Table ofContents

 

 

 

**UNITED STATES**SECURITIES AND EXCHANGECOMMISSION

**Washington, D.C. 20549**

 

**FORM 10-Q**

** **

**(Mark One)**

 

| **x** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(D) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|--------------------------------------------------------------------------------------------------------|

 

**For the quarterly period ended March 31,2010**

 

**OR**

 

| **o** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(D) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|---------------------------------------------------------------------------------------------------------|

 

**For the transition period from                        to                       **

 

**Commissionfile number 001-32389**

 

**NTS REALTY HOLDINGS LIMITED PARTNERSHIP**

(Exactname of registrant as specified in its charter)

 

| **Delaware**                             | ** ** | **41-2111139**                       |
|------------------------------------------|------------|--------------------------------------|
| (State of incorporation or organization) |       | (I.R.S. Employer Identification No.) |

 

| **10172  Linn Station Road********Louisville,  Kentucky** | ** ** | **40223**  |
|-----------------------------------------------------------|------------|------------|
| (Address of principal executive offices)                  |       | (Zip Code) |

 

**(502) 426-4800**

(Registrant’s telephone number, including area code)

** **

**Not applicable**

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

 

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

 

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

 

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

 

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

 

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

 

**APPLICABLEONLY TO CORPORATE ISSUERS**

 

As of May 7, 2010, there were 11,380,760of the registrant’s limited partnership units outstanding.

 

 

 

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**NTSREALTY HOLDINGS LIMITED PARTNERSHIP**

 

**FORM 10-Q**

 

**TABLEOF CONTENTS**

 

| **PART I – FINANCIAL INFORMATION**                                                              | **4**                                                                                       |
|-----------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------|
| ** **                                                                                                | ** **                                                                                  |
| Item 1                                                                                                    | Financial Statements                                                                        | 4 |
| Condensed Consolidated Balance Sheets as of  March 31, 2010 and December 31, 2009               | 4                                                                                           |
| Condensed  Consolidated Statement of Equity as of March 31, 2010                                     | 4                                                                                           |
| Condensed  Consolidated Statements of Operations for the Three Months Ended  March 31, 2010 and 2009 | 5                                                                                           |
| Condensed  Consolidated Statements of Cash Flows for the Three Months Ended  March 31, 2010 and 2009 | 6                                                                                           |
| Notes to Condensed Consolidated Financial Statements                                                      | 7                                                                                           |
| Item 2                                                                                                    | Management’s  Discussion and Analysis of Financial Condition and Results of Operations | 19 |
| Item 3                                                                                                    | Quantitative  and Qualitative Disclosures About Market Risk                                 | 27 |
| Item 4                                                                                                    | Controls and Procedures                                                                     | 27 |
| Item 4T                                                                                                   | Controls and  Procedures                                                                    | 27 |
|                                                                                                      |                                                                                        |   |
| **PART II – OTHER  INFORMATION**                                                                | **28**                                                                                      |
| ** **                                                                                                | ** **                                                                                  |
| Item 1                                                                                                    | Legal Proceedings                                                                           | 28 |
| Item 1A                                                                                                   | Risk  Factors                                                                               | 28 |
| Item 2                                                                                                    | Unregistered  Sales of Equity Securities and Use of Proceeds                                | 28 |
| Item 3                                                                                                    | Defaults  Upon Senior Securities                                                            | 28 |
| Item 4                                                                                                    | Removed and Reserved                                                                        | 28 |
| Item 5                                                                                                    | Other Information                                                                           | 28 |
| Item 6                                                                                                    | Exhibits                                                                                    | 29 |
| Signatures                                                                                                | 31                                                                                          |

 

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** **

**INFORMATION REGARDINGFORWARD-LOOKING STATEMENTS**

** **

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

 

Any forward-looking statements included inMD&A, or elsewhere in this report, reflect our managing general partner’sbest judgment based on known factors, but involve risks and uncertainties.  Actual results could differ materially fromthose anticipated in any forward-looking statements as a result of a number offactors, including but not limited to those described in our filings with theSecurities and Exchange Commission, particularly our most recent annual reporton Form 10-K, which was filed on March 29, 2010.  Any forward-looking information provided byus pursuant to the safe harbor established by the Private Securities LitigationReform Act of 1995 should be evaluated in the context of these factors.

 

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# **Table of Contents**

# ** **

# **PART I— FINANCIAL INFORMATION**

# ** **

## **Item 1 — Financial Statements**

## ** **

**NTS REALTY HOLDINGS LIMITEDPARTNERSHIP**

### Condensed ConsolidatedBalance Sheets as of March 31, 2010 and December 31, 2009

 
| ** **                                                                                                                                           | ** ** | **(Unaudited)**          | ** **  | ** **                  | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|-------------|-----------------------------|------------|
| ** **                                                                                                                                           | ** ** | **March 31,  2010** | ** **  | **December 31,  2009** | ** ** |
| **ASSETS:**                                                                                                                                          | ** ** | ** **               |        |                        |       |
| Cash and equivalents                                                                                                                                 |       | $                        | 2,484,627   |                        | $          | 11,233,735 |   |
| Cash and equivalents -  restricted                                                                                                                   |       | 6,619,311                |        | 2,227,744                   |       |
| Accounts receivable, net of  allowance for doubtful accounts of $286,738 at March 31,2010 and  $203,359 at December 31, 2009, respectively |       | 1,579,881                |        | 1,646,142                   |       |
| Notes receivable                                                                                                                                     |       | 1,000,000                |        | 1,000,000                   |       |
| Land, buildings and  amenities, net                                                                                                                  |       | 287,660,866              |        | 291,151,198                 |       |
| Long-lived assets held for  sale                                                                                                                     |       | 2,254,009                |        | 5,549,932                   |       |
| Investments in and advances  to tenants in common                                                                                                    |       | 3,736,147                |        | 4,174,947                   |       |
| Other assets                                                                                                                                         |       | 4,236,269                |        | 4,598,167                   |       |
|                                                                                                                                                 |       |                     |        |                        |       |
| **Total assets**                                                                                                                                     |       | $                        | 309,571,110 |                        | $          | 321,581,865 |   |
|                                                                                                                                                 |       |                     |        |                        |       |
| **LIABILITIES:**                                                                                                                                     |       |                     |        |                        |       |
| Mortgages and notes payable                                                                                                                          |       | $                        | 237,293,480 |                        | $          | 246,088,305 |   |
| Accounts payable and  accrued expenses                                                                                                               |       | 2,434,777                |        | 2,875,643                   |       |
| Accounts payable and  accrued expenses due to affiliate                                                                                              |       | 724,349                  |        | 634,930                     |       |
| Distributions payable                                                                                                                                |       | 569,038                  |        | 569,038                     |       |
| Security deposits                                                                                                                                    |       | 861,604                  |        | 856,384                     |       |
| Long-lived liabilities held  for sale                                                                                                                |       | 35,431                   |        | 72,321                      |       |
| Other liabilities                                                                                                                                    |       | 4,219,590                |        | 3,754,653                   |       |
|                                                                                                                                                 |       |                     |        |                        |       |
| **Total liabilities**                                                                                                                                |       | 246,138,269              |        | 254,851,274                 |       |
|                                                                                                                                                 |       |                     |        |                        |       |
| COMMITMENTS AND CONTINGENCIES  (NOTE 12)                                                                                                             |       |                     |        |                        |       |
|                                                                                                                                                 |       |                     |        |                        |       |
| **EQUITY:**                                                                                                                                          |       |                     |        |                        |       |
| Partners’ equity                                                                                                                                |       | 58,496,356               |        | 61,633,718                  |       |
| Noncontrolling interests                                                                                                                             |       | 4,936,485                |        | 5,096,873                   |       |
|                                                                                                                                                 |       |                     |        |                        |       |
| **Total equity**                                                                                                                                     |       | 63,432,841               |        | 66,730,591                  |       |
|                                                                                                                                                 |       |                     |        |                        |       |
| **Total liabilities and  equity**                                                                                                                    |       | $                        | 309,571,110 |                        | $          | 321,581,865 |   |

** **

**NTS REALTY HOLDINGS LIMITEDPARTNERSHIP**

### Condensed ConsolidatedStatement of Equity as of March 31, 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                       |       | —                                      |       | — |   | (161,241 | ) | (2,407,083 | ) | (307,388 | ) | (2,875,712 | ) |
| Cash distributions declared  to date                      |       | —                                      |       | — |   | (1,400,403 | ) | (20,906,735 | ) | — |   | (22,307,138 | ) |
| Current year contributions  from noncontrolling interests |       | —                                      |       | — |   | — |   | — |   | 147,000 |   | 147,000 |   |
| Retirement of limited  partnership interests to date      |       | —                                      |       | (848 | ) | — |   | — |   | — |   | — |   |
|                                                      |       |                                        |       |   |   |   |   |   |   |   |   |   |   |
| Balances on March 31,  2010                          |       | 714,491                                     |       | 10,666,269 |   | $ | 3,672,259 |   | $ | 54,824,097 |   | $ | 4,936,485 |   | $ | 63,432,841 |   |

 

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

 

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** **

**NTS REALTY HOLDINGS LIMITEDPARTNERSHIP**

### Condensed ConsolidatedStatements of Operations for the Three Months Ended March 31, 2010 and2009

(Unaudited)

 
| ** **                                                                       | ** ** | **(Unaudited)**        | ** ** |
|----------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                       | ** ** | **Three Months Ended** | ** ** |
| ** **                                                                       | ** ** | **March 31,**     | ** ** |
| ** **                                                                       | ** ** | **2010**               | ** ** | **2009** | ** ** |
| **REVENUE:**                                                                     |       |                   |       |   |   |
| Rental income                                                                    |       | $                      | 11,187,801 |   | $ | 10,049,684 |   |
| Tenant reimbursements                                                            |       | 444,839                |       | 455,828 |   |
|                                                                             |       |                   |       |   |   |
| **Total revenue**                                                                |       | 11,632,640             |       | 10,505,512 |   |
|                                                                             |       |                   |       |   |   |
| **EXPENSES:**                                                                    |       |                   |       |   |   |
| Operating expenses                                                               |       | 2,875,379              |       | 2,103,101 |   |
| Operating expenses  reimbursed to affiliate                                      |       | 1,304,145              |       | 1,144,514 |   |
| Management fees                                                                  |       | 568,758                |       | 518,354 |   |
| Property taxes and  insurance                                                    |       | 1,480,184              |       | 1,461,633 |   |
| Professional and  administrative expenses                                        |       | 260,707                |       | 287,992 |   |
| Professional and  administrative expenses reimbursed to affiliate                |       | 419,790                |       | 392,981 |   |
| Depreciation and  amortization                                                   |       | 4,541,741              |       | 4,055,816 |   |
|                                                                             |       |                   |       |   |   |
| **Total operating expenses**                                                     |       | 11,450,704             |       | 9,964,391 |   |
|                                                                             |       |                   |       |   |   |
| **OPERATING INCOME**                                                             |       | 181,936                |       | 541,121 |   |
|                                                                             |       |                   |       |   |   |
| Interest and other income                                                        |       | 26,327                 |       | 63,987 |   |
| Interest expense                                                                 |       | (3,250,890             | )          | (2,731,916 | ) |
| Loss on disposal of assets                                                       |       | (3,772                 | )          | (11,755 | ) |
| Loss from investments in  tenants in common                                      |       | (438,800               | )          | (520,214 | ) |
|                                                                             |       |                   |       |   |   |
| **LOSS FROM CONTINUING OPERATIONS**                                              |       | (3,485,199             | )          | (2,658,777 | ) |
| Discontinued operations,  net                                                    |       | 74,604                 |       | 15,022 |   |
| Gain on sale of  discontinued operations                                         |       | 534,883                |       | — |   |
|                                                                             |       |                   |       |   |   |
| **CONSOLIDATED NET LOSS**                                                        |       | (2,875,712             | )          | (2,643,755 | ) |
| Net loss attributable to  noncontrolling interests                               |       | (307,388               | )          | — |   |
|                                                                             |       |                   |       |   |   |
| **NET LOSS**                                                                     |       | $                      | (2,568,324 | ) | $ | (2,643,755 | ) |
|                                                                             |       |                   |       |   |   |
| **Loss from continuing  operations allocated to limited partners**               |       | $                      | (3,266,396 | ) | $ | (2,491,857 | ) |
| Discontinued operations,  net allocated to limited partners                      |       | 69,920                 |       | 14,079 |   |
| Gain on sale of discontinued  operations allocated to limited partners           |       | 501,303                |       | — |   |
| Net loss attributable to  noncontrolling interests allocated to limited partners |       | (288,090               | )          | — |   |
| ** **                                                                       |       |                   |       |   |   |
| **NET LOSS ALLOCATED TO  LIMITED PARTNERS**                                      |       | $                      | (2,407,083 | ) | $ | (2,477,778 | ) |
|                                                                             |       |                   |       |   |   |
| **Loss from continuing  operations per limited partnership unit**                |       | $                      | (0.31      | ) | $ | (0.23 | ) |
| Discontinued operations,  net per limited partnership unit                       |       | —                 |       | — |   |
| Gain on sale of  discontinued operations per limited partnership unit            |       | 0.05                   |       | — |   |
| Net loss attributable to  noncontrolling interests per limited partnership unit  |       | (0.03                  | )          | — |   |
|                                                                             |       |                   |       |   |   |
| **NET LOSS PER LIMITED  PARTNERSHIP UNIT**                                       |       | $                      | (0.23      | ) | $ | (0.23 | ) |
|                                                                             |       |                   |       |   |   |
| **Weighted average number  of limited partnership interests**                    |       | 10,666,269             |       | 10,666,269 |   |

 

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

 

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** **

**NTS REALTY HOLDINGS LIMITEDPARTNERSHIP**

### Condensed ConsolidatedStatements of Cash Flows for the Three Months Ended March 31, 2010 and2009

(Unaudited)

 
| ** **                                                                                             | ** ** | **(Unaudited)** | ** ** |
|--------------------------------------------------------------------------------------------------------|------------|-----------------|------------|
| ** **                                                                                             | ** ** | **2010**        | ** ** | **2009** | ** ** |
| ** **                                                                                             | ** ** | ** **      | ** ** | ** ** | ** ** |
| **OPERATING ACTIVITIES:**                                                                              | ** ** | ** **      | ** ** | ** ** | ** ** |
| **Consolidated net loss**                                                                              |       | $               | (2,875,712 | ) | $ | (2,643,755 | ) |
| Adjustments to reconcile consolidated net loss to  net cash (used in) provided by operatingactivities: |       |            |       |   |   |
| Gain on sale of  discontinued operations                                                               |       | (534,883        | )          | — |   |
| Loss on disposal of assets                                                                             |       | 3,772           |       | 11,755 |   |
| Depreciation and  amortization                                                                         |       | 4,740,332       |       | 4,292,598 |   |
| Loss from investments in  tenants in common                                                            |       | 438,800         |       | 520,214 |   |
| **Changes in assets and  liabilities:**                                                                |       |            |       |   |   |
| Cash and equivalents —  restricted                                                                |       | (4,391,567      | )          | (172,854 | ) |
| Accounts receivable                                                                                    |       | 66,261          |       | 72,583 |   |
| Other assets                                                                                           |       | 119,541         |       | (692 | ) |
| Accounts payable and  accrued expenses                                                                 |       | (428,273        | )          | (657,342 | ) |
| Accounts payable and  accrued expenses due to affiliate                                                |       | 92,248          |       | 49,173 |   |
| Security deposits                                                                                      |       | 5,220           |       | (9,636 | ) |
| Other liabilities                                                                                      |       | 412,625         |       | (275,356 | ) |
|                                                                                                   |       |            |       |   |   |
| **Net cash (used in)  provided by operating activities**                                               |       | (2,351,636      | )          | 1,186,688 |   |
|                                                                                                   |       |            |       |   |   |
| **INVESTING ACTIVITIES:**                                                                              |       |            |       |   |   |
| Additions to land,  buildings and amenities                                                            |       | (969,352        | )          | (301,945 | ) |
| Proceeds from sale of  discontinued operations                                                         |       | 3,835,750       |       | — |   |
|                                                                                                   |       |            |       |   |   |
| **Net cash provided by  (used in) investing activities**                                               |       | 2,866,398       |       | (301,945 | ) |
|                                                                                                   |       |            |       |   |   |
| **FINANCING ACTIVITIES:**                                                                              |       |            |       |   |   |
| Contributions from  noncontrolling interest holders in properties                                      |       | 147,000         |       | — |   |
| Revolving note payable, net                                                                            |       | —          |       | 804,403 |   |
| Principal payments on  mortgages payable                                                               |       | (594,825        | )          | (832,268 | ) |
| Additional payments on  revolving note payable                                                         |       | (8,200,000      | )          | — |   |
| Additions to loan costs                                                                                |       | (47,007         | )          | — |   |
| Cash distributions                                                                                     |       | (569,038        | )          | (569,038 | ) |
|                                                                                                   |       |            |       |   |   |
| **Net cash used in  financing activities**                                                             |       | (9,263,870      | )          | (596,903 | ) |
|                                                                                                   |       |            |       |   |   |
| **NET (DECREASE) INCREASE  IN CASH AND EQUIVALENTS**                                                   |       | (8,749,108      | )          | 287,840 |   |
|                                                                                                   |       |            |       |   |   |
| **CASH AND EQUIVALENTS,  beginning of period**                                                         |       | 11,233,735      |       | — |   |
|                                                                                                   |       |            |       |   |   |
| **CASH AND EQUIVALENTS, end  of period**                                                               |       | $               | 2,484,627  |   | $ | 287,840 |   |

 

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

 

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** **

**NTS REALTY HOLDINGS LIMITEDPARTNERSHIP**

### Notes to CondensedConsolidated Financial Statements

(Unaudited)

 

The unaudited condensed consolidatedfinancial statements included herein should be read in conjunction with NTSRealty Holdings Limited Partnership’s (“NTS Realty”) 2009 annual report on Form 10-Kas filed with the Securities and Exchange Commission on March 29,2010.  The Condensed Consolidated BalanceSheet as of December 31, 2009, has been derived from the auditedconsolidated financial statements of NTS Realty for that period.  Certain information and note disclosuresnormally included in our annual financial statements prepared in accordancewith generally accepted accounting principles have been condensed oromitted.  In the opinion of NTS RealtyCapital, Inc., our managing general partner, all adjustments, consistingonly of normal recurring accruals, necessary for a fair presentation have beenmade to the accompanying unaudited condensed consolidated financial statementsfor the three months ended March 31, 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 ofSignificant Accounting Policies**

** **

***Organization and Distribution Policy***

*** ***

We are in the business of developing,constructing, owning and operating multifamily properties, commercial andretail real estate.  As of March 31,2010, we owned wholly, as a tenant in common with an unaffiliated third party,or through joint venture investments with an unaffiliated third party, 23properties, comprised of 7 office and business centers, 14 multifamilyproperties and 2 retail properties.  Theproperties are located in and around Louisville (7) and Lexington (1),Kentucky; Fort Lauderdale (3) and Orlando (2), Florida; Indianapolis (4),Indiana; Memphis (1) and Nashville (2), Tennessee; Richmond (2), Virginia;and Atlanta (1), Georgia.  Our office andbusiness centers aggregate approximately 671,000 square feet.  Our multifamily properties contain 4,029units.  Our retail properties containapproximately 47,000 square feet.

 

We pay distributions if and when authorizedby our managing general partner.  We arerequired to pay distributions on a quarterly basis, no less than sixty-fivepercent (65%) of our “net cash flow from operations” as this term is defined inregulations promulgated by the Treasury Department under the Internal RevenueCode of 1986, as amended; provided that if a law is enacted or existing law ismodified or interpreted in a manner that subjects us to taxation as acorporation or otherwise subjects us to entity level taxation for federal,state or local income tax purposes, we will adjust the amount distributed toreflect our obligation to pay tax.  Anydistribution other than a distribution with respect to the final quarter of acalendar year will be made no later than forty-five (45) days after the lastday of such quarter based on our estimate of “net cash flow from operations”for the year.  Any distribution withrespect to the final quarter of a calendar year will be made no later thanninety (90) days after the last day of such quarter based on actual “net cashflow from operations” for the year, adjusted for any excess or insufficientdistributions made with respect to the first three quarters of the calendaryear.

 

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

 

We paid a quarterly distribution of $0.05 perunit to limited partners on April 16, 2010.

 

***Basis of Presentation***

*** ***

The unaudited condensed consolidatedfinancial statements include the accounts of all wholly-owned properties andproperties that are less than wholly-owned, but which we control or for whichwe are the primary 

 

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beneficiary. We consolidate a variable interest entity, or VIE, when we aredetermined to be the primary beneficiary based on the qualitative factorsaffecting:

 

·                  Ourpower to direct the activities of a variable interest entity that mostsignificantly affect the variable interest entity’s economic performance; and

 

·                  Ourobligation to absorb losses of the variable interest entity that could potentiallybe significant to the variable interest entity or the right to receive benefitsfrom the variable interest entity that could potentially be significant to thevariable interest entity.

 

Our determination of the primary beneficiaryof a VIE considers all relationships between us and the VIE, includingmanagement agreements and other contractual arrangements, when determining theparty obligated to absorb the majority of the expected losses, as defined, byaccounting standards.  Effective January 1,2010, we adopted the 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 three months ended March 31,2010, 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 FinancialInstruments***

*** ***

FASB ASC Topic 820 *Fair ValueMeasurements and Disclosures* requires companies to determine fairvalue based on the price that would be received to sell the asset or paid totransfer the liability to a market participant. FASB ASC Topic 820 emphasizes that fair value is a market-basedmeasurement, not an entity specific measurement.

 

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

 

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

 

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

 

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

 

We did not have any financial assets orliabilities that are required to be recorded at fair value as of March 31,2010 or December 31, 2009.

 

***Financial Instruments***

 

The book values of cash and equivalents,trade receivables and trade payables are considered to be representative oftheir respective fair values because of the immediate or short-term maturity ofthese financial instruments.

 

FASB ASC Topic 825 *FinancialInstruments* requires disclosures about fair value of financialinstruments in both interim and annual financial statements.

 

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

 

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Cash and equivalents and cash and equivalents— restricted — The carrying amount of these assets and liabilities approximatesfair value as of March 31, 2010 and December 31, 2009, due to theshort-term nature of such accounts.

 

Notes receivable — As of March 31, 2010and December 31, 2009, we determined the estimated fair values of ournotes receivable were approximately $0.9 million and $0.9 million,respectively, by discounting future cash receipts utilizing a discount rateequivalent to the rate at which similar notes receivable would be originated atthe reporting date.

 

Mortgages and notes payable — As of March 31,2010 and December 31, 2009, we determined the estimated fair values of ourmortgages and notes payable, including those relating to discontinuedoperations, were approximately $237.3 million and $246.0 million, respectively,by discounting future cash payments utilizing a discount rate equivalent to therate at which similar instruments would be originated at the reporting date.

 

***Recent Accounting Pronouncements***

 

In January 2010, the FASB issuedAccounting Standards Update No. 2010-06 *ImprovingDisclosures About Fair Value Measurements* (“ASU 2010-06”), whichprovides amendments to FASB ASC Subtopic 820-10 *Fair ValueMeasurements 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 ofEstimates and Reclassifications in the Preparation of Financial Statements**

** **

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

 

Certain reclassifications have been made tothe prior period financial statements to conform with March 31, 2010classifications.  Our Outlet Mall retailproperty and Sears Office Building were reclassified during 2009 fromcontinuing operations to discontinued operations and are classified as held forsale on our balance sheets.  Thesereclassifications did not have a material impact on the related financialstatement line items on our consolidated balance sheets or statement ofoperations and no effect on previously reported operating results or partners’equity.

 

**Note 3 — Real EstateTransactions**

** **

***Acquisitions***

*** ***

Upon acquisition of wholly-owned propertiesor joint venture investments that are less than wholly-owned, but which wecontrol or for which we are the primary beneficiary, the assets and liabilitiespurchased are recorded at their fair market value at the date of theacquisition using the acquisition method in accordance with FASB ASC Topic 805 *Business Combinations*. We recognize the net tangible and identified intangible assets based onfair values (including land, buildings, tenant improvements, acquired above andbelow market 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 asincurred.  During the three months ended March 31,2010, we did not acquire any properties.

 

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***Dispositions***

*** ***

During the three months ended March 31,2010, we made the following property dispositions:

 
| **Wholly-Owned  Properties-Retail** | ** ** | **Square  Feet** | ** ** | **Our  Ownership** | ** ** | **Date of  Sale** | ** ** |
|-------------------------------------|------------|------------------|------------|--------------------|------------|-------------------|------------|
| Outlet Mall (1)                     |       | 162,600          |       | 100%               |       | March, 2010       |       |

 

----

(1)          Gain of approximately $0.5million.

 

***Discontinued Operations and Long-Lived Assets andLiabilities Held for Sale***

*** ***

On February 23, 2010, we entered into anagreement to sell our Sears Office Building to an unaffiliated third party forapproximately $3.8 million.  We haveoffered seller financing to the purchaser, including additional proceeds toimprove the building, totaling $4.7 million. On April 6, 2010, the purchaser notified us of their intention toextend the closing date to June 30, 2010. We received an additional extension deposit of $250,000.  This additional deposit is being held by athird party intermediary.

 

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

 

At March 31, 2010, we held approximately$4.0 million of proceeds from the sale of our Outlet Mall retail property witha third party intermediary to be invested in replacement “like-kind”property.  Our ability to successfullyinvest the proceeds in accordance with Section 1031 of the InternalRevenue Code and qualifying the proceeds for deferral of gain recognition forfederal income tax purposes is dependent on many factors and there can be noassurance 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 for deferral of gain recognition.

 

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

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

 

These assets and liabilities held for salehave been separately identified on our balance sheets at March 31, 2010 andDecember 31, 2009.

 

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The components of discontinued operations areoutlined below and include the results of operations for the period in which weowned such assets during the three months ended March 31, 2010 and 2009.

 
| ** **                                                         | ** ** | **(Unaudited)**          | ** ** |
|--------------------------------------------------------------------|------------|--------------------------|------------|
| ** **                                                         | ** ** | **Three  Months Ended**  | ** ** |
| ** **                                                         | ** ** | **March 31,  2010** | ** ** | **March 31,  2009** | ** ** |
| **REVENUE:**                                                       |       |                     |       |   |   |
| Rental income                                                      |       | $                        | 145,568    |   | $ | 182,944 |   |
|                                                               |       |                     |       |   |   |
| **Total revenue**                                                  |       | 145,568                  |       | 182,944 |   |
|                                                               |       |                     |       |   |   |
| **EXPENSES:**                                                      |       |                     |       |   |   |
| Operating expenses and operating  expenses reimbursed to affiliate |       | 50,117                   |       | 47,012 |   |
| Management fees                                                    |       | 4,229                    |       | 12,196 |   |
| Property taxes and  insurance                                      |       | 16,481                   |       | 18,599 |   |
| Depreciation and  amortization                                     |       | —                   |       | 68,676 |   |
|                                                               |       |                     |       |   |   |
| **Total operating expenses**                                       |       | 70,827                   |       | 146,483 |   |
|                                                               |       |                     |       |   |   |
| **DISCONTINUED OPERATING  INCOME**                                 |       | 74,741                   |       | 36,461 |   |
|                                                               |       |                     |       |   |   |
| Interest expense                                                   |       | (137                     | )          | (21,439 | ) |
| ** **                                                         |       |                     |       |   |   |
| **DISCONTINUED OPERATIONS,  NET**                                  |       | $                        | 74,604     |   | $ | 15,022 |   |

 

**Note 4 — Concentrationof Credit Risk**

** **

We own and operate wholly, as a tenant incommon with an affiliated third party or through joint venture investments withan unaffiliated third party, commercial, multifamily and retail properties inLouisville and Lexington, Kentucky; Fort Lauderdale and Orlando, Florida;Indianapolis, Indiana; Memphis and Nashville, Tennessee; Richmond, Virginia andAtlanta, Georgia.

 

Our financial instruments that are exposed toconcentrations of credit risk consist of cash and equivalents and cash andequivalents - restricted.  We maintainour cash accounts primarily with banks located in Kentucky.

 

**Note 5 — Cash andEquivalents**

** **

Cash and equivalents include cash on hand andshort-term, highly liquid investments with initial maturities of three monthsor less.  We have a cash managementprogram, which provides for the overnight investment of excess 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 andEquivalents - Restricted**

** **

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

 

**Note 7 — Property andDepreciation**

** **

Land, buildings and amenities are stated atcost.  Costs directly associated with thedevelopment and construction of a project are capitalized.  Depreciation is computed using thestraight-line method over the estimated useful lives of the assets, which aregenerally 5-30 years for land improvements, 7-30 years for buildings andimprovements and 5-30 years for amenities. Tenant improvements are generally depreciated over the life of theinitial or renewal term of the respective tenant lease.  Depreciation expense from continuingoperations for the three months ended March 31, 2010 and 2009 wasapproximately $4.4 million and $3.9 million, respectively.

 

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FASB ASC Topic 360 *Property,Plant and Equipment* specifies circumstances in which certainlong-lived assets must be reviewed for impairment.  If the carrying amount of an asset exceedsthe sum of its expected future cash flows, the asset’s carrying value must bewritten down to fair value.  Indetermining the value of an investment property and whether the investmentproperty is impaired, management considers several factors such as projectedrental and vacancy rates, property operating expenses, capital expenditures andinterest rates.  The capitalization rateused to determine property valuation is based on the market in which theinvestment property is located, length of leases, tenant financial strength,the economy in general, demographics, environment, property location,visibility, age and physical condition among others.  All of these factors are considered bymanagement in determining the value of any particular investment property.  The value of any particular investmentproperty is sensitive to the actual results of any of these factors, eitherindividually or taken as a whole.  If theactual results differ from management’s judgment, the valuation could benegatively or positively affected. Application of this standard during the three months ended March 31,2010 and 2009 did not result in an impairment loss.

 

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

 

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

 

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

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

 

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

 
| ** **                               | ** ** | **(Unaudited)**          | ** ** | ** **                  | ** ** |
|------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **                               | ** ** | **March 31,  2010** | ** ** | **December 31,  2009** | ** ** |
| **Summarized Balance Sheets**            | ** ** | ** **               |       |                        |       |
| Land, buildings and  amenities           |       | $                        | 65,265,518 |                        | $          | 66,186,166 |   |
| Other, net                               |       | 1,756,125                |       | 1,497,712                   |       |
| Total assets                             |       | $                        | 67,021,643 |                        | $          | 67,683,878 |   |
|                                     |       |                     |       |                        |       |
| Mortgages payable and other  liabilities |       | $                        | 58,301,696 |                        | $          | 58,170,033 |   |
| Equity                                   |       | 8,719,947                |       | 9,513,845                   |       |
| Total liabilities and  equity            |       | $                        | 67,021,643 |                        | $          | 67,683,878 |   |

 
| ** **                                  | ** ** | **(Unaudited)**          | ** ** |
|---------------------------------------------|------------|--------------------------|------------|
| ** **                                  | ** ** | **Three  Months Ended**  | ** ** |
| ** **                                  | ** ** | **March 31,  2010** | ** ** | **March 31,  2009** | ** ** |
| **Summarized Statements of  Operations**    | ** ** | ** **               | ** ** | ** ** | ** ** |
| Revenue                                     |       | $                        | 2,154,414  |   | $ | 2,012,948 |   |
|                                        |       |                     |       |   |   |
| Operating expenses                          |       | 396,174                  |       | 379,970 |   |
| Operating expenses  reimbursed to affiliate |       | 237,826                  |       | 246,507 |   |
| Management fees                             |       | 75,497                   |       | 70,865 |   |
| Property taxes and  insurance               |       | 220,973                  |       | 234,451 |   |
| Depreciation and  amortization              |       | 1,172,815                |       | 1,167,478 |   |
|                                        |       |                     |       |   |   |
| Total operating expenses                    |       | 2,103,285                |       | 2,099,271 |   |
|                                        |       |                     |       |   |   |
| Operating income (loss)                     |       | 51,129                   |       | (86,323 | ) |
|                                        |       |                     |       |   |   |
| Net loss                                    |       | $                        | (793,898   | ) | $ | (934,271 | ) |
|                                             |            |                          |            |  |  |  |  |  |

 

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**Note 9 — Mortgages andNotes Payable**

** **

Mortgages and notes payable consist of thefollowing:

 
| ** **                                                                                                                                                                                                                                                                                                                                                                                         | ** ** | **(Unaudited)**          | ** ** | ** **                  | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                                                                                                                                                                                                                                                                         | ** ** | **March 31,  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 3.73%, due  June 1, 2011, secured by certain land, buildings and amenities, with a  carrying value of $16,928,724 and a $640,000 letter of credit. The mortgage  is guaranteed by Mr. Nichols and Mr. Lavin |       | $                        | 15,273,000 |                        | $          | 23,566,000 |   |
|                                                                                                                                                                                                                                                                                                                                                                                               |       |                     |       |                        |       |
| Mortgage payable to GE  Commercial Finance Business Property in monthly installments of principal and  interest, bearing fixed interest at 9.00%, maturing August 1, 2010,  secured by certain land, buildings and amenities, with a carrying value of  $2,524,518                                                                                                                            |       | 2,257,436                |       | 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 $1,859,066                                                                                                                                              |       | 1,957,552                |       | 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 $11,633,444                                                                                                                                                           |       | 11,329,704               |       | 11,381,809                  |       |
|                                                                                                                                                                                                                                                                                                                                                                                               |       |                     |       |                        |       |
| Mortgage payable to a bank,  with interest 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 $36,427,231                                                                                                                                  |       | 26,328,500               |       | 26,328,500                  |       |
|                                                                                                                                                                                                                                                                                                                                                                                               |       |                     |       |                        |       |
| Mortgage payable to Federal  Home Loan Mortgage Corporation, with interest payable in monthly installments  until July 1, 2011, bearing interest at a variable rate based on LIBOR  one-month rate plus 3.33%, currently 3.56%, maturing July 1, 2016,  secured by certain land, buildings and amenities, with a carrying value of  $19,317,120                                          |       | 14,625,000               |       | 14,625,000                  |       |
|                                                                                                                                                                                                                                                                                                                                                                                               | ** ** | ** **               |       |                        |       |
| Mortgage payable to Federal  Home Loan Mortgage Corporation, with interest payable in monthly installments  until July 1, 2011, bearing interest at a variable rate based on LIBOR  one-month rate plus 3.50%, currently 3.73%, maturing July 1, 2016,  secured by certain land, buildings and amenities, with a carrying value of  $12,573,473                                          |       | 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  $20,999,254                                                                                                                          |       | 13,861,865               |       | 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  $36,823,479                                                                                                                          |       | 26,935,614               |       | 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  $20,663,633                                                                                                                          |       | 16,804,830               |       | 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  $35,650,480                                                                                                                          |       | 27,609,004               |       | 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 $17,956,938                                                                                                                           |       | 11,362,839               |       | 11,390,000                  |       |
|                                                                                                                                                                                                                                                                                                                                                                                                    |            |                          |            |                             |            |  |  |

 

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| ** **                                                                                                                                                                                                                                                                | ** ** | **(Unaudited)**          | ** **  | ** **                  | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|-------------|-----------------------------|------------|
| ** **                                                                                                                                                                                                                                                                | ** ** | **March 31,  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  $22,132,551 |       | 30,551,969               |        | 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  $9,465,913  |       | 10,918,900               |        | 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  $12,674,356 |       | 17,877,267               |        | 17,920,000                  |       |
|                                                                                                                                                                                                                                                                      |       |                     |        |                        |       |
| **Total mortgages and notes  payable**                                                                                                                                                                                                                                    |       | $                        | 237,293,480 |                        | $          | 246,088,305 |   |
|                                                                                                                                                                                                                                                                           |            |                          |             |                             |            |  |  |

 

On February 1, 2010, we amended our$24.0 million mortgage payable to a bank. The amendment converted $8.2 million of the balance to a revolving notepayable due June 1, 2011.  On February 12,2010, we made a principal payment of $8.2 million, from our proceeds fromrefinancing on December 17, 2009, on our new $8.2 million revolving notepayable to a bank.  The revolver proceedsmay be used to fund capital improvements and were used to payoff our mortgagepayable to GE Commercial Finance Business Property on April 30, 2010.  Both the $15.3 million mortgage and the $8.2million revolving note payable are secured by our Lakeshore Business Centerproperties.

 

In addition to the $8.2 million revolvingnote payable previously discussed, we continue to have our $10.0 millionrevolving note payable to a bank due May 31, 2010.  As of March 31, 2010 and December 31,2009, we did not have an outstanding balance on the $10.0 million revolvingnote payable and as of March 31, 2010 we did not have an outstandingbalance on the $8.2 million revolving note payable.

 

Based on the borrowing rates currentlyavailable to us for loans with similar terms and average maturities, the fairvalue of long-term debt on March 31, 2010 was approximately $237.3million.

 

Interest paid for the three months ended March 31,2010 and 2009 was approximately $2.4 million and $2.9 million, respectively.

 

Our mortgages may be prepaid but aregenerally subject to a yield-maintenance premium.  Certain mortgages and notes payable containcovenants and requirements that we maintain specified debt limits and ratiosrelated to our debt balances and property values.  We complied with all covenants andrequirements at March 31, 2010.  Weanticipate renewing or refinancing our mortgages and notes payable coming duewithin the next twelve months.

 

Mortgages payable for our tenant in commonproperties consist of the following:

 
| ** **                                                                                                                                                                                                                                    | ** ** | **(Unaudited)**          | ** ** | ** **                  | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                                                                                                                    | ** ** | **March 31,  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 $37,954,454 (1) |       | $                        | 34,656,657 |                        | $          | 34,787,919 |   |
|                                                                                                                                                                                                                                          |       |                     |       |                        |       |
| Mortgage payable to a bank  in monthly installments, bearing fixed interest at 5.99%, maturing  November 15, 2017, secured by certain land, buildings and amenities,  with a carrying value of $27,311,064 (2)                           |       | $                        | 22,658,554 |                        | $          | 22,727,309 |   |

 

----

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

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

 

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

** **

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

 

**Note 11 — RelatedParty Transactions**

** **

Pursuant to our collective management agreements,NTS Development Company receives fees for a variety of services performed forour benefit.  NTS Development Companyalso receives fees under separate management agreements for each of ourunconsolidated joint venture properties owned as a tenant in common with anunaffiliated third party, each of our consolidated joint venture properties andeach of our eight wholly-owned subsidiaries financed through Federal Home LoanMortgage Corporation, 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 capitalimprovements and significant repairs.  Also pursuant to the agreement, NTSDevelopment Company receives commercial leasing fees equal to 4% of the grossrental amount for new leases and 2% of the gross rental amount for new leasesin which a broker is used and for renewals or extensions.  Disposition fees are paid to NTS DevelopmentCompany in an amount of 1% to 4% of the aggregate sales price of a propertypursuant to our management agreements and up to a 6% fee upon disposition onour properties owned as a tenant in common with an unaffiliated third partyunder their respective management agreements. NTS Development Company has agreed to accept a lower management fee forthe properties we own as a tenant in common with an unaffiliated third party inexchange for a larger potential disposition fee.  NTS Development Company is reimbursed itsactual costs for services rendered to NTS Realty.

 

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

 

We were charged the following approximateamounts pursuant to our management agreements with NTS Development Company forthe three months ended March 31, 2010 and 2009.  These charges include items which have beenexpensed as operating expenses reimbursed to affiliate or professional andadministrative expenses reimbursed to affiliate, and items which have beencapitalized as other assets or as land, buildings and amenities.  Certain of these items are included in ourresults of discontinued operations.

 
| ** **                                                            | ** ** | **(Unaudited)**                        | ** ** |
|-----------------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                            | ** ** | **Three  Months Ended March 31,** | ** ** |
| ** **                                                            | ** ** | **2010**                               | ** ** | **2009** | ** ** |
| Property management fees                                              | ** ** | **$**                                  | 573,000    |   | $ | 531,000 |   |
|                                                                  |       |                                   |       |   |   |
| Operating expenses  reimbursement - property                          |       | 916,000                                |       | 776,000 |   |
| Operating expenses  reimbursement - multifamily leasing               |       | 162,000                                |       | 130,000 |   |
| Operating expenses  reimbursement - administrative                    |       | 238,000                                |       | 254,000 |   |
| Operating expenses  reimbursement - other                             |       | 13,000                                 |       | 12,000 |   |
|                                                                  |       |                                   |       |   |   |
| Total operating expenses  reimbursed to affiliate                     |       | 1,329,000                              |       | 1,172,000 |   |
|                                                                  |       |                                   |       |   |   |
| Professional and  administrative expenses reimbursed to affiliate     |       | 420,000                                |       | 393,000 |   |
|                                                                  |       |                                   |       |   |   |
| Construction supervision  and leasing fees                            |       | 77,000                                 |       | 12,000 |   |
|                                                                  |       |                                   |       |   |   |
| Disposition fees included  in gain on sale of discontinued operations |       | 160,000                                |       | — |   |
|                                                                  |       |                                   |       |   |   |
| **Total related party  transactions**                                 |       | $                                      | 2,559,000  |   | $ | 2,108,000 |   |

 

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

 

During the three months ended March 31,2010 and 2009, we were charged approximately $14,000 and $16,000, respectively,for property maintenance fees from affiliates of NTS Development Company.

 

NTS Development Company leased 20,368 squarefeet of office space in NTS Center, at a rental rate of $14.50 per square footand 2,220 square feet of storage space at a rental rate of $5.50 per squarefoot.  We recognized rents ofapproximately $77,000 and $75,000 from NTS Development Company for the three monthsended March 31, 2010 and 2009, respectively.  The average per square foot rental rate foroffice space in NTS Center as of March 31, 2010 was $14.33 per squarefoot.

 

**Note 12 — Commitmentsand Contingencies**

** **

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

 

***Litigation***

*** ***

From time to time, we are involved inlitigation and other legal proceedings arising out of the ordinary course ofbusiness.  There are no pending materiallegal proceedings to which we are subject.

 

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**Note 13 — SegmentReporting**

** **

Our reportable operating segments include —retail, commercial and multifamily real estate operations.  The following unaudited financial informationof the operating segments has been prepared using a management approach, whichis consistent with the basis and manner in which our management internallydisaggregates financial information for the purpose of assisting in makinginternal operating decisions.  Weevaluate performance based on stand-alone operating segment net income (loss).

 
| ** **                                                                                                     | ** ** | **(Unaudited)**                             | ** ** |
|----------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                                                     | ** ** | **Three  Months Ended March 31, 2010** | ** ** |
| ** **                                                                                                     | ** ** | **Retail**                                  | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Partnership** | ** ** | **Total** | ** ** |
| Rental income                                                                                                  |       | $                                           | 157,346    |   | $ | 1,423,470 |   | $ | 9,615,888 |   | $ | (8,903 | ) | $ | 11,187,801 |   |
| Tenant reimbursements                                                                                          |       | 40,244                                      |       | 404,595 |   | — |   | — |   | 444,839 |   |
|                                                                                                           |       |                                        |       |   |   |   |   |   |   |   |   |
| **Total revenue**                                                                                              |       | 197,590                                     |       | 1,828,065 |   | 9,615,888 |   | (8,903 | ) | 11,632,640 |   |
|                                                                                                           |       |                                        |       |   |   |   |   |   |   |   |   |
| Operating expenses and  operatingexpenses reimbursed to affiliate                                              |       | 38,370                                      |       | 726,944 |   | 3,414,210 |   | — |   | 4,179,524 |   |
| Management fees                                                                                                |       | 8,592                                       |       | 76,056 |   | 484,110 |   | — |   | 568,758 |   |
| Property taxes and  insurance                                                                                  |       | 12,883                                      |       | 264,566 |   | 1,170,895 |   | 31,840 |   | 1,480,184 |   |
| Professional and administrative  expenses and professional and administrative expensesreimbursed to  affiliate |       | —                                      |       | — |   | — |   | 680,497 |   | 680,497 |   |
| Depreciation and  amortization                                                                                 |       | 41,438                                      |       | 467,046 |   | 4,033,257 |   | — |   | 4,541,741 |   |
|                                                                                                           |       |                                        |       |   |   |   |   |   |   |   |   |
| **Total operating expenses**                                                                                   |       | 101,283                                     |       | 1,534,612 |   | 9,102,472 |   | 712,337 |   | 11,450,704 |   |
|                                                                                                           |       |                                        |       |   |   |   |   |   |   |   |   |
| **Operating income (loss)**                                                                                    |       | 96,307                                      |       | 293,453 |   | 513,416 |   | (721,240 | ) | 181,936 |   |
|                                                                                                           |       |                                        |       |   |   |   |   |   |   |   |   |
| Interest and other income                                                                                      |       | —                                      |       | 396 |   | 8,808 |   | 17,123 |   | 26,327 |   |
| Interest expense                                                                                               |       | (52,091                                     | )          | (173,638 | ) | (2,936,323 | ) | (88,838 | ) | (3,250,890 | ) |
| (Loss) gain on disposal of  assets                                                                             |       | —                                      |       | (4,211 | ) | 439 |   | — |   | (3,772 | ) |
| Loss from investments in  tenants in common                                                                    |       | —                                      |       | — |   | (438,800 | ) | — |   | (438,800 | ) |
|                                                                                                           |       |                                        |       |   |   |   |   |   |   |   |   |
| **Income (loss) from  continuing****operations**                                                               |       | 44,216                                      |       | 116,000 |   | (2,852,460 | ) | (792,955 | ) | (3,485,199 | ) |
| Discontinued operations,  net                                                                                  |       | 119,889                                     |       | (45,285 | ) | — |   | — |   | 74,604 |   |
| Gain on sale of  discontinued operations                                                                       |       | 534,883                                     |       | — |   | — |   | — |   | 534,883 |   |
|                                                                                                           |       |                                        |       |   |   |   |   |   |   |   |   |
| **Consolidated net income  (loss)**                                                                            |       | 698,988                                     |       | 70,715 |   | (2,852,460 | ) | (792,955 | ) | (2,875,712 | ) |
|                                                                                                           |       |                                        |       |   |   |   |   |   |   |   |   |
| Net loss attributable to  noncontrollinginterests                                                              |       | —                                      |       | — |   | (307,388 | ) | — |   | (307,388 | ) |
|                                                                                                           |       |                                        |       |   |   |   |   |   |   |   |   |
| **Net income (loss)**                                                                                          |       | $                                           | 698,988    |   | $ | 70,715 |   | $ | (2,545,072 | ) | $ | (792,955 | ) | $ | (2,568,324 | ) |
|                                                                                                           |       |                                        |       |   |   |   |   |   |   |   |   |
| Land, buildings and  amenities, net                                                                            |       | $                                           | 3,812,461  |   | $ | 27,530,533 |   | $ | 256,317,872 |   | $ | — |   | $ | 287,660,866 |   |

 

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| ** **                                                                                                     | ** ** | **(Unaudited)**                                                | ** ** |
|----------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                                                                                                     | ** ** | **Three Months Ended March 31, 2009** | ** ** |
| ** **                                                                                                     | ** ** | **Retail**                                                     | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Partnership** | ** ** | **Total** | ** ** |
| Rental income                                                                                                  |       | $                                                              | 149,881    |   | $ | 1,318,996 |   | $ | 8,590,034 |   | $ | (9,227 | ) | $ | 10,049,684 |   |
| Tenant reimbursements                                                                                          |       | 30,257                                                         |       | 425,571 |   | — |   | — |   | 455,828 |   |
|                                                                                                           |       |                                                           |       |   |   |   |   |   |   |   |   |
| **Total revenue**                                                                                              |       | 180,138                                                        |       | 1,744,567 |   | 8,590,034 |   | (9,227 | ) | 10,505,512 |   |
|                                                                                                           |       |                                                           |       |   |   |   |   |   |   |   |   |
| Operating expenses and  operatingexpenses reimbursed to affiliate                                              |       | 33,576                                                         |       | 628,806 |   | 2,585,233 |   | — |   | 3,247,615 |   |
| Management fees                                                                                                |       | 9,930                                                          |       | 79,366 |   | 429,058 |   | — |   | 518,354 |   |
| Property taxes and  insurance                                                                                  |       | 14,316                                                         |       | 216,016 |   | 1,199,361 |   | 31,940 |   | 1,461,633 |   |
| Professional and  administrative expenses and professional and administrative expensesreimbursed to  affiliate |       | —                                                         |       | — |   | — |   | 680,973 |   | 680,973 |   |
| Depreciation and  amortization                                                                                 |       | 44,482                                                         |       | 445,282 |   | 3,566,052 |   | — |   | 4,055,816 |   |
|                                                                                                           |       |                                                           |       |   |   |   |   |   |   |   |   |
| **Total operating expenses**                                                                                   |       | 102,304                                                        |       | 1,369,470 |   | 7,779,704 |   | 712,913 |   | 9,964,391 |   |
|                                                                                                           |       |                                                           |       |   |   |   |   |   |   |   |   |
| **Operating income (loss)**                                                                                    |       | 77,834                                                         |       | 375,097 |   | 810,330 |   | (722,140 | ) | 541,121 |   |
|                                                                                                           |       |                                                           |       |   |   |   |   |   |   |   |   |
| Interest and other income                                                                                      |       | —                                                         |       | 413 |   | 6,986 |   | 56,588 |   | 63,987 |   |
| Interest expense                                                                                               |       | (90,253                                                        | )          | (464,359 | ) | (2,228,128 | ) | 50,824 |   | (2,731,916 | ) |
| Loss on disposal of assets                                                                                     |       | —                                                         |       | (10,558 | ) | (1,197 | ) | — |   | (11,755 | ) |
| Loss from investments in  tenants in common                                                                    |       | —                                                         |       | — |   | (520,214 | ) | — |   | (520,214 | ) |
|                                                                                                           |       |                                                           |       |   |   |   |   |   |   |   |   |
| **Loss from continuing****operations**                                                                         |       | (12,419                                                        | )          | (99,407 | ) | (1,932,223 | ) | (614,728 | ) | (2,658,777 | ) |
| Discontinued operations,  net                                                                                  |       | 115,501                                                        |       | (100,479 | ) | — |   | — |   | 15,022 |   |
|                                                                                                           |       |                                                           |       |   |   |   |   |   |   |   |   |
| **Net income (loss)**                                                                                          |       | $                                                              | 103,082    |   | $ | (199,886 | ) | $ | (1,932,223 | ) | $ | (614,728 | ) | $ | (2,643,755 | ) |
|                                                                                                           |       |                                                           |       |   |   |   |   |   |   |   |   |
| Land, buildings and  amenities, net                                                                            |       | $                                                              | 3,943,962  |   | $ | 27,737,175 |   | $ | 237,738,946 |   | $ | — |   | $ | 269,420,083 |   |

 

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## ** **

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

## ** **

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

 

**Critical AccountingPolicies**

** **

A critical accounting policy is one thatwould materially affect our operations or financial condition, and requiresmanagement to make estimates or judgments in certain circumstances.  These judgments often result from the need tomake estimates about the effect of matters that are inherently uncertain.  Critical Accounting Policies discussed inthis section are not to be confused with accounting principles and methodsdisclosed in accordance with U.S. generally accepted accounting principles (“GAAP”).  GAAP requires information in financialstatements about accounting principles, methods used and disclosures pertainingto significant estimates.  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 March 31, 2010.

 

**Results of Operations**

** **

As of March 31, 2010, we owned wholly,as a tenant in common with an unaffiliated third party or through joint ventureinvestments with an unaffiliated third party, 7 office and business centers, 14multifamily properties and 2 retail properties. We generate substantially all of our operating income from propertyoperations.

 

Net losses for the three months ended March 31,2010 and 2009 were approximately $2.6 million and $2.6 million,respectively.  Net loss for the threemonths ended March 31, 2010 as compared to March 31, 2009 was drivenby a decrease in operating income of approximately $0.4 million primarilyrelated to the acquisitions of Golf Brook Apartments and Sabal Park Apartments(June 2009), referred to as our “2009 acquisitions” and a $0.5 millionincrease in interest expense.  Thedecrease was offset by a $0.5 million increase in our gain on sale ofdiscontinued operations and a $0.3 million increase in net loss attributable tononcontrolling interests as the result of the 2009 acquisitions.  There were no other material offsettingchanges in net loss for the three months ended March 31, 2010 and 2009.

 

The following tables include certain selectedsummarized operating data for the three months ended March 31, 2010 and2009.  This data should be read inconjunction with our financial statements, including the notes attached hereto.

 
| ** **                                                        | ** ** | **(Unaudited)**                             | ** ** |
|-------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                        | ** ** | **Three  Months Ended March 31, 2010** | ** ** |
| ** **                                                        | ** ** | **Retail**                                  | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Partnership** | ** ** | **Total** | ** ** |
| Total revenues                                                    |       | $                                           | 197,590    |   | $ | 1,828,065 |   | $ | 9,615,888 |   | $ | (8,903 | ) | $ | 11,632,640 |   |
| Operating expenses and  operatingexpenses reimbursed to affiliate |       | 38,370                                      |       | 726,944 |   | 3,414,210 |   | — |   | 4,179,524 |   |
| Depreciation and  amortization                                    |       | 41,438                                      |       | 467,046 |   | 4,033,257 |   | — |   | 4,541,741 |   |
| Total interest expense                                            |       | (52,091                                     | )          | (173,638 | ) | (2,936,323 | ) | (88,838 | ) | (3,250,890 | ) |
| Net income (loss)                                                 |       | 698,988                                     |       | 70,715 |   | (2,545,072 | ) | (792,955 | ) | (2,568,324 | ) |
|                                                                   |            |                                             |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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| ** **                                                        | ** ** | **(Unaudited)**                             | ** ** |
|-------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                        | ** ** | **Three  Months Ended March 31, 2009** | ** ** |
| ** **                                                        | ** ** | **Retail**                                  | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Partnership** | ** ** | **Total** | ** ** |
| Total revenues                                                    |       | $                                           | 180,138    |   | $ | 1,744,567 |   | $ | 8,590,034 |   | $ | (9,227 | ) | $ | 10,505,512 |   |
| Operating expenses and  operatingexpenses reimbursed to affiliate |       | 33,576                                      |       | 628,806 |   | 2,585,233 |   | — |   | 3,247,615 |   |
| Depreciation and  amortization                                    |       | 44,482                                      |       | 445,282 |   | 3,566,052 |   | — |   | 4,055,816 |   |
| Total interest expense                                            |       | (90,253                                     | )          | (464,359 | ) | (2,228,128 | ) | 50,824 |   | (2,731,916 | ) |
| Net income (loss)                                                 |       | 103,082                                     |       | (199,886 | ) | (1,932,223 | ) | (614,728 | ) | (2,643,755 | ) |
|                                                                   |            |                                             |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Occupancy levels at our continuing propertiesby segment as of March 31, 2010 and 2009 were as follows:

 
| ** **  | ** ** | **2010** | ** ** | **2009** | ** ** |
|-------------|------------|----------|------------|----------|------------|
| Multifamily |       | 94       | %          | 92       | %          |
| Commercial  |       | 78       | %          | 74       | %          |
| Retail      |       | 100      | %          | 98       | %          |

 

The average occupancy levels at ourcontinuing properties by segment for the three months ended March 31, 2010and 2009 were as follows:

 
| ** **  | ** ** | **Three  Months Ended March 31,** | ** ** |
|-------------|------------|----------------------------------------|------------|
| ** **  | ** ** | **2010**                               | ** ** | **2009** | ** ** |
| Multifamily |       | 94                                     | %          | 92 | % |
| Commercial  |       | 77                                     | %          | 75 | % |
| Retail      |       | 100                                    | %          | 98 | % |

 

We believe the changes in average and periodend occupancy from period to period are temporary effects of each property’sspecific mix of lease maturities and are not indicative of any known trend oruncertainty.  NTS Center was 58% occupiedas of March 31, 2010.  There may bean extended time period required to increase NTS Center’s occupancy.

 

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

 

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

 

The following discussion relating to changesin our results of operations includes only material line items within ourunaudited condensed consolidated statements of operations or line items forwhich there was a material change between the three months ended March 31,2010 and 2009.

 

***Rental Income and TenantReimbursements***

*** ***

Rental income and tenant reimbursements fromcontinuing operations for the three months ended March 31, 2010 and 2009were approximately $11.6 million and $10.5 million, respectively.  The increase of $1.1 million, or 10%, wasprimarily the result of a $1.2 million increase in rental income from our 2009acquisitions and a $0.1 million increase in rental income across the commercialsegment primarily related to an increase in occupancy at Lakeshore BusinessCenter Phase II.  The increase waspartially offset by a $0.2 million decrease in rental income across theremaining multifamily properties primarily related to an increase in rentalconcessions at our properties located in Tennessee.  There were no other material offsettingchanges in rental income and tenant reimbursements for the three months ended March 31,2010 and 2009.

 

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

*** ***

Operating expenses from continuing operationsfor the three months ended March 31, 2010 and 2009 were approximately $2.9million and $2.1 million, respectively. The increase of $0.8 million, or 38%, was primarily due to a $0.6million increase in operating expenses from our 2009 acquisitions, a $0.1million increase in repairs and maintenance at The Willows of PlainviewApartments and a $0.1 million increase in operating expenses across thecommercial segment primarily related to repairs and maintenance.  There were no other material offsettingchanges in operating expenses for the three months ended March 31, 2010and 2009.

 

Operating expenses reimbursed to affiliatefrom continuing operations for the three months ended March 31, 2010 and2009 were approximately $1.3 million and $1.1 million, respectively.  The increase of $0.2 million, or 18%, was primarilydue to a $0.2 million increase in operating expenses reimbursed to affiliatefrom our 2009 acquisitions.  There wereno other material offsetting changes in operating expenses reimbursed toaffiliate for the three months ended March 31, 2010 and 2009.

 

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

 

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

 

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

*** ***
| ** **          | ** ** | **(Unaudited)**                        | ** ** |
|---------------------|------------|----------------------------------------|------------|
| ** **          | ** ** | **Three  Months Ended March 31,** | ** ** |
| ** **          | ** ** | **2010**                               | ** ** | **2009** | ** ** |
| Property            |       | $                                      | 906,000    |   | $ | 766,000 |   |
| Multifamily leasing |       | 163,000                                |       | 130,000 |   |
| Administrative      |       | 224,000                                |       | 239,000 |   |
| Other               |       | 11,000                                 |       | 10,000 |   |
| ** **          |       |                                   |       |   |   |
| **Total**           |       | $                                      | 1,304,000  |   | $ | 1,145,000 |   |

 

***Management Fees***

*** ***

Management fees from continuing operationsfor the three months ended March 31, 2010 and 2009 were approximately $0.6million and $0.5 million, respectively. The increase of $0.1 million, or 20%, was primarily the result of our2009 acquisitions.  There were no othermaterial offsetting changes in management fees for the three months ended March 31,2010 and 2009.

 

Pursuant to our collective managementagreements, NTS Development Company receives property management fees equal to5% of the gross collected revenue from our properties.  This includes our wholly-owned properties,our consolidated joint venture properties and properties owned by our eightwholly-owned subsidiaries financed through Federal Home Loan MortgageCorporation, or FHLMC.  NTS DevelopmentCompany receives property management fees from our unconsolidated joint ventureproperties owned as a tenant in common with an unaffiliated third party equalto 3.5% of their gross collected revenue under separate management agreements.  We were the beneficiary of a preferentialownership interest, disproportionately greater than our initial cash investmentin each property owned as a tenant in common with an unaffiliated thirdparty.  NTS Development Company has agreedto accept a lower management fee for the properties we own as a tenant incommon with an unaffiliated third party in exchange for a larger potentialdisposition fee.  Disposition fees of upto 6% of the gross sales price may be 

 

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paid to NTS Development Company for the saleof one of our properties owned as a tenant in common with an unaffiliated thirdparty.  Management fees are calculated asa percentage of cash collections and are recorded on the accrual basis.  As a result, the fluctuations in revenuebetween years will differ from the fluctuations of management fee expense.

 

***Property Taxes and Insurance***

*** ***

Property taxes and insurance from continuingoperations for the three months ended March 31, 2010 and 2009 wereapproximately $1.5 million and $1.5 million, respectively.  During the three months ended March 31,2010 property taxes and insurance activity was primarily due to a $0.1 millionincrease in property taxes and insurance from our 2009 acquisitions which wasoffset by a $0.1 million decrease in property taxes at The Lakes Apartments,Castle Creek Apartments, Willow Lake Apartments and Lake Clearwater Apartmentsas the result of tax rate reductions. There were no other material offsetting changes in property taxes andinsurance for the three months ended March 31, 2010 and 2009.

 

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

*** ***

Professional and administrative expenses fromcontinuing operations for the three months ended March 31, 2010 and 2009were approximately $0.3 million and $0.3 million, respectively.  There were no material offsetting changes inprofessional and administrative expenses for the three months ended March 31,2010 and 2009.

 

Professional and administrative expensesreimbursed to affiliate from continuing operations for the three months ended March 31,2010 and 2009 were $0.4 million and $0.4 million, respectively.  There were no material offsetting changes inprofessional and administrative expenses reimbursed to affiliate for the threemonths ended March 31, 2010 and 2009.

 

We do not have any employees.  Pursuant to our collective managementagreements, NTS Development Company employs the individuals who provideservices necessary to operate our properties and conduct our business.  NTS Development Company provides employeesthat may also perform services for other properties and businessenterprises.  In the situation where aparticular employee benefits multiple operations, the employee’s cost isproportionately charged out to the entity receiving the services.  We only reimburse charges from NTSDevelopment Company for actual costs of employee services incurred for ourbenefit.  The cost of services providedto us by NTS Development Company’s employees are classified in our consolidatedstatements of operations as professional and administrative expenses reimbursedto affiliate.  The services provided byothers are classified as professional and administrative.

 

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

 

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

 
| ** **         | ** ** | **(Unaudited)**                        | ** ** |
|--------------------|------------|----------------------------------------|------------|
| ** **         | ** ** | **Three  Months Ended March 31,** | ** ** |
| ** **         | ** ** | **2010**                               | ** ** | **2009** | ** ** |
| Finance            |       | $                                      | 107,000    |   | $ | 89,000 |   |
| Accounting         |       | 204,000                                |       | 187,000 |   |
| Investor relations |       | 67,000                                 |       | 79,000 |   |
| Human resources    |       | 4,000                                  |       | 4,000 |   |
| Overhead           |       | 38,000                                 |       | 34,000 |   |
|               |       |                                   |       |   |   |
| **Total**          |       | $                                      | 420,000    |   | 393,000 |   |
|                    |            |                                        |            |  |  |  |  |

*** ***

***Depreciation andAmortization***

*** ***

Depreciation and amortization from continuingoperations for the three months ended March 31, 2010 and 2009 wasapproximately $4.5 million and $4.1 million, respectively.  The increase of $0.4 million, or 10%, wasprimarily due to our 2009 acquisitions of approximately $0.5 million offset bya decrease in intangible amortizations 

 

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of approximately $0.1 million at Shelby FarmsApartments.  There were no other materialoffsetting changes in depreciation and amortization for the three months ended March 31,2010 and 2009.

 

***Interest Expense***

*** ***

Interest expense from continuing operationsfor the three months ended March 31, 2010 and 2009 was approximately $3.3million and $2.7 million, respectively. The increase of $0.6 million, or 22%, was primarily due to increasedinterest expense related to our additional borrowings related to the December 17,2009 refinancing and our 2009 acquisitions. There were no other material offsetting changes in interest expense forthe three months ended March 31, 2010 and 2009.

 

***Loss on Disposal of Assets***

*** ***

The loss on disposal of assets fromcontinuing operations for the three months ended March 31, 2010 and 2009 canbe attributed to assets that were not fully depreciated at the time ofreplacement, spread primarily amongst the commercial and multifamilyproperties.  The 2010 and 2009 loss ondisposal of assets was due to the retirement of heating and air conditioningunits.

 

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

*** ***

Loss from investment in tenants in common forthe three months ended March 31, 2010 and 2009 includes the net operatinglosses attributable to our investments in tenants in common with anunaffiliated third party.  The propertiesare The Overlook at St. Thomas Apartments and Creek’s Edge at Stony PointApartments.

 

***Discontinued Operations, Net***

*** ***

Net income from discontinued operations forthe three months ended March 31, 2010 and 2009 were approximately $75,000and $15,000, respectively.  Discontinuedoperations, net for the three months ended March 31, 2010 and 2009 includethe operating results for the properties previously sold and currently held forsale as listed below.

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

*** ***

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

*** ***

Gain on sale of discontinued operations forthe three months ended March 31, 2010 was approximately $0.5 million dueto the sale of the Outlet Mall in March 2010.

 

**Liquidity and CapitalResources**

** **

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

 

The components of the consolidated statementsof cash flows for the three months ended March 31, 2010 and 2009 areoutlined below.

 
| ** **                                           | ** ** | **(Unaudited)**                        | ** ** |
|------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                           | ** ** | **Three  Months Ended March 31,** | ** ** |
| ** **                                           | ** ** | **2010**                               | ** ** | **2009** | ** ** |
| Operating activities                                 | ** ** | **$**                                  | (2,352,000 | ) | $ | 1,187,000 | ** ** |
| Investing activities                                 |       | 2,867,000                              |       | (302,000 | ) |
| Financing activities                                 |       | (9,264,000                             | )          | (597,000 | ) |
|                                                 |       |                                   |       |   |   |
| **Net (decrease) increase  in cash and equivalents** |       | $                                      | (8,749,000 | ) | $ | 288,000 |   |

 

23

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***Table of Contents***

 

***Cash Flow from OperatingActivities***

*** ***

Net cash used in operating activities wasapproximately $2.4 million for the three months ended March 31 2010,compared to cash provided by operating activities of approximately $1.2 millionfor the three months ended March 31, 2009.  The change of $3.6million was primarily due to reserving approximately $4.0 million of restrictedcash from the proceeds of our sale of Outlet Mall retail property in March 2010to 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 approximately$0.3 million to fund lender-held cash escrows.  In addition, we used cashfor property taxes at Shelby Farms Apartments of approximately $0.6million.  Our cash used is offset by cash provided by decreased accruedproperty taxes due to early payment of The Grove at Richland Apartments and TheGrove at Whitworth Apartments totaling approximately $0.9 million as part ofthe refinancing on December 17, 2009, the expiration of our interest rateswap agreement in September 2009 of approximately $0.2 million and a $0.2million decrease in cash used to satisfy accounts payable.  The remainingincreases and decreases in cash were individually immaterial.

 

***Cash Flow from InvestingActivities***

*** ***

Net cash provided by investing activities wasapproximately $2.9 million for the three months ended March 31, 2010,compared to cash used in investing activities of approximately $0.3 million forthe three months ended March 31, 2009. The change of approximately $3.2 million was primarily due to ourproceeds of $3.9 million from the sale of our Outlet Mall retail property in March 2010partially offset by increased cash of $0.7 million used for additions to land,buildings and amenities.

 

***Cash Flow from FinancingActivities***

*** ***

Net cash used in financing activities wasapproximately $9.3 million and $0.6 million for the three months ended March 31,2010 and 2009, respectively.  Theincrease of $8.7 million was primarily due to a principal payment of $8.2million on our $8.2 million revolving note payable and a decrease in proceedsfrom our $10.0 million revolving note payable of $0.8 million, partially offsetby an increase of approximately $0.1 million provided by contributions from ournoncontrolling interest holders and a decrease of approximately $0.2 millionused for principal payments on our mortgages payable.

 

***Future Liquidity***

*** ***

Our future liquidity depends significantly onour properties’ occupancy remaining at a level which allows us to make debtpayments and have adequate working capital, currently and in the future.  If occupancy were to fall below that leveland remain at or below that level for a significant period of time, our abilityto make payments due under our debt agreements and to continue paying dailyoperational costs would be greatly impaired. In the next twelve months, we intend to operate the properties in asimilar manner to their operation in recent years.  Cash reserves, which consist of unrestrictedcash as shown on our balance sheet, were approximately $2.5 million on March 31,2010.

 

On March 16, 2010, we announced that theboard of directors of our managing general partner approved a quarterlydistribution of $0.05 per unit on our limited partnership units.  The distribution was paid on April 16,2010, to limited partners of record at the close of business on March 31,2010.

 

Pursuant to leasing agreements signed by March 31,2010, we are obligated to incur expenditures of approximately $1.4 millionfunded by borrowings on our debt during the next twelve months primarily forrenovations and tenant origination costs necessary to continue leasing ourproperties.  This discussion of futureliquidity details our material commitments. We anticipate repaying, seeking renewal or refinancing of our note andmortgage payable coming due in the next twelve months.

 

On February 1, 2010, we amended our$24.0 million mortgage payable to a bank. The amendment converted $8.2 million of the balance to a revolving notepayable due June 1, 2011.  On February 12,2010, we made a principal payment of $8.2 million, from our proceeds fromrefinancing on December 17, 2009, on our new $8.2 million revolving notepayable to a bank.  The revolver proceedsmay be used to fund capital improvements and were used to pay our mortgagepayable to GE Commercial Finance Business Property on April 30, 2010.  Both the 

 

24

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$15.3 million mortgage and the $8.2 million revolving note payable aresecured by our Lakeshore Business Center properties.

 

In addition to the $8.2 million revolvingnote payable previously discussed, we continue to have our $10.0 millionrevolving note payable to a bank due May 31, 2010.  As of March 31, 2010 and December 31,2009, we did not have a balance on either revolving note payable.

 

The aggregate availability on our revolvingnotes payable was approximately $18.2 million as of March 31, 2010.

 

We intend to seek a renewal of our expiring$10.0 million revolving note payable to a bank due May 31, 2010, but canoffer no assurance that we will be successful in doing so, or that favorableterms of renewal can be obtained.

 

***PropertyTransactions***

*** ***

***Acquisitions***

*** ***

During the three months ended March 31,2010 and 2009, we did not acquire any properties.

 

***Dispositions***

 

During the three months ended March 31,2010, we made the following property dispositions:

 
| **Wholly-Owned  Properties-Retail** | ** ** | **Square  Feet** | ** ** | **Our  Ownership** | ** ** | **Date of  Sale** |
|-------------------------------------|------------|------------------|------------|--------------------|------------|-------------------|
| Outlet Mall (1)                     |       | 162,600          |       | 100%               |       | March, 2010       |

 

----

(1)          Gain of approximately $0.5million.

 

On February 23, 2010, we entered into anagreement to sell our Sears Office Building to an unaffiliated third party forapproximately $3.8 million.  We haveoffered seller financing to the purchaser, including additional proceeds toimprove the building, totaling $4.7 million. On April 6, 2010, the purchaser notified us of their intention toextend the closing date to June 30, 2010. We received an additional extension deposit of $250,000.  This additional deposit is being held by ourthird party intermediary.

 

During the three months ended March 31,2009, we did not dispose of any properties.

 

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

 

At March 31, 2010, we held approximately$4.0 million of proceeds from the sale of our Outlet Mall retail property witha third party intermediary to be invested in replacement “like-kind”property.  Our ability to successfullyinvest the proceeds in accordance with Section 1031 of the InternalRevenue Code and qualifying the proceeds for deferral of gain recognition forfederal income tax purposes is dependent on many factors and there can be noassurance 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 for deferral of gain recognition.

 

25

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**Table of Contents**

 

**Website Information**

** **

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

 

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## **Table of Contents**

## ** **

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

## ** **

Our primary market risk exposure, with regardto financial instruments is expected to be our exposure to changes in interestrates.  We refinanced substantially allof our debt acquired at the time of our merger with instruments, which bearinterest at a fixed rate, with the exception of approximately $39.5 million atvariable rates.  We anticipate that ahypothetical 100 basis point increase in interest rates would increase interestexpense on our variable rate debt by approximately $0.4 million annually.  The average variable interest rate at March 31,2010 was 3.67%.

 

**ContractualObligations and Commercial Commitments**

** **

The following table represents ourobligations and commitments to make future payments as of March 31, 2010under contracts, such as debt and lease agreements including principal andinterest, and under contingent commitments, such as debt guarantees.

 
| ** **                              | ** ** | **Payment  Due by Period** | ** **  |
|-----------------------------------------|------------|----------------------------|-------------|
| ** **                              | ** ** | **Total**                  | ** **  | **Within********One Year** | ** ** | **One —  Three********Years** | ** ** | **Three —  Five********Years** | ** ** | **After  Five********Years** | ** ** |
| **Contractual Obligations**             |       |                       |        |   |   |   |   |   |   |   |   |
| Mortgages and notes payable             |       | $                          | 337,460,373 |   | $ | 17,540,123 |   | $ | 45,031,246 |   | $ | 40,349,920 |   | $ | 234,539,084 |   |
| Capital lease obligations               |       | —                     |        | — |   | — |   | — |   | — |   |
| Operating leases (1)                    |       | —                     |        | — |   | — |   | — |   | — |   |
| Other long-term obligations  (2)        |       | —                     |        | — |   | — |   | — |   | — |   |
|                                    |       |                       |        |   |   |   |   |   |   |   |   |
| **Total contractual cash  obligations** |       | $                          | 337,460,373 |   | $ | 17,540,123 |   | $ | 45,031,246 |   | $ | 40,349,920 |   | $ | 234,539,084 |   |

 

----

(1)          We are party to numeroussmall operating leases for office equipment such as copiers, postage machinesand fax machines, which represent an insignificant obligation.

 

(2)          We are party to severalannual maintenance agreements with vendors for such items as outdoormaintenance, pool service and security systems, which represent aninsignificant obligation.

 

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

## ** **

**Evaluation ofDisclosure Controls and Procedures**

** **

As required by Rule 13a-15(b) and Rule 15d-15(b) underthe Securities Exchange Act of 1934, as amended (the “Exchange Act”), ourmanagement, including our Chief Executive Officer and Chief Financial Officer,evaluated as of March 31, 2010, the effectiveness of our disclosurecontrols and procedures as defined in Exchange Act Rule 13a-15(e) andRule 15d-15(e).  Based on thatevaluation, our Chief Executive Officer and Chief Financial Officer concludedthat our disclosure controls and procedures, as of March 31, 2010, wereeffective for the purpose of ensuring that information required to be disclosedby us in this report is recorded, processed, summarized and reported within thetime periods 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.

 

**Changes in InternalControl over Financial Reporting**

** **

There have been no changes in internalcontrol over financial reporting that occurred during the quarter ended March 31,2010 that have materially affected, or are reasonably likely to materially affect,our internal control over financial reporting.

 

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# **Table of Contents**

# ** **

# **PART II— OTHER INFORMATION**

# ** **

## **Item 1 — LegalProceedings**

## ** **

None.

 

## **Item 1A — RiskFactors**

## ** **

There have not been material changes to ourRisk Factors as disclosed in our most recent annual report on Form 10-K asfiled with the Securities and Exchange Commission on March 29, 2010.

 

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

## ** **

On December 1, 2009, three entitiescreated or controlled by Mr. Nichols commenced pre-arranged trading plansto purchase limited partnership units of NTS Realty pursuant to Rule 10b5-1under the Act.  Each of the plans authorizeits administrator, 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.

 

During the three months ended March 31,2010, 50,300 units were purchased by the entities created or controlled by Mr. Nicholspursuant to the trading plans announced on December 1, 2009.  The table below summarizes activity pursuantto these plans for the three months ended March 31, 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** | ** ** |
|--------------------|------------|---------------------------------------|------------|-----------------------------------|------------|-----------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------|------------|
| January 2010  |       | 24,200                                |       | $                                 | 5.23       |                                                                                          | 432,691    | (2)                                                                                                                        |       | (1) |
|               |       |                                  |       |                              |       |                                                                                          |       |                                                                                                                       |       |
| February 2010 |       | 14,100                                |       | $                                 | 5.34       |                                                                                          | 446,791    | (2)                                                                                                                        |       | (1) |
|               |       |                                  |       |                              |       |                                                                                          |       |                                                                                                                       |       |
| March 2010    |       | 12,000                                |       | $                                 | 5.41       |                                                                                          | 458,791    | (2)                                                                                                                        |       | (1) |
|               |       |                                  |       |                              |       |                                                                                          |       |                                                                                                                       |       |
| Total              |       | 50,300                                |       | $                                 | 5.30       |                                                                                          | 458,791    | (2)                                                                                                                        |       | (1) |

 

----

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

 

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

 

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

## ** **

None.

 

## **Item 4 — RESERVED**

## ** **

## **Item 5 — OtherInformation**

## ** **

None.

 

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## **Table of Contents**

## ** **

## **Item 6 — Exhibits**

## ** **

| **Exhibit No.** |   |                                                                                                                                                                                                                                                                                       |   |   |
|----------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
| 2.01                 |   | Agreement and Plan of Merger by and among NTS Realty Holdings Limited  Partnership, NTS-Properties III, NTS-Properties IV, NTS-Properties V, a  Maryland limited partnership, NTS-Properties VI, a Maryland limited  partnership and NTS-Properties VII, Ltd., dated February 3, 2004 |   | (3)    |
|                 |   |                                                                                                                                                                                                                                                                                       |   |   |
| 2.02                 |   | Contribution Agreement by and between NTS Realty Holdings Limited  Partnership and ORIG, LLC,dated February 3, 2004                                                                                                                                                                   |   | (3)    |
|                 |   |                                                                                                                                                                                                                                                                                       |   |   |
| 3.01                 |   | Certificate of Limited Partnership of NTS Realty Holdings Limited  Partnership                                                                                                                                                                                                             |   | (1)    |
|                 |   |                                                                                                                                                                                                                                                                                       |   |   |
| 3.02                 |   | Amended and Restated Agreement of Limited Partnership of NTS Realty  Holdings Limited Partnership,dated as of  December 29, 2005                                                                                                                                                      |   | (7)    |
|                 |   |                                                                                                                                                                                                                                                                                       |   |   |
| 3.03                 |   | Certificate of Incorporation of NTS Realty Capital, Inc.                                                                                                                                                                                                                              |   | (8)    |
|                 |   |                                                                                                                                                                                                                                                                                       |   |   |
| 3.04                 |   | By-Laws of NTS Realty Capital, Inc.                                                                                                                                                                                                                                                   |   | (2)    |
|                 |   |                                                                                                                                                                                                                                                                                       |   |   |
| 10.01                |   | Amended and Restated Management Agreement between NTS Realty Holdings  Limited Partnership andNTS Development Company,  dated as of December 29, 2005                                                                                                                                 |   | (6)    |
|                 |   |                                                                                                                                                                                                                                                                                       |   |   |
| 10.02                |   | Form of Lease Agreement between NTS Realty Holdings Limited  Partnership and SHPS, Inc.                                                                                                                                                                                          |   | (4)    |
|                 |   |                                                                                                                                                                                                                                                                                       |   |   |
| 10.03                |   | Purchase and Sale Agreement between NTS  Realty Holdings Limited Partnership and Investors Capital Mortgage Group, Inc., dated September 30,  2005 (Golf Brook Apartments)                                                                                                       |   | (5)    |
|                 |   |                                                                                                                                                                                                                                                                                       |   |   |
| 10.04                |   | Purchase and Sale Agreement between NTS  Realty Holdings Limited Partnership and Investors Capital Mortgage Group, Inc., dated September 30,  2005 (Sabal Park Apartments)                                                                                                       |   | (5)    |
|                 |   |                                                                                                                                                                                                                                                                                       |   |   |
| 10.05                |   | Agreement for Purchase and Sale between Schaedle Worthington Hyde Properties, L.P.  and NTS Realty Holdings Limited Partnership, dated November 1, 2005 (The Grove at Richland Apartments and The  Grove at Whitworth Apartments)                                                     |   | (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 Apartments)                                                                                         |   | (5)    |
|                 |   |                                                                                                                                                                                                                                                                                       |   |   |
| 10.07                |   | Purchase and Sale Agreement between AMLI  at Castle Creek, L.P. and AMLI Residential Properties, L.P. andNTS Realty Holdings Limited  Partnership, dated February 7,  2006 (Castle Creek Apartments and Lake Clearwater Apartments)                                                   |   | (5)    |
|                 |   |                                                                                                                                                                                                                                                                                       |   |   |
| 10.08                |   | Unconditional and Continuing Guaranty by NTS Realty Holdings Limited  Partnership in favor ofNational City Bank, dated  March 23, 2006                                                                                                                                                |   | (5)    |
|                 |   |                                                                                                                                                                                                                                                                                       |   |   |
| 10.09                |   | Amended and Restated Master Loan Agreements between NTS Realty Holding  Limited Partnership and The Northwestern Mutual Life Insurance Company and  between NTS Realty Holdings Limited Partnership and National City Bank, dated  October 4, 2006                                    |   | (9)    |
|                 |   |                                                                                                                                                                                                                                                                                       |   |   |
| 10.10                |   | Purchase and Sale Agreement between NTS  Realty Holdings Limited Partnership and Meridian Realty Investments, LLC,  dated November 10, 2006 (Springs Medical Office Center)                                                                                                           |   | (10)   |
|                 |   |                                                                                                                                                                                                                                                                                       |   |   |
| 10.11                |   | Purchase and Sale Agreement between NTS  Realty Holdings Limited Partnership and Meridian Realty Investments, LLC,  dated November 10, 2006 (Springs Office Center)                                                                                                                   |   | (10)   |
|                 |   |                                                                                                                                                                                                                                                                                       |   |   |
| 10.12                |   | Purchase and Sale Agreement between NTS  Realty Holdings Limited Partnership together with Overlook Associates, LLC  and The Northwestern Mutual Life Insurance Company, dated December 8,  2006 (The Overlook at St. Thomas Apartments)                                              |   | (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 Apartments)                                                               |   | (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 Apartments)                                                                      |   | (14)   |
|                 |   |                                                                                                                                                                                                                                                                                       |   |   |
| 10.16                |   | Purchase and Sale Agreement 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 Apartments and Golf Brook Apartments)                                                   |   | (15)   |
|                 |   |                                                                                                                                                                                                                                                                                       |   |   |
| 14.01                |   | Code of Conduct and Ethics of NTS Realty Holdings Limited Partnership,  adopted as of December 28, 2004                                                                                                                                                                               |   | (4)    |

 

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| **Exhibit No.** |   |                                                                                                                                                               |   |   |
|----------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
| 31.1                 |   | Certification of Chief Executive Officer Pursuant to  Rule 13a-14(a) and Rule 15d-14(a) of the SecuritiesExchange Act,  as amended             |   | (16)   |
|                 |   |                                                                                                                                                               |   |   |
| 31.2                 |   | Certification of Chief Financial Officer Pursuant to  Rule 13a-14(a) and Rule 15d-14(a) of the SecuritiesExchange Act,  as amended             |   | (16)   |
|                 |   |                                                                                                                                                               |   |   |
| 32.1                 |   | Certification of Chief Executive Officer Pursuant to U.S.C. 1350, as  adopted pursuant to Section 906 of theSarbanes-Oxley  Act of 2002                       |   | (16)   |
|                 |   |                                                                                                                                                               |   |   |
| 32.2                 |   | Certification of Chief Financial Officer Pursuant to U.S.C. 1350, as  adopted pursuant to Section 906 of theSarbanes-Oxley  Act of 2002                       |   | (16)   |
|                 |   |                                                                                                                                                               |   |   |
| 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 andExchange  Commission on October 27, 2004 |   | (3)    |

 

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

 

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## **Table of Contents**

## ** **

## **SIGNATURES**

## ** **

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

 
| ** ** | **NTS REALTY HOLDINGS LIMITED PARTNERSHIP** |
|------------|---------------------------------------------|
|       |                                        |   |
|       | By:                                         | NTS REALTY CAPITAL, INC. |
|       |                                        | Its: | Managing General Partner |
|       |                                        |   |   |
|       |                                        | By: | */s/ Brian F. Lavin* |
|       |                                        |   | Brian F. Lavin |
|       |                                        |   | Its: | President and Chief Executive Officer |
|       |                                        |   | Date: | May 7, 2010 |
|       |                                        |   |   |   |
|       |                                        | By: | */s/ Gregory A. Wells* |
|       |                                        |   | Gregory A. Wells |
|       |                                        |   | Its: | Chief Financial Officer |
|       |                                        |   | Date: | May 7, 2010 |

 

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