ventureinvestments with an unaffiliated third party, 22 properties, comprised of 6office and business centers, 14 multifamily properties and 2 retailproperties.  The properties are locatedin and around Louisville (6) and Lexington (1), Kentucky, Fort Lauderdale (3) andOrlando (2), Florida, Indianapolis (4), Indiana, Memphis (1) andNashville (2), Tennessee, Richmond (2), Virginia and Atlanta (1), Georgia.  Our office and business centers aggregateapproximately 605,000 square feet.  Weown multifamily properties containing 4,029 units and retail propertiescontaining approximately 47,000 square feet.

 

We pay distributions if and when authorized by our managing generalpartner.  We are required to paydistributions on a quarterly basis, no less than sixty-five percent (65%) ofour “net cash flow from operations” as this term is defined in regulationspromulgated by the Treasury Department under the Internal Revenue Code of 1986,as amended; provided that if a law is enacted or existing law is modified orinterpreted in a manner that subjects us to taxation as a corporation orotherwise subjects us to entity level taxation for federal, state or localincome tax purposes, we will adjust the amount distributed to reflect our obligationto pay tax.  Any distribution other thana distribution with respect to the final quarter of a calendar year will bemade no later than forty-five (45) days after the last day of such quarterbased on our estimate of “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 refinancing proceedsor establishing reserves, we may not have any “net cash flow from operations”from which to pay distributions.

 

We paid quarterly distributions of $0.05 per unit to limited partnerson April 16, 2010 and July 16, 2010.

 

***Basis of Presentation***

 

The unaudited condensed consolidated financial statements include theaccounts of all wholly-owned properties and properties that are less thanwholly-owned, but which we control or for which we are the primary

 

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beneficiary.  We consolidate a variable interest entity, orVIE, when we are determined to be the primary beneficiary based on thequalitative factors affecting:

 

·                  Our power to direct theactivities of a variable interest entity that most significantly affect thevariable interest entity’s economic performance; and

 

·                  Our obligation to absorblosses of the variable interest entity that could potentially be significant tothe variable interest entity or the right to receive benefits from the variableinterest entity that could potentially be significant to the variable interestentity.

 

Ourdetermination of the primary beneficiary of a VIE considers all relationshipsbetween us and the VIE, including management agreements and other contractualarrangements, when determining the party obligated to absorb the majority ofthe expected losses, as defined, by accounting standards.  Effective January 1, 2010, we adoptedthe provisions of Auditing Standards Update No. 2009-17, *Improvements to Financial Reporting by Enterprises Involved withVariable Interest Entities* (“ASU 2009-17”) which amends theFinancial Accounting Standards Board (“FASB”) Accounting Standards Codification(“ASC”) Topic 810, *Consolidation* (“FASBASC Topic 810”).  The amendment to FASBASC Topic 810 revises the consolidation guidance for variable interest entities(VIE’s) focusing on a qualitative evaluation of the conditions subjecting theentity to consolidation.  There have beenno changes during 2010 in conclusions about whether an entity qualifies as aVIE or whether we are the primary beneficiary of any previously identified VIE.  During the six months ended June 30,2010, we did not provide financial or other support to a previously identifiedVIE that we were not previously contractually obligated to provide.  Our properties owned as a tenant in commonwith an unaffiliated third party are accounted for under the equitymethod.  Intercompany transactions andbalances have been eliminated.

 

***Fair Value of Financial Instruments***

 

FASB ASC Topic 820 *Fair Value Measurementsand Disclosures* requires companies to determine fair value based onthe price that would be received to sell the asset or paid to transfer theliability to a market participant.  FASBASC Topic 820 emphasizes that fair value is a market-based measurement, not anentity specific measurement.

 

FASB ASC Topic 820 requires that assets and liabilities carried at fairvalue be classified and disclosed in one of the following categories:

 

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

 

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

 

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

 

We did not have any material financial assets or liabilities that arerequired to be recorded at fair value as of June 30, 2010 or December 31,2009.

 

***Financial Instruments***

 

The book values of cash and equivalents, trade receivables and tradepayables are considered to be representative of their respective fair valuesbecause of the immediate or short-term maturity of these financial instruments.

 

FASBASC Topic 825 *Financial Instruments* requiresdisclosures about fair value of financial instruments in both interim andannual financial statements.

 

Certainof our assets and liabilities are considered financial instruments.  Fair value estimates, methods and assumptionsare set forth below.

 

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Cashand equivalents and cash and equivalents — restricted — The carrying amount ofthese assets and liabilities approximates fair value as of June 30, 2010and December 31, 2009, due to the short-term nature of such accounts.

 

Notesreceivable — As of June 30, 2010 and December 31, 2009, we determinedthe estimated fair values of our notes receivable were approximately $0.9million and $0.9 million, respectively, by discounting expected future cashreceipts utilizing a discount rate equivalent to the rate at which similarnotes receivable would be originated at the reporting date.

 

Mortgagesand notes payable — As of June 30, 2010 and December 31, 2009, wedetermined the estimated fair values of our mortgages and notes payable wereapproximately $246.6 million and $246.0 million, respectively, by discountingexpected future cash payments utilizing a discount rate equivalent to the rateat which similar instruments would be originated at the reporting date.

 

***Recent Accounting Pronouncements***

 

In January 2010, the FASB issued Accounting Standards Update No. 2010-06*Improving Disclosures About Fair Value Measurements*(“ASU 2010-06”), which provides amendments to FASB ASC Subtopic 820-10 *Fair Value Measurements and Disclosures — Overall*.  ASU 2010-06 requires additional disclosuresand clarifications of existing disclosures for recurring and nonrecurring fairvalue measurements.  The revised guidanceis effective for interim and annual reporting periods beginning after December 15,2009.  ASU 2010-06 concerns disclosureonly and will not have a material impact on the Company’s financial position orresults of operations.

 

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

 

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 with June 30, 2010 classifications.  Our Outlet Mall retail property and SearsOffice Building were reclassified during 2009 from continuing operations to discontinuedoperations and were classified as held for sale on our balance sheets.  These reclassifications did not have amaterial impact on the related financial statement line items on ourconsolidated balance sheets or statement of operations and no effect onpreviously reported operating results or partners’ equity.

 

**Note 3 —Real Estate Transactions**

 

***Acquisitions***

 

Upon acquisition of wholly-owned properties or joint ventureinvestments that are less than wholly-owned, but which we control or for which weare the primary beneficiary, the assets and liabilities purchased are recordedat their fair market value at the date of the acquisition using the acquisitionmethod in accordance with FASB ASC Topic 805 *BusinessCombinations*.  We recognizethe net tangible and identified intangible assets based on fair values(including land, buildings, tenant improvements, acquired above and belowmarket leases and the origination cost of acquired in-place leases) andacquired liabilities.  The intangibleassets recorded are amortized over the weighted average lease lives.  We identify any above or below market leasesor customer relationship intangibles that exist at the acquisition date.  We recognize mortgages and other liabilitiesat fair market value at the date of the acquisition.  We utilize an independent appraiser to assessfair value based on estimated cash flow projections for the tangible assetsacquired that utilize discount and capitalization rates deemed appropriate andavailable market information.

 

We expense acquisition costs as incurred.  During the three and six months ended June 30,2010, we did not acquire any properties.

 

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Duringthe six months ended June 30, 2009, we made the following propertyacquisitions:

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

 

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(1)          Financed by a mortgagepayable to a bank of $9.6 million.

(2)          Financed by a mortgagepayable to a bank of $14.6 million.

 

Ourownership percentage at June 30, 2010 is 51.0% of each consolidated jointventure property.

 

***Dispositions***

 

During the six months ended June 30, 2010, we made the followingproperty dispositions:

 
| **Wholly-Owned  Properties** | ** ** | **Square Feet** | ** ** | **Our Ownership** | ** ** | **Date of Sale** | ** ** |
|------------------------------|------------|-----------------|------------|-------------------|------------|------------------|------------|
| Outlet Mall (1)              |       | 162,600         |       | 100%              |       | March, 2010      |       |
| Sears Office Building (2)    |       | 66,900          |       | 100%              |       | June, 2010       |       |

 

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(1)                    Gain of approximately $0.5million.

(2)                    Gain of approximately $1.2million.

 

***Discontinued Operations andLong-Lived Assets and Liabilities Held for Sale***

 

We may engage in transactions structured as “like-kind exchanges” ofproperty to obtain favorable tax treatment under Section 1031 of theInternal Revenue 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.

 

At June 30, 2010, the proceeds from the sales of our Outlet Mallretail property and our Sears Office Building were held by a third partyqualified intermediary to be invested in replacement “like-kind” property.  These funds are included in cash andequivalents - restricted at June 30, 2010. Our ability to successfully invest the proceeds in accordance with Section 1031of the Internal Revenue Code and qualify the proceeds for deferral of gainrecognition for federal income tax purposes is dependent on many factors andthere can be no assurance that we will be successful in doing so.  We are required to complete the purchase ofreplacement property by September 8, 2010 to qualify the Outlet Mallproceeds and by December 27, 2010 to qualify the Sears Office Buildingproceeds for deferral of gain recognition.

 

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

 
| **Property**          | ** ** | **Location**   | ** ** | **Date of Sale** | ** ** |
|-----------------------|------------|----------------|------------|------------------|------------|
| Outlet Mall           |       | Louisville, KY |       | March, 2010      |       |
| Sears Office Building |       | Louisville, KY |       | June, 2010       |       |

 

These assets and liabilities held for sale were separately identifiedon our balance sheet at December 31, 2009.

 

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The components of discontinued operations are outlined below andinclude the results of operations for the period in which we owned such assetsduring the three and six months ended June 30, 2010 and 2009,respectively.

 
| ** **                                                         | ** ** | **(Unaudited)**                       | ** ** | **(Unaudited)**                     | ** ** |
|--------------------------------------------------------------------|------------|---------------------------------------|------------|-------------------------------------|------------|
| ** **                                                         | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
| ** **                                                         | ** ** | **2010**                              | ** ** | **2009**                            | ** ** | **2010** | ** ** | **2009** | ** ** |
| **REVENUE:**                                                       |       |                                  |       |                                |       |   |   |   |   |
| Rental income                                                      |       | $                                     | —     |                                | $          | 182,944 |   | $ | 145,568 |   | $ | 365,888 |   |
| Tenant reimbursements                                              |       | —                                |       | —                              |       | — |   | — |   |
|                                                               |       |                                  |       |                                |       |   |   |   |   |
| **Total revenue**                                                  |       | —                                |       | 182,944                             |       | 145,568 |   | 365,888 |   |
|                                                               |       |                                  |       |                                |       |   |   |   |   |
| **EXPENSES:**                                                      |       |                                  |       |                                |       |   |   |   |   |
| Operating expenses and operating expenses  reimbursed to affiliate |       | 35,840                                |       | 39,828                              |       | 85,957 |   | 86,841 |   |
| Management fees                                                    |       | —                                |       | 9,147                               |       | 4,229 |   | 21,343 |   |
| Property taxes and insurance                                       |       | 10,616                                |       | 18,603                              |       | 27,097 |   | 37,202 |   |
| Depreciation and amortization                                      |       | —                                |       | 68,675                              |       | — |   | 137,351 |   |
|                                                               |       |                                  |       |                                |       |   |   |   |   |
| **Total expenses**                                                 |       | 46,456                                |       | 136,253                             |       | 117,283 |   | 282,737 |   |
|                                                               |       |                                  |       |                                |       |   |   |   |   |
| **DISCONTINUED OPERATING (LOSS)****INCOME**                        |       | (46,456                               | )          | 46,691                              |       | 28,285 |   | 83,151 |   |
|                                                               |       |                                  |       |                                |       |   |   |   |   |
| Interest and other income                                          |       | —                                |       | 2                                   |       | — |   | 2 |   |
| Interest expense                                                   |       | (118                                  | )          | (21,381                             | )          | (255 | ) | (42,819 | ) |
|                                                               |       |                                  |       |                                |       |   |   |   |   |
| **Discontinued operations, net**                                   |       | $                                     | (46,574    | )                                   | $          | 25,312 |   | $ | 28,030 |   | $ | 40,334 |   |

 

**Note 4 —Concentration of Credit Risk**

 

We own and operate wholly, as a tenant in common with an unaffiliatedthird party or through joint venture investments with an unaffiliated thirdparty, commercial, multifamily and retail properties in Louisville andLexington, Kentucky; Fort Lauderdale and Orlando, Florida; Indianapolis, Indiana;Memphis and Nashville, Tennessee; Richmond, Virginia and Atlanta, Georgia.

 

Our financial instruments that are exposed to concentrations of creditrisk consist of cash and equivalents and cash and equivalents -restricted.  We maintain our cashaccounts primarily with banks located in Kentucky.

 

**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 certainloan and lease agreements and certain security deposits.  We also hold the proceeds of our recentproperty sales with a third party intermediary to be invested in replacement “like-kind”property.  See Note 3 — *Real Estate Transactions* for a discussion of therestrictions on these proceeds.

 

**Note 7 —Property and Depreciation**

 

Land, buildings and amenities are stated at cost.  Costs directly associated with thedevelopment and construction of a project are capitalized.  Depreciation is computed using the straight-linemethod over the estimated useful lives of the assets, which are generally 5-30years for land improvements, 7-30 years for buildings and improvements and 5-30years for amenities.  Tenant improvementsare generally depreciated over the life of the 

 

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initialor renewal term of the respective tenant lease. Depreciation expense from continuing operations for the three monthsended June 30, 2010 and 2009 was approximately $4.5 million and $4.1million, respectively.  Depreciationexpense from continuing operations for the six months ended June 30, 2010and 2009 was approximately $8.9 million and $8.0 million, respectively.

 

FASB ASC Topic 360 *Property, Plant andEquipment* specifies circumstances in which certain long-lived assetsmust be reviewed for impairment.  If thecarrying amount of an asset exceeds the sum of its expected future cash flows,the asset’s carrying value must be written down to fair value.  In determining the value of an investmentproperty and whether the investment property is impaired, management considersseveral factors such as projected rental and vacancy rates, property operatingexpenses, capital expenditures 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 six months ended June 30, 2010 and 2009 did not result in animpairment loss.

 

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

 

Weown a tenant in common interest in and operate the following properties:

 

·                  The Overlook at St. Thomas; a 484-unit luxuryapartment complex in Louisville, Kentucky. We own a 60% interest as a tenant in common with an unaffiliated thirdparty.

·                  Creek’s Edge at Stony Point; a 202-unitluxury apartment complex in Richmond, Virginia. We own a 51% interest as a tenant in common with an unaffiliated thirdparty.

 

Presentedbelow are the summarized balance sheets and statements of operations for theseproperties:

 
| ** **                              | ** ** | **(Unaudited)**        | ** ** | ** **                 | ** ** |
|-----------------------------------------|------------|------------------------|------------|----------------------------|------------|
| ** **                              | ** ** | **June 30, 2010** | ** ** | **December 31, 2009** | ** ** |
| **Summarized Balance Sheets**           |       |                   |       |                       |       |
| Land, buildings and amenities           |       | $                      | 64,131,607 |                       | $          | 66,186,166 |   |
| Other, net                              |       | 1,809,203              |       | 1,497,712                  |       |
| Total assets                            |       | $                      | 65,940,810 |                       | $          | 67,683,878 |   |
|                                    |       |                   |       |                       |       |
| Mortgages payable and other liabilities |       | $                      | 58,113,077 |                       | $          | 58,170,033 |   |
| Equity                                  |       | 7,827,733              |       | 9,513,845                  |       |
| Total liabilities and equity            |       | $                      | 65,940,810 |                       | $          | 67,683,878 |   |

 
| ** **                                 | ** ** | **(Unaudited)  Three Months Ended** | ** ** | **(Unaudited)  Six Months Ended** | ** ** |
|--------------------------------------------|------------|-------------------------------------|------------|-----------------------------------|------------|
| ** **                                 | ** ** | **June 30, 2010**              | ** ** | **June 30, 2009**            | ** ** | **June 30, 2010** | ** ** | **June 30, 2009** | ** ** |
| **Summarized Statements of  Operations**   |       |                                |       |                              |       |   |   |   |   |
|                                       |       |                                |       |                              |       |   |   |   |   |
| Revenue                                    |       | $                                   | 2,190,218  |                              | $          | 2,034,623 |   | $ | 4,344,632 |   | $ | 4,047,570 |   |
|                                       |       |                                |       |                              |       |   |   |   |   |
| Operating expenses                         |       | 515,545                             |       | 488,502                           |       | 911,720 |   | 868,470 |   |
| Operating expenses reimbursed to affiliate |       | 238,698                             |       | 238,772                           |       | 476,525 |   | 485,279 |   |
| Management fees                            |       | 77,762                              |       | 69,240                            |       | 153,260 |   | 140,105 |   |
| Property taxes and insurance               |       | 219,623                             |       | 238,556                           |       | 440,594 |   | 473,008 |   |
| Depreciation and amortization              |       | 1,179,070                           |       | 1,169,402                         |       | 2,351,885 |   | 2,336,880 |   |
|                                       |       |                                |       |                              |       |   |   |   |   |
| Total operating expenses                   |       | 2,230,698                           |       | 2,204,472                         |       | 4,333,984 |   | 4,303,742 |   |
|                                       |       |                                |       |                              |       |   |   |   |   |
| Operating (loss) income                    |       | (40,480                             | )          | (169,849                          | )          | 10,648 |   | (256,172 | ) |
|                                       |       |                                |       |                              |       |   |   |   |   |
| Net loss                                   |       | $                                   | (892,213   | )                                 | $          | (1,047,145 | ) | $ | (1,686,112 | ) | $ | (1,981,417 | ) |

 

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** **

**Note 9 —Mortgages and Notes Payable**

 

Mortgages and notes payable consist of the following:

 
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | ** ** | **(Unaudited)**        | ** ** | ** **                 | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|----------------------------|------------|
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | ** ** | **June 30, 2010** | ** ** | **December 31, 2009** | ** ** |
| Mortgage payable to a bank in monthly installments  of principal and interest, bearing interest at a variable rate based on LIBOR  one-month rate plus 3.50%, currently 3.85%, due June 1, 2011, secured by  certain land, buildings and amenities, with a carrying value of $16,698,415  and a $640,000 letter of credit. The mortgage is guaranteed by  Mr. Nichols and Mr. Lavin, the chairman and president,  respectively, of our managing general partner |       | $                      | 15,180,000 |                       | $          | 23,566,000 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |       |                   |       |                       |       |
| Revolving note payable to a bank for $10.0 million,  with interest payable in monthly installments, unsecured, at a variable rate  based on LIBOR plus 2.50%, currently 2.85%, due May 31, 2011                                                                                                                                                                                                                                                                           |       | 875,552                |       | —                     |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |       |                   |       |                       |       |
| Mortgage payable to GE Commercial Finance Business  Property in monthly installments of principal and interest, bearing fixed  interest at 9.0%, maturing August 1, 2010, secured by certain land,  buildings and amenities                                                                                                                                                                                                                                               |       | —                 |       | 2,289,831                  |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |       |                   |       |                       |       |
| Mortgage payable to an insurance company in  monthly installments of principal and interest, bearing fixed interest at  8.45%, maturing November 1, 2015, secured by certain land, buildings and  amenities, with a carrying value of $1,819,611                                                                                                                                                                                                                          |       | 1,889,446              |       | 2,002,165                  |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |       |                   |       |                       |       |
| Mortgage payable to a bank in monthly installments  of principal and interest, bearing fixed interest at 5.11%, maturing  December 1, 2014, secured by certain land, buildings and amenities, with  a carrying value of $11,382,294                                                                                                                                                                                                                                       |       | 11,280,129             |       | 11,381,809                 |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |       |                   |       |                       |       |
| Mortgage payable to a bank, currently with  interest only payable in monthly installments until October 1, 2011,  bearing fixed interest at 6.03% maturing September 1, 2018, secured by  certain land, buildings and amenities, with a carrying value of $35,878,307                                                                                                                                                                                                |       | 26,328,500             |       | 26,328,500                 |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |       |                   |       |                       |       |
| Mortgage payable to Federal Home Loan Mortgage  Corporation, currently with interest only payable in monthly installments  until July 1, 2011, bearing interest at a variable rate based on LIBOR  one-month rate plus 3.33%, currently 3.68%, maturing July 1, 2016,  secured by certain land, buildings and amenities, with a carrying value of  $19,059,170                                                                                                       |       | 14,625,000             |       | 14,625,000                 |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |       |                   |       |                       |       |
| Mortgage payable to Federal Home Loan Mortgage  Corporation, currently with interest only payable in monthly installments  until July 1, 2011, bearing interest at a variable rate based on LIBOR  one-month rate plus 3.50%, currently 3.85%, maturing July 1, 2016,  secured by certain land, buildings and amenities, with a carrying value of  $12,511,856                                                                                                       |       | 9,600,000              |       | 9,600,000                  |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |       |                   |       |                       |       |
| Mortgage payable to Federal Home Loan Mortgage  Corporation, in monthly installments of principal and interest, bearing fixed  interest at 5.40%, maturing January 1, 2020, secured by certain land,  buildings and amenities, with a carrying value of $20,712,160                                                                                                                                                                                                       |       | 13,818,887             |       | 13,895,000                 |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |       |                   |       |                       |       |
| Mortgage payable to Federal Home Loan Mortgage  Corporation, in monthly installments of principal and interest, bearing fixed  interest at 5.40%, maturing January 1, 2020, secured by certain land,  buildings and amenities, with a carrying value of $36,376,574                                                                                                                                                                                                       |       | 26,852,102             |       | 27,000,000                 |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |       |                   |       |                       |       |
| Mortgage payable to Federal Home Loan Mortgage  Corporation, in monthly installments of principal and interest, bearing fixed  interest at 5.40%, maturing January 1, 2020, secured by certain land,  buildings and amenities, with a carrying value of $20,312,352                                                                                                                                                                                                       |       | 16,752,728             |       | 16,845,000                 |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |       |                   |       |                       |       |
| Mortgage payable to Federal Home Loan Mortgage  Corporation, in monthly installments of principal and interest, bearing fixed  interest at 5.40%, maturing January 1, 2020, secured by certain land,  buildings and amenities, with a carrying value of $35,181,686                                                                                                                                                                                                       |       | 27,523,405             |       | 27,675,000                 |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |       |                   |       |                       |       |
| Mortgage payable to Federal Home Loan Mortgage  Corporation, in monthly installments of principal and interest, bearing fixed  interest at 5.40%, maturing January 1, 2020, secured by certain land,  buildings and amenities, with a carrying value of $17,647,173                                                                                                                                                                                                       |       | 11,327,609             |       | 11,390,000                 |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |            |                        |            |                            |            |  |  |

 

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| ** **                                                                                                                                                                                                                                                               | ** ** | **(Unaudited)**        | ** **  | ** **                 | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|-------------|----------------------------|------------|
| ** **                                                                                                                                                                                                                                                               | ** ** | **June 30, 2010** | ** **  | **December 31, 2009** | ** ** |
| Mortgage payable to Federal Home Loan Mortgage  Corporation, in monthly installments of principal and interest, bearing fixed  interest at 5.40%, maturing January 1, 2020, secured by certain land,  buildings and amenities, with a carrying value of $22,035,123 |       | 30,457,246             |        | 30,625,000                 |       |
|                                                                                                                                                                                                                                                                     |       |                   |        |                       |       |
| Mortgage payable to Federal Home Loan Mortgage  Corporation, in monthly installments of principal and interest, bearing fixed  interest at 5.40%, maturing January 1, 2020, secured by certain land,  buildings and amenities, with a carrying value of $9,410,210  |       | 10,885,047             |        | 10,945,000                 |       |
|                                                                                                                                                                                                                                                                     |       |                   |        |                       |       |
| Mortgage payable to Federal Home Loan Mortgage  Corporation, in monthly installments of principal and interest, bearing fixed  interest at 5.40%, maturing January 1, 2020, secured by certain land,  buildings and amenities, with a carrying value of $12,605,094 |       | 17,821,840             |        | 17,920,000                 |       |
|                                                                                                                                                                                                                                                                     |       |                   |        |                       |       |
| **Total mortgages and notes  payable**                                                                                                                                                                                                                                   |       | $                      | 235,217,491 |                       | $          | 246,088,305 |   |
|                                                                                                                                                                                                                                                                          |            |                        |             |                            |            |  |  |

 

OnFebruary 1, 2010, we amended our $24.0 million mortgage payable to abank.  The amendment converted $8.2million of the balance to a revolving note payable due June 1, 2011.  On February 12, 2010, we made aprincipal payment of $8.2 million, from our proceeds from refinancing on December 17,2009, on our new $8.2 million revolving note payable to a bank.  The revolver proceeds may be used to fundcapital improvements and were used to payoff our mortgage payable to GECommercial Finance Business Property on April 30, 2010.  Both the $15.2 million mortgage and the $8.2million revolving note payable are secured by our Lakeshore Business Centerproperties.

 

Inaddition to the $8.2 million revolving note payable to a bank due June 1,2011, we continue to have our $10.0 million revolving note payable to a bankdue May 31, 2011.  As of June 30,2010 we did not have an outstanding balance on the $8.2 million revolving notepayable.

 

Based on the borrowing rates currently available to us for loans withsimilar terms and average maturities, the fair value of long-term debt at June 30,2010 was approximately $246.6 million.

 

Interest paid for the six months ended June 30, 2010 and 2009 wasapproximately $5.6 million and $5.8 million, respectively.

 

Our mortgages may be prepaid but are generally subject to a yield-maintenancepremium.  Certain mortgages and notespayable contain covenants and requirements that we maintain specified debtlimits and ratios related to our debt balances and property values.  We complied with all covenants andrequirements at June 30, 2010.  Weanticipate renewing or refinancing our mortgages and notes payable coming duewithin the next twelve months.

 

Mortgagespayable on our properties owned as a tenant in common with an unaffiliatedthird party consist of the following:

 
| ** **                                                                                                                                                                                                                                    | ** ** | **(Unaudited)**        | ** ** | ** **                 | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|----------------------------|------------|
| ** **                                                                                                                                                                                                                                    | ** ** | **June 30, 2010** | ** ** | **December 31, 2009** | ** ** |
| Mortgage payable to a bank in monthly installments  of principal and interest, bearing fixed interest at 5.72%, maturing on  April 11, 2017, secured by certain land, buildings and amenities, with a  carrying value of $26,864,285 (1) |       | $                      | 34,534,465 |                       | $          | 34,787,919 |   |
|                                                                                                                                                                                                                                          |       |                   |       |                       |       |
| Mortgage payable to a bank in monthly installments  of principal and interest, bearing fixed interest at 5.99% maturing  November 15, 2017, secured by certain land, buildings and amenities,  with a carrying value of $37,267,322 (2)  |       | $                      | 22,588,764 |                       | $          | 22,727,309 |   |

 

----

(1) We are proportionately liable for this mortgage, limited toour 60% interest as a tenant in common.

(2) Weare jointly and severally liable under this mortgage.

 

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**Note 10— Accounts Payable and Accrued Expenses 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 ourcollective management agreements.

 

**Note 11— Related Party Transactions**

 

Pursuant to our collective management agreements, NTS DevelopmentCompany receives fees for a variety of services performed for our benefit.  NTS Development Company also receives feesunder separate management agreements for each of our unconsolidated jointventure properties owned as a tenant in common with an unaffiliated thirdparty, each of our consolidated joint venture properties and each of our eightwholly-owned subsidiaries financed through Federal Home Loan MortgageCorporation, or FHLMC.  Propertymanagement fees are paid in an amount equal to 5% of the gross collectedrevenue from our properties.  Thisincludes our wholly-owned properties, consolidated joint venture properties andproperties owned by our eight wholly-owned subsidiaries financed throughFHLMC.  Fees are paid in an amount equalto 3.5% of the gross collected revenue from our unconsolidated joint ventureproperties owned as a tenant in common with an unaffiliated third party.  We were the beneficiary of a preferentialownership interest, disproportionately greater than our initial cash investmentin each property owned as a tenant in common with an unaffiliated thirdparty.  Construction supervision fees arepaid in an amount equal to 5% of the costs incurred which relate to capital improvementsand significant repairs.  NTS DevelopmentCompany receives commercial leasing fees equal to 4% of the gross rental amountfor new leases and 2% of the gross rental amount for new leases in which abroker is used and for renewals or extensions. Disposition fees are paid to NTS Development Company in an amount of 1%to 4% of the aggregate sales price of a property pursuant to our managementagreements and up to a 6% fee upon disposition on our properties owned as atenant in common with an unaffiliated third party under their respectivemanagement agreements.  NTS DevelopmentCompany has agreed to accept a lower management fee for the properties we ownas a tenant in common with an unaffiliated third party in exchange for a largerpotential disposition fee.  NTSDevelopment Company is reimbursed its actual costs for services rendered to NTSRealty.

 

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 entities.  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 onlyreimburse charges from NTS Development Company for actual costs of employeeservices incurred for our benefit.

 

We were charged the following approximate amounts pursuant to ourmanagement agreements with NTS Development Company for the three and six monthsended June 30, 2010 and 2009.  Thesecharges include items, which have been expensed as operating expensesreimbursed to affiliate or professional and administrative expenses reimbursedto affiliate and items, which have been capitalized as other assets or as land,buildings and amenities.  Certain ofthese items are included in our results of discontinued operations.

 
| ** **                                                            | ** ** | **(Unaudited)**                              | ** ** |
|-----------------------------------------------------------------------|------------|----------------------------------------------|------------|
| ** **                                                            | ** ** | **For the Three Months Ended June 30,** | ** ** |
| ** **                                                            | ** ** | **2010**                                     | ** ** | **2009** | ** ** |
| Property management fees                                              |       | **$**                                        | 581,000    |   | $ | 548,000 |   |
|                                                                  |       |                                         |       |   |   |
| Operating expenses reimbursement — Property                      |       | 884,000                                      |       | 802,000 |   |
| Operating expenses reimbursement — Multifamily  Leasing          |       | 163,000                                      |       | 144,000 |   |
| Operating expenses reimbursement — Administrative                |       | 233,000                                      |       | 239,000 |   |
| Operating expenses reimbursement — Other                         |       | 13,000                                       |       | 12,000 |   |
|                                                                  |       |                                         |       |   |   |
| Total operating expenses reimbursed to affiliate                      |       | 1,293,000                                    |       | 1,197,000 |   |
|                                                                  |       |                                         |       |   |   |
| Professional and administrative expenses  reimbursed to affiliate     |       | 400,000                                      |       | 392,000 |   |
|                                                                  |       |                                         |       |   |   |
| Construction supervision fees and leasing fees                        |       | 52,000                                       |       | 63,000 |   |
| Disposition fees included in gain on sale of  discontinued operations |       | 150,000                                      |       | — |   |
|                                                                  |       |                                         |       |   |   |
| **Total related party  transactions**                                 |       | $                                            | 2,476,000  |   | $ | 2,200,000 |   |

 

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| ** **                                                            | ** ** | **(Unaudited)**                            | ** ** |
|-----------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                            | ** ** | **For the Six Months Ended June 30,** | ** ** |
| ** **                                                            | ** ** | **2010**                                   | ** ** | **2009** | ** ** |
| Property management fees                                              | ** ** | **$**                                      | 1,154,000  |   | $ | 1,078,000 |   |
|                                                                  |       |                                       |       |   |   |
| Operating expenses reimbursement — Property                      |       | 1,800,000                                  |       | 1,577,000 |   |
| Operating expenses reimbursement — Multifamily  Leasing          |       | 326,000                                    |       | 274,000 |   |
| Operating expenses reimbursement — Administrative                |       | 470,000                                    |       | 493,000 |   |
| Operating expenses reimbursement — Other                         |       | 26,000                                     |       | 24,000 |   |
|                                                                  |       |                                       |       |   |   |
| Total operating expenses reimbursed to affiliate                      |       | 2,622,000                                  |       | 2,368,000 |   |
|                                                                  |       |                                       |       |   |   |
| Professional and administrative expenses  reimbursed to affiliate     |       | 820,000                                    |       | 785,000 |   |
|                                                                  |       |                                       |       |   |   |
| Construction supervision fees and leasing fees                        |       | 129,000                                    |       | 77,000 |   |
| Disposition fees included in gain on sale of  discontinued operations |       | 310,000                                    |       | — |   |
|                                                                  |       |                                       |       |   |   |
| **Total related party  transactions**                                 |       | $                                          | 5,035,000  |   | $ | 4,308,000 |   |

 

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 June 30, 2010 and 2009, we werecharged approximately $12,000 and $26,000, respectively, for propertymaintenance fees from affiliates of NTS Development Company.  During the six months ended June 30,2010 and 2009, we were charged approximately $26,000 and $42,000, respectively,for property maintenance fees from affiliates of NTS Development Company.

 

NTS Development Company leased 20,368 square feet of office space inNTS Center, at a rental rate of $14.50 per square foot and 2,220 square feet ofstorage space at a rental rate of $5.50 per square foot.  We recognized rents of approximately $77,000from NTS Development Company for each of the three months ended June 30,2010 and 2009, respectively.  Werecognized rents of approximately $154,000 and $152,000 from NTS DevelopmentCompany for the six months ended June 30, 2010 and 2009,respectively.  The average per squarefoot rental rate for similar office space in NTS Center as of June 30,2010 was $14.38 per square foot.

 

**Note 12— 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***

 

From time to time, we are involved in litigation and other legalproceedings arising out of the ordinary course of business.  There are no pending material legalproceedings to which we are subject.

 

**Note 13— Segment Reporting**

 

Our reportable operating segments include — retail, commercial andmultifamily real estate operations.  Thefollowing unaudited financial information of the operating segments has beenprepared using a management approach, which is consistent with the basis andmanner in which our management internally disaggregates financial informationfor the purpose of assisting in making internal operating decisions.  We evaluate performance based on stand-aloneoperating segment net income (loss).  Thenon-segment information necessary to reconcile to our total operating resultsis included in the column labeled “Partnership” in the following information.

 

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| ** **                                                                                                      | ** ** | **(Unaudited)**                                               | ** ** |
|-----------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                                                                                      | ** ** | **Three Months Ended June 30, 2010** | ** ** |
| ** **                                                                                                      | ** ** | **Retail**                                                    | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Partnership** | ** ** | **Total** | ** ** |
| Rental  income                                                                                                  |       | $                                                             | 150,613    |   | $ | 1,404,785 |   | $ | 9,831,829 |   | $ | (8,903 | ) | $ | 11,378,324 |   |
| Tenant  reimbursements                                                                                          |       | 23,231                                                        |       | 395,541 |   | — |   | — |   | 418,772 |   |
|                                                                                                            |       |                                                          |       |   |   |   |   |   |   |   |   |
| **Total revenue**                                                                                               |       | 173,844                                                       |       | 1,800,326 |   | 9,831,829 |   | (8,903 | ) | 11,797,096 |   |
|                                                                                                            |       |                                                          |       |   |   |   |   |   |   |   |   |
| Operating  expenses and operating expenses reimbursed to affiliate                                              |       | 55,155                                                        |       | 622,427 |   | 4,180,069 |   | — |   | 4,857,651 |   |
| Management  fees                                                                                                |       | 8,213                                                         |       | 90,856 |   | 482,027 |   | — |   | 581,096 |   |
| Property  taxes and insurance                                                                                   |       | 12,883                                                        |       | 256,388 |   | 1,301,362 |   | 31,840 |   | 1,602,473 |   |
| Professional  and administrative expenses and professional and administrative expenses  reimbursed to affiliate |       | —                                                        |       | — |   | — |   | 561,031 |   | 561,031 |   |
| Depreciation  and amortization                                                                                  |       | 41,671                                                        |       | 466,260 |   | 4,032,856 |   | — |   | 4,540,787 |   |
|                                                                                                            |       |                                                          |       |   |   |   |   |   |   |   |   |
| **Total operating expenses**                                                                                    |       | 117,922                                                       |       | 1,435,931 |   | 9,996,314 |   | 592,871 |   | 12,143,038 |   |
|                                                                                                            |       |                                                          |       |   |   |   |   |   |   |   |   |
| **Operating income (loss)**                                                                                     |       | 55,922                                                        |       | 364,395 |   | (164,485 | ) | (601,774 | ) | (345,942 | ) |
|                                                                                                            |       |                                                          |       |   |   |   |   |   |   |   |   |
| Interest  and other income                                                                                      |       | —                                                        |       | 433 |   | 13,710 |   | 24,452 |   | 38,595 |   |
| Interest  expense                                                                                               |       | (22,681                                                       | )          | (154,200 | ) | (2,963,514 | ) | (65,596 | ) | (3,205,991 | ) |
| Loss  on disposal of assets                                                                                     |       | —                                                        |       | (18,277 | ) | (35,400 | ) | — |   | (53,677 | ) |
| Loss  from investments in tenants in common                                                                     |       | —                                                        |       | — |   | (499,326 | ) | — |   | (499,326 | ) |
|                                                                                                            |       |                                                          |       |   |   |   |   |   |   |   |   |
| **Income (loss) from continuing****operations**                                                                 |       | 33,241                                                        |       | 192,351 |   | (3,649,015 | ) | (642,918 | ) | (4,066,341 | ) |
| Discontinued  operations, net                                                                                   |       | (4,387                                                        | )          | (42,187 | ) | — |   | — |   | (46,574 | ) |
| Gain  on sale of discontinued operations                                                                        |       | —                                                        |       | 1,248,399 |   | — |   | — |   | 1,248,399 |   |
|                                                                                                            |       |                                                          |       |   |   |   |   |   |   |   |   |
| **Consolidated net income (loss)**                                                                              |       | 28,854                                                        |       | 1,398,563 |   | (3,649,015 | ) | (642,918 | ) | (2,864,516 | ) |
| Net  loss attributable to noncontrolling interests                                                              |       | —                                                        |       | — |   | (257,291 | ) | — |   | (257,291 | ) |
|                                                                                                            |       |                                                          |       |   |   |   |   |   |   |   |   |
| **Net income (loss)**                                                                                           |       | $                                                             | 28,854     |   | $ | 1,398,563 |   | $ | (3,391,724 | ) | $ | (642,918 | ) | $ | (2,607,225 | ) |
|                                                                                                            |       |                                                          |       |   |   |   |   |   |   |   |   |
| Land,  buildings and amenities, net                                                                             |       | $                                                             | 3,780,843  |   | $ | 27,099,480 |   | $ | 253,112,000 |   | $ | — |   | $ | 283,992,323 |   |

 

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| ** **                                                                                                      | ** ** | **(Unaudited)**                                               | ** ** |
|-----------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                                                                                      | ** ** | **Three Months Ended June 30, 2009** | ** ** |
| ** **                                                                                                      | ** ** | **Retail**                                                    | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Partnership** | ** ** | **Total** | ** ** |
| Rental  income                                                                                                  |       | $                                                             | 153,647    |   | $ | 1,272,957 |   | $ | 8,872,380 |   | $ | (7,276 | ) | $ | 10,291,708 |   |
| Tenant  reimbursements                                                                                          |       | 25,598                                                        |       | 422,055 |   | — |   | — |   | 447,653 |   |
|                                                                                                            |       |                                                          |       |   |   |   |   |   |   |   |   |
| **Total revenue**                                                                                               |       | 179,245                                                       |       | 1,695,012 |   | 8,872,380 |   | (7,276 | ) | 10,739,361 |   |
|                                                                                                            |       |                                                          |       |   |   |   |   |   |   |   |   |
| Operating  expenses and operating expenses reimbursed to affiliate                                              |       | 46,660                                                        |       | 676,425 |   | 3,119,316 |   | — |   | 3,842,401 |   |
| Management  fees                                                                                                |       | 8,264                                                         |       | 92,929 |   | 437,170 |   | — |   | 538,363 |   |
| Property  taxes and insurance                                                                                   |       | 14,316                                                        |       | 215,696 |   | 1,560,749 |   | 31,840 |   | 1,822,601 |   |
| Professional  and administrative expenses and professional and administrative expenses  reimbursed to affiliate |       | —                                                        |       | — |   | — |   | 753,380 |   | 753,380 |   |
| Depreciation  and amortization                                                                                  |       | 40,062                                                        |       | 445,084 |   | 3,728,768 |   | — |   | 4,213,914 |   |
|                                                                                                            |       |                                                          |       |   |   |   |   |   |   |   |   |
| **Total operating expenses**                                                                                    |       | 109,302                                                       |       | 1,430,134 |   | 8,846,003 |   | 785,220 |   | 11,170,659 |   |
|                                                                                                            |       |                                                          |       |   |   |   |   |   |   |   |   |
| **Operating income (loss)**                                                                                     |       | 69,943                                                        |       | 264,878 |   | 26,377 |   | (792,496 | ) | (431,298 | ) |
|                                                                                                            |       |                                                          |       |   |   |   |   |   |   |   |   |
| Interest  and other income                                                                                      |       | 155                                                           |       | 1,385 |   | 10,591 |   | 63,029 |   | 75,160 |   |
| Interest  expense                                                                                               |       | (89,369                                                       | )          | (493,094 | ) | (2,284,595 | ) | 19,604 |   | (2,847,454 | ) |
| Loss  on disposal of assets                                                                                     |       | —                                                        |       | — |   | (1,407 | ) | — |   | (1,407 | ) |
| Loss  from investments in tenants in common                                                                     |       | —                                                        |       | — |   | (582,003 | ) | — |   | (582,003 | ) |
|                                                                                                            |       |                                                          |       |   |   |   |   |   |   |   |   |
| **Loss from continuing operations**                                                                             |       | (19,271                                                       | )          | (226,831 | ) | (2,831,037 | ) | (709,863 | ) | (3,787,002 | ) |
| Discontinued  operations, net                                                                                   |       | 123,487                                                       |       | (98,175 | ) | — |   | — |   | 25,312 |   |
|                                                                                                            |       |                                                          |       |   |   |   |   |   |   |   |   |
| **Consolidated net income (loss)**                                                                              |       | 104,216                                                       |       | (325,006 | ) | (2,831,037 | ) | (709,863 | ) | (3,761,690 | ) |
| Net  loss attributable to noncontrolling interests                                                              |       | —                                                        |       | — |   | (31,852 | ) | — |   | (31,852 | ) |
|                                                                                                            |       |                                                          |       |   |   |   |   |   |   |   |   |
| **Net income (loss)**                                                                                           |       | $                                                             | 104,216    |   | $ | (325,006 | ) | $ | (2,799,185 | ) | $ | (709,863 | ) | $ | (3,729,838 | ) |
|                                                                                                            |       |                                                          |       |   |   |   |   |   |   |   |   |
| Land,  buildings and amenities, net                                                                             |       | $                                                             | 3,904,575  |   | $ | 27,441,830 |   | $ | 266,357,889 |   | $ | — |   | $ | 297,704,294 |   |

 

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| ** **                                                                                                      | ** ** | **(Unaudited)**                                             | ** ** |
|-----------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                                                                                      | ** ** | **Six Months Ended June 30, 2010** | ** ** |
| ** **                                                                                                      | ** ** | **Retail**                                                  | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Partnership** | ** ** | **Total** | ** ** |
| Rental  income                                                                                                  |       | $                                                           | 307,959    |   | $ | 2,828,256 |   | $ | 19,447,715 |   | $ | (17,805 | ) | $ | 22,566,125 |   |
| Tenant  reimbursements                                                                                          |       | 63,475                                                      |       | 800,136 |   | — |   | — |   | 863,611 |   |
|                                                                                                            |       |                                                        |       |   |   |   |   |   |   |   |   |
| **Total revenue**                                                                                               |       | 371,434                                                     |       | 3,628,392 |   | 19,447,715 |   | (17,805 | ) | 23,429,736 |   |
|                                                                                                            |       |                                                        |       |   |   |   |   |   |   |   |   |
| Operating  expenses and operating expenses reimbursed to affiliate                                              |       | 93,526                                                      |       | 1,349,373 |   | 7,594,275 |   | — |   | 9,037,174 |   |
| Management  fees                                                                                                |       | 16,805                                                      |       | 166,912 |   | 966,138 |   | — |   | 1,149,855 |   |
| Property  taxes and insurance                                                                                   |       | 25,766                                                      |       | 520,954 |   | 2,472,257 |   | 63,680 |   | 3,082,657 |   |
| Professional  and administrative expenses and professional and administrative expenses reimbursed  to affiliate |       | —                                                      |       | — |   | — |   | 1,241,528 |   | 1,241,528 |   |
| Depreciation  and amortization                                                                                  |       | 83,109                                                      |       | 933,305 |   | 8,066,114 |   | — |   | 9,082,528 |   |
|                                                                                                            |       |                                                        |       |   |   |   |   |   |   |   |   |
| **Total operating expenses**                                                                                    |       | 219,206                                                     |       | 2,970,544 |   | 19,098,784 |   | 1,305,208 |   | 23,593,742 |   |
|                                                                                                            |       |                                                        |       |   |   |   |   |   |   |   |   |
| **Operating income (loss)**                                                                                     |       | 152,228                                                     |       | 657,848 |   | 348,931 |   | (1,323,013 | ) | (164,006 | ) |
|                                                                                                            |       |                                                        |       |   |   |   |   |   |   |   |   |
| Interest  and other income                                                                                      |       | —                                                      |       | 829 |   | 22,518 |   | 41,575 |   | 64,922 |   |
| Interest  expense                                                                                               |       | (74,772                                                     | )          | (327,837 | ) | (5,899,839 | ) | (154,433 | ) | (6,456,881 | ) |
| Loss  on disposal of assets                                                                                     |       | —                                                      |       | (22,487 | ) | (34,961 | ) | — |   | (57,448 | ) |
| Loss  from investments in tenants in common                                                                     |       | —                                                      |       | — |   | (938,127 | ) | — |   | (938,127 | ) |
|                                                                                                            |       |                                                        |       |   |   |   |   |   |   |   |   |
| **Income (loss) from continuing operations**                                                                    |       | 77,456                                                      |       | 308,353 |   | (6,501,478 | ) | (1,435,871 | ) | (7,551,540 | ) |
| Discontinued  operations, net                                                                                   |       | 115,502                                                     |       | (87,472 | ) | — |   | — |   | 28,030 |   |
| Gain  on sale of discontinued operations                                                                        |       | 534,883                                                     |       | 1,248,399 |   | — |   | — |   | 1,783,282 |   |
|                                                                                                            |       |                                                        |       |   |   |   |   |   |   |   |   |
| **Consolidated net income (loss)**                                                                              |       | 727,841                                                     |       | 1,469,280 |   | (6,501,478 | ) | (1,435,871 | ) | (5,740,228 | ) |
| Net  loss attributable to noncontrolling interests                                                              |       | —                                                      |       | — |   | (564,679 | ) | — |   | (564,679 | ) |
|                                                                                                            |       |                                                        |       |   |   |   |   |   |   |   |   |
| **Net income (loss)**                                                                                           |       | $                                                           | 727,841    |   | $ | 1,469,280 |   | $ | (5,936,799 | ) | $ | (1,435,871 | ) | $ | (5,175,549 | ) |
|                                                                                                            |       |                                                        |       |   |   |   |   |   |   |   |   |
| Land,  buildings and amenities, net                                                                             |       | $                                                           | 3,780,843  |   | $ | 27,099,480 |   | $ | 253,112,000 |   | $ | — |   | $ | 283,992,323 |   |

 

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| ** **                                                                                                      | ** ** | **(Unaudited)**                                             | ** ** |
|-----------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                                                                                      | ** ** | **Six Months Ended June 30, 2009** | ** ** |
| ** **                                                                                                      | ** ** | **Retail**                                                  | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Partnership** | ** ** | **Total** | ** ** |
| Rental  income                                                                                                  |       | $                                                           | 303,529    |   | $ | 2,591,952 |   | $ | 17,462,413 |   | $ | (16,504 | ) | $ | 20,341,390 |   |
| Tenant  reimbursements                                                                                          |       | 55,855                                                      |       | 847,626 |   | — |   | — |   | 903,481 |   |
|                                                                                                            |       |                                                        |       |   |   |   |   |   |   |   |   |
| **Total revenue**                                                                                               |       | 359,384                                                     |       | 3,439,578 |   | 17,462,413 |   | (16,504 | ) | 21,244,871 |   |
|                                                                                                            |       |                                                        |       |   |   |   |   |   |   |   |   |
| Operating  expenses and operating expenses reimbursed to affiliate                                              |       | 80,238                                                      |       | 1,305,235 |   | 5,704,544 |   | — |   | 7,090,017 |   |
| Management  fees                                                                                                |       | 18,195                                                      |       | 172,295 |   | 866,227 |   | — |   | 1,056,717 |   |
| Property  taxes and insurance                                                                                   |       | 28,632                                                      |       | 431,710 |   | 2,760,111 |   | 63,780 |   | 3,284,233 |   |
| Professional  and administrative expenses and professional and administrative expenses  reimbursed to affiliate |       | —                                                      |       | — |   | — |   | 1,434,353 |   | 1,434,353 |   |
| Depreciation  and amortization                                                                                  |       | 84,544                                                      |       | 890,366 |   | 7,294,820 |   | — |   | 8,269,730 |   |
|                                                                                                            |       |                                                        |       |   |   |   |   |   |   |   |   |
| **Total operating expenses**                                                                                    |       | 211,609                                                     |       | 2,799,606 |   | 16,625,702 |   | 1,498,133 |   | 21,135,050 |   |
|                                                                                                            |       |                                                        |       |   |   |   |   |   |   |   |   |
| **Operating income (loss)**                                                                                     |       | 147,775                                                     |       | 639,972 |   | 836,711 |   | (1,514,637 | ) | 109,821 |   |
|                                                                                                            |       |                                                        |       |   |   |   |   |   |   |   |   |
| Interest  and other income                                                                                      |       | 155                                                         |       | 1,798 |   | 17,578 |   | 119,617 |   | 139,148 |   |
| Interest  expense                                                                                               |       | (179,622                                                    | )          | (957,452 | ) | (4,512,723 | ) | 70,428 |   | (5,579,369 | ) |
| Loss  on disposal of assets                                                                                     |       | —                                                      |       | (10,558 | ) | (2,604 | ) | — |   | (13,162 | ) |
| Loss  from investments in tenants in common                                                                     |       | —                                                      |       | — |   | (1,102,217 | ) | — |   | (1,102,217 | ) |
|                                                                                                            |       |                                                        |       |   |   |   |   |   |   |   |   |
| **Loss from continuing operations**                                                                             |       | (31,692                                                     | )          | (326,240 | ) | (4,763,255 | ) | (1,324,592 | ) | (6,445,779 | ) |
| Discontinued  operations, net                                                                                   |       | 238,988                                                     |       | (198,654 | ) | — |   | — |   | 40,334 |   |
|                                                                                                            |       |                                                        |       |   |   |   |   |   |   |   |   |
| **Consolidated net income (loss)**                                                                              |       | 207,296                                                     |       | (524,894 | ) | (4,763,255 | ) | (1,324,592 | ) | (6,405,445 | ) |
| Net  loss attributable to noncontrolling interests                                                              |       | —                                                      |       | — |   | (31,852 | ) | — |   | (31,852 | ) |
|                                                                                                            |       |                                                        |       |   |   |   |   |   |   |   |   |
| **Net income (loss)**                                                                                           |       | $                                                           | 207,296    |   | $ | (524,894 | ) | $ | (4,731,403 | ) | $ | (1,324,592 | ) | $ | (6,373,593 | ) |
|                                                                                                            |       |                                                        |       |   |   |   |   |   |   |   |   |
| Land,  buildings and amenities, net                                                                             |       | $                                                           | 3,904,575  |   | $ | 27,441,830 |   | $ | 266,357,889 |   | $ | — |   | $ | 297,704,294 |   |

 

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**Item 2**—**Management’s Discussion and Analysis of FinancialCondition and 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.

 

**CriticalAccounting Policies**

 

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 are not to beconfused with accounting principles and methods disclosed in accordance withU.S. generally accepted accounting principles (“GAAP”).  GAAP requires information in financialstatements about accounting principles, methods used and disclosures pertainingto significant estimates.  Our criticalaccounting policies, as previously disclosed in our most recent annual reporton Form 10-K, which was filed on March 29, 2010, discuss judgmentsknown to management pertaining to trends, events or uncertainties known whichwere taken into consideration upon the application of those policies and thelikelihood that materially different amounts would be reported upon taking intoconsideration different conditions and assumptions and remain unchanged duringthe quarter ended June 30, 2010.

 

**Resultsof Operations**

 

As of June 30, 2010, we owned wholly, as a tenant in common withan unaffiliated third party or through joint venture investments with anunaffiliated third party, 6 office and business centers, 14 multifamilyproperties and 2 retail properties.  Wegenerate substantially all of our operating income from property operations.

 

Net losses for the three months ended June 30, 2010 and 2009 wereapproximately $2.6 million and $3.7 million, respectively.  Net loss for the three months ended June 30,2010 as compared to June 30, 2009 was driven by a $1.2 million increase inour gain on sale of discontinued operations, $0.2 million increase in net lossattributable to noncontrolling interests as the result of the acquisitions ofGolf Brook Apartments and Sabal Park Apartments (June 2009), referred toas our “2009 acquisitions”, $0.2 million increase related to a decrease inprofessional fees and a $0.1 million increase in operating income in thecommercial segment related to increased occupancy.  The increase was offset by a $0.4 millionincrease in interest expense and a $0.2 million decrease in operating incomeacross the multifamily segment primarily related to our 2009 acquisitions.  There were no other material offsettingchanges in net loss for the three months ended June 30, 2010 and 2009.

 

Net losses for the six months ended June 30, 2010 and 2009 wereapproximately $5.2 million and $6.4 million, respectively.  Net loss for the six months ended June 30,2010 as compared to June 30, 2009 was driven by a $1.8 million increase inour gain on sale of discontinued operations, $0.5 million increase in net lossattributable to noncontrolling interests as the result of our 2009acquisitions, $0.2 million decrease in loss from investments in tenants incommon and a $0.2 million increase related to a decrease in professionalfees.  The increase was offset by a $0.9million increase in interest expense and $0.5 million decrease in operatingincome across the multifamily segment primarily related to our 2009acquisitions.  There were no othermaterial offsetting changes in net loss for the six months ended June 30,2010 and 2009.

 

Thefollowing tables include certain selected summarized operating data for thethree and six months ended June 30, 2010 and 2009.  This data should be read in conjunction withour financial statements, including the notes attached hereto.

 
| ** **                                                         | ** ** | **(Unaudited)**                                               | ** ** |
|--------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                                         | ** ** | **Three Months Ended June 30, 2010** | ** ** |
| ** **                                                         | ** ** | **Retail**                                                    | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Partnership** | ** ** | **Total** | ** ** |
| Total revenues                                                     |       | $                                                             | 173,844    |   | $ | 1,800,326 |   | $ | 9,831,829 |   | $ | (8,903 | ) | $ | 11,797,096 |   |
| Operating expenses and operating expenses  reimbursed to affiliate |       | 55,155                                                        |       | 622,427 |   | 4,180,069 |   | — |   | 4,857,651 |   |
| Depreciation and amortization                                      |       | 41,671                                                        |       | 466,260 |   | 4,032,856 |   | — |   | 4,540,787 |   |
| Total interest expense                                             |       | (22,681                                                       | )          | (154,200 | ) | (2,963,514 | ) | (65,596 | ) | (3,205,991 | ) |
| Net income (loss)                                                  |       | 28,854                                                        |       | 1,398,563 |   | (3,391,724 | ) | (642,918 | ) | (2,607,225 | ) |
|                                                                    |            |                                                               |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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| ** **                                                         | ** ** | **(Unaudited)**                            | ** ** |
|--------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                         | ** ** | **Three  Months Ended June 30, 2009** | ** ** |
| ** **                                                         | ** ** | **Retail**                                 | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Partnership** | ** ** | **Total** | ** ** |
| Total revenues                                                     |       | $                                          | 179,245    |   | $ | 1,695,012 |   | $ | 8,872,380 |   | $ | (7,276 | ) | $ | 10,739,361 |   |
| Operating expenses and operating expenses  reimbursed to affiliate |       | 46,660                                     |       | 676,425 |   | 3,119,316 |   | — |   | 3,842,401 |   |
| Depreciation and amortization                                      |       | 40,062                                     |       | 445,084 |   | 3,728,768 |   | — |   | 4,213,914 |   |
| Total interest expense                                             |       | (89,369                                    | )          | (493,094 | ) | (2,284,595 | ) | 19,604 |   | (2,847,454 | ) |
| Net income (loss)                                                  |       | 104,216                                    |       | (325,006 | ) | (2,799,185 | ) | (709,863 | ) | (3,729,838 | ) |
|                                                                    |            |                                            |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                                                         | ** ** | **(Unaudited)**                                             | ** ** |
|--------------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                                         | ** ** | **Six Months Ended June 30, 2010** | ** ** |
| ** **                                                         | ** ** | **Retail**                                                  | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Partnership** | ** ** | **Total** | ** ** |
| Total revenues                                                     |       | $                                                           | 371,434    |   | $ | 3,628,392 |   | $ | 19,447,715 |   | $ | (17,805 | ) | $ | 23,429,736 |   |
| Operating expenses and operating expenses  reimbursed to affiliate |       | 93,526                                                      |       | 1,349,373 |   | 7,594,275 |   | — |   | 9,037,174 |   |
| Depreciation and amortization                                      |       | 83,109                                                      |       | 933,305 |   | 8,066,114 |   | — |   | 9,082,528 |   |
| Total interest expense                                             |       | (74,772                                                     | )          | (327,837 | ) | (5,899,839 | ) | (154,433 | ) | (6,456,881 | ) |
| Net income (loss)                                                  |       | 727,841                                                     |       | 1,469,280 |   | (5,936,799 | ) | (1,435,871 | ) | (5,175,549 | ) |
|                                                                    |            |                                                             |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                                                         | ** ** | **(Unaudited)**                                             | ** ** |
|--------------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                                         | ** ** | **Six Months Ended June 30, 2009** | ** ** |
| ** **                                                         | ** ** | **Retail**                                                  | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Partnership** | ** ** | **Total** | ** ** |
| Total revenues                                                     |       | $                                                           | 359,384    |   | $ | 3,439,578 |   | $ | 17,462,413 |   | $ | (16,504 | ) | $ | 21,244,871 |   |
| Operating expenses and operating expenses  reimbursed to affiliate |       | 80,238                                                      |       | 1,305,235 |   | 5,704,544 |   | — |   | 7,090,017 |   |
| Depreciation and amortization                                      |       | 84,544                                                      |       | 890,366 |   | 7,294,820 |   | — |   | 8,269,730 |   |
| Total interest expense                                             |       | (179,622                                                    | )          | (957,452 | ) | (4,512,723 | ) | 70,428 |   | (5,579,369 | ) |
| Net income (loss)                                                  |       | 207,296                                                     |       | (524,894 | ) | (4,731,403 | ) | (1,324,592 | ) | (6,373,593 | ) |
|                                                                    |            |                                                             |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Occupancy levels at our continuing properties by segment as of June 30,2010 and 2009 were as follows:

 
| ** **  | ** ** | **2010** | ** ** | **2009** | ** ** |
|-------------|------------|----------|------------|----------|------------|
| Commercial  |       | 75       | %          |     | 74         | % |   |
| Multifamily |       | 96       | %          |     | 93         | % |   |
| Retail      |       | 100      | %          |     | 98         | % |   |
|             |            |          |            |          |            |  |  |  |

 

The average occupancy levels at our continuing properties by segmentfor the three and six months ended June 30, 2010 and 2009 were as follows:

 
| ** **  | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30.** | ** ** |
|-------------|------------|--------------------------------------|------------|------------------------------------|------------|
| ** **  | ** ** | **2010**                             | ** ** | **2009**                           | ** ** | **2010** | ** ** | **2009** | ** ** |
| Commercial  |       | 75                                   | %          |                               | 74         | % |   | 76 | % |   | 75 | % |   |
| Multifamily |       | 96                                   | %          |                               | 92         | % |   | 95 | % |   | 92 | % |   |
| Retail      |       | 100                                  | %          |                               | 98         | % |   | 100 | % |   | 98 | % |   |

 

We believe the remaining changes in occupancy on June 30 and inaverage occupancy from period to period are temporary effects of each property’sspecific mix of lease maturities and are not indicative of any known trend oruncertainty.

 

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.

 

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

 

The following discussion relating to changes in our results ofoperations includes only material line items within our unaudited condensedconsolidated statements of operations or line items for which there was amaterial change between the three and six months ended June 30, 2010 and2009.

 

***Rental Income and Tenant Reimbursements***

 

Rental income and tenantreimbursements from continuing operations for the three months ended June 30,2010 and 2009 were approximately $11.8 million and $10.7 million, respectively.Rental income and tenant reimbursements from continuing operations for the sixmonths ended June 30, 2010 and 2009 were approximately $23.4 million and$21.2 million, respectively. The increases of $1.1 million, or 10%, and $2.2million, or 10%, respectively, were primarily the result of rental incomeincreases of $1.0 million and $2.0 million for the three and six months ended June 30,2010 and 2009, respectively, across the multifamily segment primarily relatedto our 2009 acquisitions.  There were noother material offsetting changes in rental income and tenant reimbursementsfor the three and six months ended June 30, 2010 and 2009.

 

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

 

Operating expenses from continuing operations for the three monthsended June 30, 2010 and 2009 were approximately $3.6 million and $2.7million, respectively.  Operatingexpenses from continuing operations for the six months ended June 30, 2010and 2009 were approximately $6.4 million and $4.8 million, respectively.  The increase of $0.9 million, or 33%, for thethree months ended June 30, 2010 and 2009 was primarily the result of a$0.4 million increase in operating expenses from our 2009 acquisitions and $0.5million increase in operating expenses across the remaining multifamily segmentprimarily related to an increase in repairs and maintenance.  The increase of $1.6 million, or 33%, for thesix months ended June 30, 2010 and 2009 was primarily the result of a $1.1million increase in operating expenses from our 2009 acquisitions, $0.5 millionincrease in operating expenses across the remaining multifamily segmentprimarily related to an increase in repairs and maintenance and $0.1 millionincrease in operating expenses across the commercial segment primarily relatedto repairs and maintenance, cleaning and landscaping.  There were no other material offsettingchanges in operating expenses from continuing operations for the three and sixmonths ended June 30, 2010 and 2009.

 

Operating expenses reimbursed to affiliate from continuing operationsfor the three months ended June 30, 2010 and 2009 were approximately $1.3million and $1.2 million, respectively. Operating expenses reimbursed to affiliate from continuing operationsfor the six months ended June 30, 2010 and 2009 were approximately $2.6million and $2.3 million, respectively. The increases of $0.1 million, or 8%, and $0.3 million, or 13%,respectively were primarily the result of an increase in operating expensesreimbursed to affiliate from our 2009 acquisitions.  There were no other material offsettingchanges in operating expenses reimbursed to affiliate from continuingoperations for the three and six months ended June 30, 2010 and 2009.

 

We do not have any employees. Pursuant to our collective management agreements, NTS DevelopmentCompany employs the individuals who provide services necessary to operate ourproperties and conduct our business.  NTSDevelopment Company provides employees that may also perform services for otherproperties and business enterprises.  Inthe situation where a particular employee benefits multiple operations, theemployee’s cost is proportionately charged out to the entity receiving theservices.  We only reimburse charges fromNTS Development Company for actual costs of employee services incurred for ourbenefit.  The cost of services providedto us by NTS Development Company’s employees are classified in our condensed consolidatedstatements of operations as operating expenses reimbursed to affiliate.  The services provided by others areclassified as operating expenses.

 

Operating expenses reimbursed to affiliate are for services performedby employees of NTS Development Company, an affiliate of our generalpartner.  These employee services includeproperty management, leasing, maintenance, security and other servicesnecessary to manage and operate our business.

 

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Operating expenses reimbursed to affiliate from continuing operationsconsisted approximately of the following:

 
| ** **          | ** ** | **(Unaudited)**                      | ** ** | **(Unaudited)**                    | ** ** |
|---------------------|------------|--------------------------------------|------------|------------------------------------|------------|
| ** **          | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
| ** **          | ** ** | **2010**                             | ** ** | **2009**                           | ** ** | **2010** | ** ** | **2009** | ** ** |
| Property            |       | $                                    | 879,000    |                               | $          | 792,000 |   | $ | 1,785,000 |   | $ | 1,557,000 |   |
| Multifamily Leasing |       | 163,000                              |       | 144,000                            |       | 326,000 |   | 274,000 |   |
| Administrative      |       | 224,000                              |       | 224,000                            |       | 449,000 |   | 463,000 |   |
| Other               |       | 31,000                               |       | 10,000                             |       | 60,000 |   | 20,000 |   |
|                |       |                                 |       |                               |       |   |   |   |   |
| **Total**           |       | $                                    | 1,297,000  |                               | $          | 1,170,000 |   | $ | 2,620,000 |   | $ | 2,314,000 |   |

 

***Management Fees***

 

Management fees from continuing operations for the three months ended June 30,2010 and 2009 were approximately $0.6 million and $0.5 million,respectively.  Management fees fromcontinuing operations for each of the six months ended June 30, 2010 and2009 were approximately $1.1 million. The increase of $0.1 million, or 20%, for the three months ended June 30,2010 and 2009 was primarily the result of our 2009 acquisitions.  There were no other material offsettingchanges in management fees for the three months ended June 30, 2010 and2009.

 

Pursuant to our collective management agreements, NTS DevelopmentCompany receives property management fees equal to 5% of the gross collectedrevenue from our properties.  Thisincludes our wholly-owned properties, our consolidated joint venture propertiesand properties owned by our eight wholly-owned subsidiaries financed throughFederal Home Loan Mortgage Corporation, or FHLMC.  NTS Development Company receives propertymanagement fees from our unconsolidated joint venture properties owned as a tenantin common with an unaffiliated third party equal to 3.5% of their grosscollected revenue under separate management agreements.  We were the beneficiary of a preferentialownership interest, disproportionately greater than our initial cash investmentin each property owned as a tenant in common with an unaffiliated thirdparty.  NTS Development Company hasagreed to accept a lower management fee for the properties we own as a tenantin common with an unaffiliated third party in exchange for a larger potentialdisposition fee.  Disposition fees of upto 6% of the gross sales price may be paid to NTS Development Company for thesale of one of our properties owned as a tenant in common with an unaffiliatedthird party.  Management fees arecalculated as a percentage of cash collections and are recorded on the accrualbasis.  As a result, the fluctuations inrevenue between years will differ from the fluctuations of management feeexpense.

 

***Property Taxes and Insurance***

 

Property taxes and insurance from continuing operations for the threemonths ended June 30, 2010 and 2009 were approximately $1.6 million and$1.8 million, respectively.  Propertytaxes and insurance from continuing operations for the six months ended June 30,2010 and 2009 were approximately $3.1 million and $3.3 million, respectively.  The decrease of $0.2 million, or 11%, for thethree months ended June 30, 2010 and 2009 was primarily the result of a$0.3 million decrease in property taxes at Willow Lake Apartments due toincreased property tax assessments received during the three months ended June 30,2009 and due to a tax rate reduction during the three months ended June 30,2010 which was partially offset by a $0.1 million increase in property taxesand insurance from our 2009 acquisitions. The decrease of $0.2 million, or 6%, for the six months ended June 30,2010 and 2009 was primarily the result of a $0.3 million decrease in propertytaxes at Willow Lake Apartments, $0.1 million decrease at Lake ClearwaterApartments and a $0.1 million decrease at Castle Creek Apartments due toincreased property tax assessments received during the six months ended June 30,2009 and due to tax rate reductions during the six months ended June 30,2010 which was partially offset by a $0.3 million increase in property taxesand insurance from our 2009 acquisitions. There were no other material offsetting changes in property taxes andinsurance for the three and six months ended June 30, 2010 and 2009.

 

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

 

Professional and administrative expenses from continuing operations forthe three months ended June 30, 2010 and 2009 were approximately $0.2million and $0.4 million, respectively. Professional and administrative 

 

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expensesfrom continuing operations for the six months ended June 30, 2010 and 2009were approximately $0.4 million and $0.6 million, respectively.  The decreases of $0.2 million, or 50%, and$0.2 million, or 33%, were primarily due to an overall decrease in legal andprofessional fees.  There were no other materialoffsetting changes in professional and administrative expenses for the three orsix months ended June 30, 2010 and 2009.

 

Professional and administrative expenses reimbursed to affiliate fromcontinuing operations for each of the three months ended June 30, 2010 and2009 were approximately $0.4 million. Professional and administrative expenses reimbursed to affiliate fromcontinuing operations for each of the six months ended June 30, 2010 and2009 were approximately $0.8 million. There were no material offsetting changes in professional andadministrative expenses reimbursed to affiliate for the three and six monthsended June 30, 2010 and 2009.

 

We do not have any employees. Pursuant to our collective management agreements, NTS DevelopmentCompany employs the individuals who provide services necessary to operate ourproperties and conduct our business.  NTSDevelopment Company provides employees that may also perform services for otherproperties and business enterprises.  Inthe situation where a particular employee benefits multiple operations, theemployee’s cost is proportionately charged out to the entity receiving theservices.  We only reimburse charges fromNTS Development Company for actual costs of employee services incurred for ourbenefit.  The cost of services providedto us by NTS Development Company’s employees are classified in our condensed consolidatedstatements of operations as professional and administrative expenses reimbursedto affiliate.  The services provided byothers are classified as professional and administrative.

 

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

 

Professional and administrative expenses reimbursed to affiliateconsisted approximately of the following:

 
| ** **         | ** ** | **(Unaudited)**                      | ** ** | **(Unaudited)**                    | ** ** |
|--------------------|------------|--------------------------------------|------------|------------------------------------|------------|
| ** **         | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
| ** **         | ** ** | **2010**                             | ** ** | **2009**                           | ** ** | **2010** | ** ** | **2009** | ** ** |
| Finance            |       | $                                    | 101,000    |                               | $          | 105,000 |   | $ | 209,000 |   | $ | 193,000 |   |
| Accounting         |       | 189,000                              |       | 175,000                            |       | 393,000 |   | 363,000 |   |
| Investor Relations |       | 65,000                               |       | 74,000                             |       | 133,000 |   | 153,000 |   |
| Human Resources    |       | 4,000                                |       | 4,000                              |       | 7,000 |   | 8,000 |   |
| Overhead           |       | 41,000                               |       | 34,000                             |       | 78,000 |   | 68,000 |   |
|               |       |                                 |       |                               |       |   |   |   |   |
| **Total**          |       | $                                    | 400,000    |                               | $          | 392,000 |   | $ | 820,000 |   | $ | 785,000 |   |

 

***Depreciation and Amortization***

 

Depreciation and amortization expense from continuing operations forthe three months ended June 30, 2010 and 2009 was approximately $4.5million and $4.2 million, respectively. Depreciation and amortization expense from continuing operations for thesix months ended June 30, 2010 and 2009 was approximately $9.1 million and$8.3 million, respectively.   Theincreases of $0.3 million, or 7%, and $0.8 million, or 10%, were primarily dueto our 2009 acquisitions partially offset by a decrease in intangibleamortization at Shelby Farms Apartments. There were no other material offsetting changes in depreciation andamortization for the three and six months ended June 30, 2010 and 2009.

 

***Interest Expense***

 

Interestexpense from continuing operations for the three months ended June 30,2010 and 2009 was approximately $3.2 million and $2.8 million,respectively.  Interest expense fromcontinuing operations for the six months ended June 30, 2010 and 2009 was approximately$6.5 million and $5.6 million, respectively. The increase of $0.4 million, or 14%, for the three months ended June 30,2010 and 2009 was primarily due to increased interest expense of $0.3 millionrelated to our additional borrowings related to the December 17, 2009refinancing and $0.2 million related to our 2009 acquisitions, partially offsetby decreased interest expense of $0.1 million for the interest rate swapagreement and the revolving note payable to a bank.  The increase of $0.9 million, or 16%, for thesix months ended June 30, 2010 and 2009 was primarily due to increasedinterest expense of $0.6 million related to our 

 

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additionalborrowings related to the December 17, 2009 refinancing and $0.4 millionfor our 2009 acquisitions, partially offset by decreased interest expense of$0.1 million for the interest rate swap agreement and the revolving notepayable to a bank.  There were no othermaterial offsetting changes in interest expense for the three and six monthsended June 30, 2010 and 2009.

 

***Loss on Disposal of Assets***

 

The loss on disposal of assets from continuing operations for the threeand six months ended June 30, 2010 and 2009 can be attributed to assetsthat were not fully depreciated at the time of replacement, spread primarilyamongst the commercial and multifamily properties.  The 2010 loss on disposal of assets was dueto the retirement of HVAC units, roofs, microwaves, and mailboxes.  The 2009 loss on disposal of assets was dueto the retirement of HVAC units and property handrails.

 

***Loss From Investment in Tenants in Common***

 

Loss from investment in tenants in common for the three and six monthsended June 30, 2010 and 2009 includes the net operating lossesattributable to our investments in tenants in common with an unaffiliated thirdparty.  The properties are The Overlookat St. Thomas Apartments and Creek’s Edge at Stony Point Apartments.

 

***Discontinued Operations***

 

Net loss from discontinued operations for the three months ended June 30,2010 was approximately $47,000 and net income from discontinued operations forthe three months ended June 30, 2009 was approximately $25,000.  Net income from discontinued operations forthe six months ended June 30, 2010 and 2009 were approximately $28,000 and$40,000, respectively.  Discontinuedoperations, net for the three and six months ended June 30, 2010 and 2009include the net operating results for the properties previously sold as listedbelow.

 
| **Property**          | ** ** | **Location**   | ** ** | **Date of Sale** | ** ** |
|-----------------------|------------|----------------|------------|------------------|------------|
| Outlet Mall           |       | Louisville, KY |       | March, 2010      |       |
| Sears Office Building |       | Louisville, KY |       | June, 2010       |       |

 

**Gain on Sale of Discontinued Operations**

 

Gainon sale of discontinued operations for the three months ended June 30,2010 was approximately $1.2 million due to the sale of Sears Office Building inJune 2010.  Gain on sale ofdiscontinued operations for the six months ended June 30, 2010 wasapproximately $1.8 million due to the sale of the Sears Office Building in June 2010and the sale of the Outlet Mall in March 2010.

 

**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 our mortgage loans and notes payable. Our main uses of cash relate to capital expenditures, required paymentsof mortgages and notes payable, distributions and property taxes.

 

The following table summarizes our approximate sources/uses of cashflow for the six months ended June 30, 2010 and 2009.

 
| ** **                                           | ** ** | **(Unaudited)**                    | ** **  |
|------------------------------------------------------|------------|------------------------------------|-------------|
| ** **                                           | ** ** | **Six Months Ended June 30,** | ** **  |
| ** **                                           | ** ** | **2010**                           | ** **  | **2009** | ** ** |
| Operating activities                                 | ** ** | **$**                              | (3,896,000  | ) | $ | 3,308,000 |   |
| Investing activities                                 |       | 5,505,000                          |        | (32,680,000 | ) |
| Financing activities                                 |       | (11,934,000                        | )           | 29,792,000 |   |
|                                                 |       |                               |        |   |   |
| **Net (decrease) increase in cash  and equivalents** |       | $                                  | (10,325,000 | ) | $ | 420,000 |   |

 

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** **

***Cash Flow from Operating Activities***

 

Netcash used in operating activities was approximately $3.9 million for the sixmonths ended June 30, 2010 as compared to cash provided by operatingactivates of approximately $3.3 million for the six months ended June 30,2009.  The change of $7.2 million wasprimarily due to reserving restricted cash from the proceeds of our sale ofOutlet Mall retail property (March 2010) and our Sears Office Building (June 2010)to be used to satisfy the requirements of Section 1031 of the InternalRevenue Code in purchasing “like-kind” replacement property in order to deferrecognition of gain for federal tax purposes. We also used $0.2 million in cash to pay property taxes at Shelby FarmsApartments, $0.9 million to satisfy accounts payable and accounts payable dueto affiliate, a decrease of $0.3 million provided by prepaid income and $0.2million used to fund operations.  Ourcash used is partially offset by a decrease in cash used of approximately $1.1million to fund lender-held cash escrows, $0.7 million provided by a decreasein prepaid expenses and a decrease in intangible amortization expense.  The offset is also due to the expiration ofour interest rate swap agreement in September 2009 of $0.3 million, and$0.1 million provided by a decrease in accounts receivable.

 

***Cash Flow from Investing Activities***

 

Net cash provided by investing activities was approximately $5.5million for the six months ended June 30, 2010 as compared to cash used ininvesting activities of approximately $32.7 million for the six months ended June 30,2009.  The change of $38.2 million wasprimarily due to our 2009 acquisitions of approximately $32.2 million, proceedsfrom the sale of our Outlet Mall retail property (March 2010) and the saleof our Sears Office Building (June 2010) of $7.3 million, which waspartially offset by an increase in cash used of approximately $1.3 million foradditions to land, buildings and amenities.

 

***Cash Flow from Financing Activities***

 

Netcash used in financing activities was approximately $11.9 million for the sixmonths ended June 30, 2010 as compared to cash provided by financingactivities of approximately $29.8 million for the six months ended June 30,2009.  The change of $41.7 million wasprimarily due to cash used of $24.2 million to fund our 2009 acquisitions, thechange in cash used of $13.8 million on our revolving notes payable, cash usedof $2.2 million in additional principal payments on our mortgages payable, thechange in cash contributed of approximately $2.3 million from ournoncontrolling interest holders, partially offset by a decrease in principalpayments on our mortgages payable of $0.3 million and a decrease in loan costadditions of $0.6 million.  The remainingincreases and decreases in cash were individually immaterial.

 

***Future Liquidity***

 

Our future liquidity depends significantly on our properties’ occupancyremaining at a level which allows us to make debt payments and have adequateworking capital, currently and in the future. If occupancy were to fall below that level and remain at or below thatlevel for a significant period of time, our ability to make payments due underour debt agreements and to continue paying daily operational costs would begreatly impaired.  In the next twelvemonths, we intend to operate the properties in a similar manner to theiroperation in recent years.  Cashreserves, which consist of unrestricted cash as shown on our balance sheet,were approximately $0.9 million on June 30, 2010.

 

On March 16, 2010, we announced that the board of directors of ourmanaging general partner approved a quarterly distribution of $0.05 per unit onour limited partnership units.  Thedistribution was paid on April 16, 2010, to limited partners of record atthe close of business on March 31, 2010.

 

On June 15, 2010, we announced that the board of directors of ourmanaging general partner approved a quarterly distribution of $0.05 per unit onour limited partnership units.  Thedistribution was paid on July 16, 2010, to limited partners of record atthe close of business on June 30, 2010.

 

Pursuant to leasing agreements signed on or before June 30, 2010,we are obligated to incur expenditures of approximately $1.9 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 anticipaterepaying, seeking renewal or refinancing of our note and mortgage payablecoming due in the next twelve months.

 

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Inaddition to the $8.2 million revolving note payable to a bank due June 1,2011, we continue to have our $10.0 million revolving note payable to a bankdue May 31, 2011.  As of June 30,2010, we did not have a balance on the $8.2 million revolving note payable.

 

The aggregate availability on our revolving notes payable wasapproximately $17.3 million as of June 30, 2010.

 

We intend to seek a renewal of our expiring $10.0 million revolvingnote payable to a bank due May 31, 2011, but can offer no assurance thatwe will be successful in doing so, or that favorable terms of renewal can beobtained.

 

We expect to receive $1.0 million on May 1, 2011 to satisfy ourunaffiliated note receivable.

 

***Property Transactions***

 

***Acquisitions***

 

Duringthe six months ended June 30, 2010, we did not acquire anyproperties.  During the six months ended June 30,2009, we made the following property acquisitions:

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

 

----

(1)          Financed by a mortgagepayable to a bank of $9.6 million.

(2)          Financed by a mortgagepayable to a bank of $14.6 million.

 

Ourownership percentage at June 30, 2010 is 51.0% of each consolidated jointventure property.

 

***Dispositions***

 

During the six months ended June 30, 2010, we made the followingproperty dispositions:

 
| **Wholly-Owned  Properties** | ** ** | **Square Feet** | ** ** | **Our Ownership** | ** ** | **Date of Sale** | ** ** |
|------------------------------|------------|-----------------|------------|-------------------|------------|------------------|------------|
| Outlet Mall (1)              |       | 162,600         |       | 100%              |       | March, 2010      |       |
| Sears Office Building (2)    |       | 66,900          |       | 100%              |       | June, 2010       |       |

 

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(1)          Gain of approximately $0.5million.

(2)          Gain of approximately $1.2million.

 

Duringthe six months ended June 30, 2009, we did not dispose of any properties.

 

We may engage in transactions structured as “like kind exchanges” ofproperty to obtain favorable tax treatment under Section 1031 of theInternal Revenue 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.

 

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**Off-BalanceSheet Arrangements**

** **

Wehave no balance sheet arrangements that are reasonably likely to have a currenteffect on our financial condition, changes in our financial condition, revenuesor expenses, results of operations, liquidity, capital expenditures or capitalresources.

 

**WebsiteInformation**

 

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

 

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**Item 3— Quantitative and Qualitative Disclosures About Market Risk**

 

Our primary market risk exposure, with regard to financial instrumentsis expected to be our exposure to changes in interest rates.  Substantially all of our debt bears interestat a fixed rate, with the exception of approximately $40.3 million at variablerates.  We anticipate that a hypothetical100 basis point increase in interest rates would increase interest expense onour variable rate debt by approximately $0.4 million annually.  The average variable interest rate at June 30,2010 was 3.56%.

 

**Item 4 — Controls andProcedures**

 

**Evaluationof Disclosure Controls and Procedures**

 

Asrequired by Rule 13a-15(b) and Rule 15d-15(b) under theSecurities Exchange Act of 1934, as amended (the “Exchange Act”), ourmanagement, including our Chief Executive Officer and Chief Financial Officer,evaluated as of June 30, 2010, the effectiveness of our disclosurecontrols and procedures as defined in Exchange Act Rule 13a-15(e) andRule 15d-15(e).  Based on that evaluation,our Chief Executive Officer and Chief Financial Officer concluded that ourdisclosure controls and procedures, as of June 30, 2010, were effectivefor the purpose of ensuring that information required to be disclosed by us inthis report is recorded, processed, summarized and reported within the timeperiods specified by the rules and forms of the Exchange Act and isaccumulated and communicated to our management, including the Chief ExecutiveOfficer and Chief Financial Officer, as appropriate to allow timely decisionsregarding required disclosures.

 

**Changesin Internal Control over Financial Reporting**

 

Therehave been no changes in internal control over financial reporting that occurredduring the quarter ended June 30, 2010 that have materially affected, orare reasonably likely to materially affect, our internal control over financialreporting.

 

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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 Securitiesand Exchange Commission on March 29, 2010.

 

**Item 2 — Unregistered Sales of Equity Securities andUse of Proceeds**

 

OnDecember 1, 2009, three entities created or controlled by Mr. Nicholscommenced pre-arranged trading plans to purchase limited partnership units ofNTS Realty pursuant to Rule 10b5-1 under the Act.  Each of the plans authorize itsadministrator, Wells Fargo Investments, LLC, to purchase approximately$225,000, $52,000 and $26,000, respectively, of NTS Realty’s limitedpartnership units from time to time through no later than November 2010.  Under the terms of the plans, Mr. Nicholshas no discretion or control over the timing, effectuation or the amount ofeach purchase.

 

Duringthe six months ended June 30, 2010, 59,600 units were purchased by theentities created or controlled by Mr. Nichols pursuant to the tradingplans announced on December 1, 2009. The table below summarizes activity pursuant to these plans for thequarterly period ended June 30, 2010.

 
| **Period**      | ** ** | **Total Number of  Units Purchased** | ** ** | **Average Price Paid  Per Unit** | ** ** | **Total Number  of Units Purchased as  Part of Publicly  Announced Plans or  Programs** | ** ** | **Maximum Number  (or Approximate  Dollar Value) of Units  That May Yet Be  Purchased Under the  Plans or Programs** | ** ** |
|-----------------|------------|--------------------------------------|------------|----------------------------------|------------|----------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------|------------|
| April 2010 |       | 2,000                                |       | $                                | 4.75       |                                                                                         | 460,791    | (2)                                                                                                                       |       | (1) |
|            |       |                                 |       |                             |       |                                                                                         |       |                                                                                                                      |       |
| May 2010   |       | 7,300                                |       | $                                | 4.47       |                                                                                         | 468,091    | (2)                                                                                                                       |       | (1) |
|            |       |                                 |       |                             |       |                                                                                         |       |                                                                                                                      |       |
| June 2010  |       | —                               |       | $                                | —     |                                                                                         | 468,091    | (2)                                                                                                                       |       | (1) |
|            |       |                                 |       |                             |       |                                                                                         |       |                                                                                                                      |       |
| Total           |       | 9,300                                |       | $                                | 4.53       |                                                                                         | 468,091    | (2)                                                                                                                       |       | (1) |

 

----

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

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

 

**Item 3 — Defaults Upon Senior Securities**

 

None.

 

**Item 4 — RESERVED**

 

**Item 5 — Other Information**

 

None.

 

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**Item 6 — Exhibits**

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

 

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| **Exhibit No.** | ** ** | ** **                                                                                                                                                           | ** ** | ** ** |
|----------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|
| 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              |       | (16)       |
|                 |       |                                                                                                                                                                 |       |       |
| 32.1                 |       | Certification  of Chief Executive Officer Pursuant to U.S.C. 1350, as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002                        |       | (16)       |
|                 |       |                                                                                                                                                                 |       |       |
| 32.2                 |       | Certification  of Chief Financial Officer Pursuant to U.S.C. 1350, as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002                        |       | (16)       |
|                 |       |                                                                                                                                                                 |       |       |
| 99.01                |       | Form of  Lock-Up Agreement by and between NTS Realty Holdings Limited Partnership and  each of the executive officers of NTS Realty Capital, Inc.          |       | (1)        |
|                 |       |                                                                                                                                                                 |       |       |
| 99.02                |       | Registration  Statement on Form S-4/A (Amendment No. 5), as filed by the  Registrant with the Securities and Exchange Commission on October 27,  2004 |       | (3)        |

 

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

 

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**SIGNATURES**

 

Pursuant to the requirements of 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: | August 11,  2010 |
|       |                                         |   |   |   |
|       |                                         | By: | */s/  Gregory A. Wells* |
|       |                                         |   | Gregory  A. Wells |
|       |                                         |   | Its: | Chief  Financial Officer |
|       |                                         |   | Date: | August 11,  2010 |

 

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