10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2008

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                   to                   

Commission file number 001-32389

NTS REALTY HOLDINGS LIMITED PARTNERSHIP

(Exact name of registrant as specified in its charter)

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

Registrant’s telephone number, including area code (502) 426-4800

Securities registered pursuant to Section 12 (b) of the Act:

Title of each class:	Name of each exchange on which registered:
Limited Partnership Units	NYSE Amex

Securities registered pursuant to section 12(g) of the Act:

None

(Title of Class)

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes o     No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes o     No x

Note - Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.

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

Yes x     No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

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

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 (as defined in Rule 12b-2 of the Act).

Yes o     No x

As of June 30, 2008, the aggregate market value of the registrant’s limited partnership units held by nonaffiliates of the registrant was $26,639,916, based on the closing price of the American Stock Exchange.  As of March 31, 2009, there were 11,380,760 limited partnership units of the registrant issued and outstanding.

Documents Incorporated by Reference: Portions of the registrant’s proxy statement for the annual meeting of limited partners to be held in 2009 are incorporated by reference into Part III of this Form 10-K.

NTS REALTY HOLDINGS LIMITED PARTNERSHIP

FORM 10-K

TABLE OF CONTENTS

PART I
ITEM 1	BUSINESS	3
ITEM 1A	RISK FACTORS	7
ITEM 1B	UNRESOLVED STAFF COMMENTS	13
ITEM 2	PROPERTIES	13
ITEM 3	LEGAL PROCEEDINGS	18
ITEM 4	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	18
PART II
ITEM 5	MARKET FOR REGISTRANT’S LIMITED PARTNERSHIP UNITS AND RELATED PARTNER MATTERS	19
ITEM 6	SELECTED FINANCIAL DATA	21
ITEM 7	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	23
ITEM 7A	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	34
ITEM 8	CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	35
ITEM 9	CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	62
ITEM 9A	CONTROLS AND PROCEDURES	62
ITEM 9A (T)	CONTROLS AND PROCEDURES	63
ITEM 9B	OTHER INFORMATION	63
PART III
ITEM 10	DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT	64
ITEM 11	EXECUTIVE COMPENSATION	64
ITEM 12	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT	64
ITEM 13	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS	64
ITEM 14	PRINCIPAL ACCOUNTANT FEES AND SERVICES	64
PART IV
ITEM 15	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	65
SIGNATURES		69

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PART I

ITEM 1 - BUSINESS

General

NTS Realty Holdings Limited Partnership (“NTS Realty,” “we,” “us” or “our”) was organized as a limited partnership in the State of Delaware in 2003 and was formed by the merger of 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. (the “Partnerships”), along with other real estate entities affiliated with their general partners, specifically Blankenbaker Business Center 1A and the NTS Private Group’s assets and liabilities.  The merger was completed on December 28, 2004 after a majority of each Partnership’s limited partners voted for the merger.  The Partnerships and Blankenbaker Business Center 1A were terminated by the merger and ceased to exist.  Concurrent with the merger, ORIG, LLC (“ORIG”), a Kentucky limited liability company, affiliated with the Partnerships’ general partners, contributed substantially all of its assets and liabilities to NTS Realty, including the NTS Private Group properties.  The merger was part of a court approved settlement of class action litigation involving the Partnerships.  Prior to the merger and contribution, we had no operations and a limited amount of assets.  On December 29, 2004, the American Stock Exchange began to list our limited partnership units (the “Units”) for trading.  Our Units currently are listed on the NYSE Amex under the trading symbol “NLP.”  As used in this Form 10-K the terms “we”, “us” or “our”, as the context requires, may refer to NTS Realty, its interests in properties and tenants in common.

At December 31, 2008, we owned wholly or as a tenant in common with an unaffiliated third party, 22 properties, comprised of 12 multifamily properties; 7 office and business centers and 3 retail properties.  The properties are located in and around Louisville (8) and Lexington (1), Kentucky; Fort Lauderdale (3), Florida; Indianapolis (4), Indiana; Memphis (1) and Nashville (2), Tennessee; Richmond (2), Virginia; and Atlanta (1), Georgia.  Our office and business centers aggregate approximately 668,000 square feet.  Our multifamily properties contain 3,672 units.  Our retail properties contain approximately 210,000 square feet.

NTS Realty Capital, Inc. (“NTS Realty Capital”) and NTS Realty Partners, LLC serve as our general partners.  Our partnership agreement vests principal management discretion in our managing general partner, NTS Realty Capital, which has the exclusive authority to oversee our business and affairs, subject only to the restrictions in our certificate of limited partnership and partnership agreement.  NTS Realty Capital has a five-member board of directors, the majority of whom must be considered to be “independent directors” under the standards promulgated by the New York Stock Exchange.  Our limited partners have the power to elect these directors on an annual basis.

We do not have any employees.  NTS Development Company (“NTS Development”), an affiliate of our general partners, oversees and manages the day-to-day operations of our properties pursuant to an amended and restated management agreement.  Pursuant to our management agreement, NTS Development receives fees for a variety of services performed for our benefit.  NTS Development also receives fees under separate management agreements for each of our properties owned as a tenant in common with an unaffiliated third party.  Property management fees are paid in an amount equal to 5% of the gross collected revenue from our wholly-owned properties and 3.5% of the gross collected revenue from our properties owned as a tenant in common with an unaffiliated third party.  We were the beneficiary of a preferential ownership interest, disproportionately greater than our initial cash investment in each property owned through joint venture as a tenant in common with an unaffiliated third party.  Construction supervision fees are paid in an amount equal to 5% of the costs incurred which relate to capital improvements.  These construction supervision fees are capitalized as part of land, buildings and amenities.  Also pursuant to the agreement, NTS Development receives commercial leasing fees equal to 4% of the gross rental amount for new leases and 2% of the gross rental amount for new leases in which a broker is used and for renewals or extensions.  Disposition fees are paid to NTS Development in an amount of 1% to 4% of the aggregate sales price of a property pursuant to our management agreement and up to a 6% fee upon disposition of our properties owned as a tenant in common with an unaffiliated third party under separate management agreements.  NTS Development is reimbursed its actual costs for services rendered to NTS Realty.  NTS Development has agreed to accept a lower management fee for the properties we own as a tenant in common with an unaffiliated third party in exchange for a larger potential disposition fee.

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The independent directors engaged an independent nationally recognized real estate expert (the “expert”) to assist them in their review of the management agreement entered into as of December 28, 2004.  The expert made suggestions as to the types and amounts of fees and reimbursements to be included in the amended and restated management agreement and assisted in the drafting of the amended and restated management agreement.  The amended and restated management agreement was approved by the independent directors and entered into on April 11, 2006 and was effective as of December 29, 2005.  It is automatically renewed annually unless terminated pursuant to its terms.  The independent directors review the amended and restated management agreement periodically.

Employee costs are allocated among NTS Realty, other affiliates of our managing general partner and for the benefit of third parties so that a full-time employee can be shared by multiple entities.  Each employee’s services, which are dedicated to a particular entity’s operations, are allocated as a percentage of each employee’s costs to that entity.  We only reimburse NTS Development Company for actual costs of employer services incurred for our benefit.

Business and Investment Objectives and Operating Strategies

Since our formation, our business and investment objectives have been to:

·generate cash flow for distribution;

·obtain long-term capital gain on the sale of any properties;

·make new investments in properties either wholly, as tenants in common or through joint ventures, including by, directly or indirectly, developing new properties; and

·preserve and protect the limited partners’ capital.

The board of directors of NTS Realty Capital, in the board’s sole discretion, may change these investment objectives as it deems appropriate and in our best interests.  Prior to changing any of the investment objectives, the board of directors will consider, among other factors, expectations, changing market trends, management expertise and ability and the relative risks and rewards associated with any change.

We intend to reach our business and investment objectives through our acquisition and operating strategies.  Our acquisition and operating strategies are to:

·maintain a portfolio which is diversified by property type and to some degree by geographical location;

·achieve and maintain high occupancy and increase rental rates through: (1) efficient leasing strategies, and (2) providing quality maintenance and services to tenants;

·control operating expenses through operating efficiencies and economies of scale;

·attract and retain high quality tenants;

·invest in properties that we believe offer significant growth opportunity; and

·emphasize regular repair and capital improvement programs to enhance the properties’ competitive advantages in their respective markets.

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Competition

We compete with other entities to locate suitable properties for acquisition, to locate purchasers for our properties and to locate tenants for each of our properties.  Although our business is competitive, it is not seasonal to a material degree.  While the markets in which we compete are highly fragmented with no dominant competitors, we face substantial competition.  This competition is generally for the retention of existing tenants at lease expiration or for new tenants when vacancies occur.  There are numerous other similar types of properties located in close proximity to each of our properties.  We maintain the suitability and competitiveness of our properties primarily on the basis of effective rents, amenities and services provided to tenants.  The amount of leasable space available in any market could have a material adverse effect on our ability to rent space and on the rents charged.  Competition to acquire existing properties from institutional investors and other publicly traded real estate limited partnerships and real estate investment trusts has increased substantially in the past several years.  In many of our markets, institutional investors, owners and developers of properties compete vigorously to acquire, develop and lease space.  Many of these competitors have substantially more resources than we do.

Competitive Advantages

We believe that we have competitive advantages that will enable us to be selective with respect to additional real estate investment opportunities.  Our competitive advantages include:

·substantial local market expertise where we own properties;

·long standing relationships with tenants, real estate brokers and institutional and other owners of real estate in our markets; and

·fully integrated real estate operations that allow us to respond quickly to acquisition opportunities.

Distribution Policy

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

·tax-exempt interest;

·depreciation;

·amortization;

·cost recovery allowances; and

·other noncash charges deducted in determining taxable income or loss, and decreased by:

·principal payments on indebtedness;

·property replacement or reserves actually established;

·capital expenditures when made other than from reserves or from borrowings, the proceeds of which are not included in operating cash flow; and

·any other cash expenditures not deducted in determining taxable income or loss.

As noted above, “net cash flow from operations” is reduced by the amount of reserves as determined by us each quarter.  NTS Realty Capital may establish these reserves for, among other things, working capital or capital improvement needs.  Therefore, there is no assurance that we will have “net cash flow from operations” from which to pay distributions in the future.  For example, our partnership agreement permits our managing general partner to reinvest sales or refinancing proceeds in new and existing properties or to create reserves to fund future capital expenditures.  Because “net cash flow from operations” is calculated after reinvesting sales or refinancing proceeds or establishing reserves, we may not have any “net cash flow from operations” from which to pay distributions.

5

Investment and Financing Policies

We will consider the acquisition of additional multifamily properties, retail properties, office buildings and business centers from time to time, with our primary emphasis on multifamily and retail properties.  These properties may be located anywhere within the continental United States; however, we will continue to focus on the Midwest and Southeast portions of the United States.  We will evaluate all new real estate investment opportunities based on a range of factors including, but not limited to: (1) rental levels under existing leases; (2) financial strength of tenants; (3) levels of expense required to maintain operating services and routine building maintenance at competitive levels; and (4) levels of capital expenditure required to maintain the capital components of the property in good working order and in conformity with building codes, health, safety and environmental standards.  We also plan not to acquire any new properties at a capitalization rate less than five percent (5%).  Any properties we acquire in the future would be managed and financed in the same manner as the properties that we acquired in the merger, and we will continue to enforce our policy of borrowing no more than seventy-five percent (75%) of the sum of: (a) the appraised value of our fully-constructed properties and (b) the appraised value of our properties in the development stage as if those properties were completed and ninety-five percent (95%) leased.

In addition to the foregoing, we may engage in transactions structured as “like kind exchanges” of property to obtain favorable tax treatment under Section 1031 of the Internal Revenue Code.  If we are able to structure an exchange of properties as a “like kind exchange,” then any gain we realize from the exchange would not be recognized for federal income tax purposes.  The test for determining whether exchanged properties are of “like kind” includes whether the properties are of the same nature or character.

Other Policies

On April 11, 2006, the board of directors of NTS Realty Capital, Inc., our managing general partner, approved the Amended and Restated Agreement of Limited Partnership of NTS Realty Holdings Limited Partnership effective December 29, 2005.  The following policies were included:

We must obtain the approval of the majority of NTS Realty Capital’s independent directors before we may:

·enter into a contract or a transaction with either of our general partners or their respective affiliates;

·acquire or lease any properties from, or sell any properties to, either of our general partners or their respective affiliates;

·enter into leases with our general partners or their affiliates;

·acquire any properties in exchange for Units;

We are prohibited from:

·making any loans to our general partners or their affiliates;

·paying any insurance brokerage fee to, or obtaining an insurance policy from, our general partners or their affiliates; and

·commingling our funds with funds not belonging to us.

Change in Policies

NTS Realty Capital, through its board of directors, determines our distribution, investment, financing and other policies.  The board of directors reviews these policies at least annually to determine whether they are being followed and if they are in the best interests of our limited partners.  The board of directors may revise or amend these policies at any time without a vote of the limited partners.

Working Capital Practices

Information about our working capital practices are included in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7.

6

Conflicts of Interest

Each of our general partners is controlled directly or indirectly by Mr. J.D. Nichols.  As of December 31, 2008, Mr. Nichols beneficially owns approximately 58.5% of our issued and outstanding limited partnership units.  Other entities controlled directly or indirectly by Mr. Nichols have made and may continue to make investments in properties similar to those that we acquired in the merger or contribution.  In addition, affiliates of our general partners currently own vacant lots located adjacent to our Outlet Mall property, located in Louisville, Kentucky.  These affiliates may acquire additional properties in the future, which are located adjacent to properties that we acquired in the merger or contribution.

Environmental Matters

We believe that our portfolio of properties complies in all material respects with all federal, state and local environmental laws, ordinances and regulations regarding hazardous or toxic substances.  Independent environmental consultants have conducted Phase I or similar environmental site assessments on a majority of the properties and joint ventures that we acquired in the merger and all properties acquired by us since the merger.  Site assessments are intended to discover and evaluate information regarding the environmental condition of the surveyed property and surrounding properties.  These assessments may not, however, have revealed all environmental conditions, liabilities or compliance concerns.

Access to Company Information

We electronically file our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports with the Securities and Exchange Commission (the “SEC”).  The public may read and copy any of the reports that are filed with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549.  The public may obtain information on the operation of the Public Reference Room by calling the SEC at (800)-SEC-0330.  The SEC maintains an Internet site at www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically.

Information concerning NTS Realty Holdings Limited 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 and amendments to those reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act are available and may be accessed free of charge through the “Investor Services” section of our website as soon as reasonably practicable after we electronically file this material with, or furnish it to, the SEC. Our website and the information contained therein or connected thereto are not incorporated into this Annual Report on Form 10-K.

ITEM 1A - RISK FACTORS

Factors That May Affect Our Future Results

Cautionary Statements under the Private Securities Litigation Reform Act of 1995.

Certain information included in this report or in other materials we have filed or will file with the Securities and Exchange Commission (the “SEC”) (as well as information included in oral statements or other written statements made or to be made by us) contains or may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended.  You can identify these statements by the fact that they do not relate strictly to historical or current facts.  They contain words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “may,” “can,” “could,” “might” and other words or phrases of similar meaning in connection with any discussion of future operating or financial performance.  Such statements include information relating to anticipated operating results, financial resources, changes in revenues, changes in profitability, interest expense, growth and expansion, anticipated income to be realized from our investments in unconsolidated entities, the ability to acquire land, the ability to gain approvals and to open new communities, the ability to sell properties, the ability to secure materials and subcontractors, the ability to produce the liquidity and capital necessary to expand and take advantage of opportunities in the future, and stock market valuations. From time to time, forward-looking statements also are included in our other periodic reports on Forms 10-Q and 8-K, in press releases, in presentations, on our website and in other material released to the public.

7

Any or all of the forward-looking statements included in this report and in any other reports or public statements made by us may turn out to be inaccurate.  This can occur as a result of incorrect assumptions or as a consequence of known or unknown risks and uncertainties.  Many factors mentioned in this report or in other reports or public statements made by us, such as government regulation and the competitive environment, will be important in determining our future performance.  Consequently, actual results may differ materially from those that might be anticipated from our forward-looking statements.

We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.  However, any further disclosures made on related subjects in our subsequent reports on Forms 10-K, 10-Q and 8-K should be consulted.  The following cautionary discussion of risks, uncertainties and possible inaccurate assumptions relevant to our business includes factors we believe could cause our actual results to differ materially from expected and historical results.  Other factors beyond those listed below, including factors unknown to us and factors known to us, which we have not determined to be material, could also adversely affect us.  This discussion is provided as permitted by the Private Securities Litigation Reform Act of 1995, and all of our forward-looking statements are expressly qualified in their entirety by the cautionary statements contained or referenced in this section.

Our principal unit holders may effectively exercise control over matters requiring unit holder approval.

As of December 31, 2008, Mr. J.D. Nichols beneficially owns approximately 58.5% of the outstanding NTS Realty Holdings Limited Partnership Units.  Mr. Nichols effectively has the power to elect all of the directors and control the management, operations and affairs of NTS Realty Holdings Limited Partnership.  His ownership may discourage someone from making a significant equity investment in NTS Realty Holdings Limited Partnership, even if we needed the investment to operate our business.  His holdings could be a significant factor in delaying or preventing a change of control transaction that other limited partners may deem to be in their best interests, such as a transaction in which the other limited partners would receive a premium for their shares over their current trading prices.

Adverse economic conditions and disruptions in the function of credit markets could have a material adverse effect on our results of operations, financial condition and ability to pay distributions to you.

The global financial markets are currently undergoing pervasive and fundamental disruptions.  The continuation or intensification of such volatility has had and may continue to have an adverse impact on the availability of credit to businesses, generally, and has resulted in and could lead to further weakening of the U.S. and global economies.  The U.S. Department of Labor has acknowledged that the economic “slowdown” has resulted in a recession, and many economists believe that the recession may last several more quarters.  Our business may be affected by market and economic challenges experienced by the U.S. economy or real estate industry as a whole or by the local economic conditions in the markets in which our properties are located, including the current dislocations in the credit markets and general global economic recession. These current conditions, or similar conditions existing in the future, may have the following consequences:

·the financial condition of our tenants may be adversely affected, which may result in us having to increase concessions, reduce rental rates or make capital improvements in order to maintain occupancy levels, or which may result in tenant defaults under leases due to bankruptcy, lack of liquidity, operational failures or for other reasons;

·significant job losses may occur, which may decrease rental demand, causing market rental rates and property values to be negatively impacted;

·our ability to borrow on terms and conditions that we find acceptable, or at all, may be limited, which could reduce our ability to pursue acquisition opportunities and refinance existing debt, reduce our returns from our acquisitions and increase our future interest expense;

·reduced values of our properties may limit our ability to dispose of assets at attractive prices or to obtain debt financing secured by our properties and may reduce the availability of unsecured loans; and

·the value and liquidity of our short-term investments and cash deposits could be reduced as a result of a deterioration of the financial condition of the institutions that hold them.

8

Our cash flows and results of operations could be adversely affected if legal claims are brought against us and are not resolved in our favor.

Claims have been brought against us in various legal proceedings, which have not had, and are not expected to have, a material adverse effect on our business or financial condition.  Should claims be filed in the future, it is possible that our cash flows and results of operations could be affected, from time to time, by the negative outcome of one or more of such matters.

There is no assurance we will have net cash flow from operations from which to pay distributions.

Our partnership agreement requires us to distribute at least sixty-five percent (65%) of our “net cash flow from operations” to our limited partners.  There is no assurance that we will have any “net cash flow from operations” from which to pay distributions.  Our partnership agreement also permits our managing general partner to reinvest sales or refinancing proceeds in new or existing properties or to create reserves to fund future capital expenditures.  Because “net cash flow from operations” is calculated after reinvesting sales or refinancing proceeds or establishing reserves, we may not have any “net cash flow from operations” from which to pay distributions.

Risks Related to Our Business and Properties

We may suffer losses at our properties that are not covered by insurance.

We carry comprehensive liability, fire, extended coverage, terrorism and rental loss insurance covering all of our properties.  We believe the policy specifications and insured limits are appropriate given the relative risk of loss, the cost of the coverage and industry practice.  None of the entities carry insurance for generally uninsured losses such as losses from riots, war, acts of God or mold.  Some of the policies, like those covering losses due to terrorism and floods, are insured subject to limitations involving large deductibles or co-payments and policy limits, which may not be sufficient to cover losses.  If we experience a loss which is uninsured or which exceeds policy limits, we could lose the capital invested in the damaged property as well as the anticipated future cash flows from that property.  In addition, if the damaged property is subject to recourse indebtedness, we would continue to be liable for the indebtedness, even if it was irreparably damaged.

Future terrorist attacks in the United States could harm the demand for and the value of our properties.

Future terrorist attacks in the U.S., such as the attacks that occurred in New York, Washington, D.C. and Pennsylvania on September 11, 2001, and other acts of terrorism or war could harm the demand for, and the value of, our properties.  A decrease in demand could make it difficult for us to renew or re-lease our properties at lease rates equal to, or above, historical rates.  Terrorist attacks also could directly impact the value of our properties through damage, destruction, loss, or increased security costs, and the availability of insurance for these acts may be limited or costly.  To the extent that our tenants are impacted by future attacks, their ability to honor obligations under their existing leases with us could be adversely affected.

Our ability to pay distributions and the value of our properties and the Units are subject to risks associated with real estate assets and with the real estate industry in general.

Our ability to pay distributions depends on our ability to generate revenues in excess of expenses, scheduled principal payments on debt and capital expenditure requirements.  Events and conditions generally applicable to owners and operators of real property that are beyond our control that could impact our ability to pay distributions, the value of our properties and the value of the Units include:

·local oversupply, increased competition or reduction in demand for office, business centers or multifamily properties;

·inability to collect rent from tenants;

·vacancies or our inability to rent space on favorable terms;

·increased operating costs, including insurance premiums, utilities and real estate taxes;

·costs of complying with changes in governmental regulations;

·the relative illiquidity of real estate investments;

·changing market demographics; and

·inability to acquire and finance properties on favorable terms.

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In addition, periods of economic slowdown or recession, rising interest rates or declining demand for real estate, or the public perception that any of these events may occur, could result in a general decline in rents or in increased defaults under existing leases, which could adversely affect our financial condition, results of operations, cash flow, the value of the Units and ability to satisfy our debt service obligations and to pay distributions.

We face significant competition, which may decrease the occupancy and rental rates of our properties.

We compete with several developers, owners and operators of commercial real estate, many of which own properties similar to ours.  Our competitors may be willing to make space available at lower prices than the space in our properties.  If our competitors offer space at rental rates below current market rates, we may lose potential tenants and be pressured to reduce our rental rates to retain an existing tenant when its lease expires.  As a result, our financial condition, results of operations, cash flow, the value of the Units and ability to satisfy our debt service obligations and to pay distributions could be adversely affected.

Our debt level reduces cash available for distribution and could expose us to the risk of default under our debt obligations.

Payments of principal and interest on borrowings could leave us with insufficient cash resources to operate our properties or to pay distributions.  Our level of debt could have significant adverse consequences, including:

·cash flow may be insufficient to meet required principal and interest payments;

·we may be unable to borrow additional funds as needed or on favorable terms;

·we may be unable to refinance our indebtedness at maturity or the terms may be less favorable than the terms of our original indebtedness;

·we may be forced to dispose of one or more of our properties, possibly on disadvantageous terms;

·we may default on our obligations and the lenders or mortgagees may foreclose on the properties securing their loans or receiving an assignment of rents and leases;

·we may violate restrictive covenants in our loan documents, which would entitle the lenders to accelerate our debt obligations; and

·default under any one of the mortgage loans with cross default provisions could result in a default on other indebtedness.

If any one of these events were to occur, our financial condition, results of operations, cash flow, the value of the Units, our ability to satisfy our debt service obligations and to pay distributions could be adversely affected.  In addition, foreclosures could create taxable income, which would be allocated to all of the partners, but we may not be able to pay a cash distribution to the partners to pay the resulting taxes.

We could incur significant costs related to government regulation and private litigation over environmental matters.

Under various federal, state and local laws, ordinances and regulations relating to the protection of the environment, a current or previous owner or operator of real estate may be held liable for contamination resulting from the presence or discharge of hazardous or toxic substances at that property, and may be required to investigate and clean up any contamination at, or emanating from, that property.  These laws often impose liability, which may be joint and several, without regard to whether the owner or operator knew of, or was responsible for, the presence of the contaminants.  The presence of contamination, or the failure to remediate contamination, may adversely affect the owner’s ability to sell, lease or develop the real estate or to borrow using the real estate as collateral.  In addition, the owner or operator of a site may be subject to claims by third parties based on personal injury, property damage or other costs, including costs associated with investigating or cleaning up the environmental contamination present at, or emanating from, a site.

These environmental laws also govern the presence, maintenance and removal of asbestos containing building materials, or “ACBM.”  These laws require that ACBM be properly managed and maintained, and may impose fines and penalties on building owners or operators who fail to comply with these requirements.  These laws may also allow third parties to seek recovery from owners or operators for personal injury associated with exposure to asbestos fibers.  Some of our properties could contain ACBM.

Some of the properties in our portfolio contain or could have contained, or are adjacent to or near other properties that have contained or currently contain underground storage tanks used to store petroleum products or

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other hazardous or toxic substances.  These operations create a potential for the release of petroleum products or other hazardous or toxic substances.  For example, one of our properties currently has a service station located adjacent to it, and two of our properties are located on a former operating farm under which an underground tank was removed several years ago.

Recent news accounts suggest that there is an increasing amount of litigation over claims that mold or other airborne contaminants have damaged buildings or caused poor health.  We have, infrequently, discovered relatively small amounts of mold-related damage at a limited number of our properties, generally caused by one or more water intrusions, such as roof leaks, or plugged air conditioner condensation lines.  Mold and certain other airborne contaminants occur naturally and are present in some quantity in virtually every structure.  A plaintiff could successfully establish that mold or another airborne contaminant at one of our properties causes or exacerbates certain health conditions.  We generally have no insurance coverage for the cost of repairing or replacing elements of a building or its contents that are affected by mold or other environmental conditions, or for defending against this type of lawsuit.

We may incur significant costs complying with other regulations.

Our properties are subject to various federal, state and local regulatory requirements, such as state and local fire and life safety requirements.  If we fail to comply with these various requirements, we may be fined or have to pay private damage awards.  We believe that our properties materially comply with all applicable regulatory requirements.  These requirements could change in the future requiring us to make significant unanticipated expenditures that could adversely impact our financial condition, results of operations, cash flow, the value of the Units, our ability to satisfy our debt service obligations and to pay distributions.

We may invest in properties through joint ventures or as tenants in common, which add another layer of risk to our business.

We may acquire properties through joint ventures or as tenants in common, which could subject us to certain risks, which may not otherwise be present, if we made the investments directly.  These risks include:

·the potential that our joint venture partner may not perform;

·the joint venture partner or tenants in common may have economic or business interests or goals that are inconsistent with or adverse to our interests or goals;

·the joint venture partner or tenants in common may take actions contrary to our requests or instructions or contrary to our objectives or policies;

·the joint venture partner or tenants in common might become bankrupt or fail to fund its share of required capital contributions;

·we and the joint venture partner or tenants in common may not be able to agree on matters relating to the property; and

·we may become liable for the actions of our third-party joint venture partners or tenants in common.

Any disputes that may arise between joint venture partners and us may result in litigation or arbitration that would increase our expenses and prevent us from focusing our time and effort on the business of the joint venture.

Tax Risks

Tax gain or loss on disposition of Units could be different than expected.

If you sell your Units, you will recognize a gain or loss equal to the difference between the amount realized and your tax basis in those Units.  Prior distributions to you in excess of the total net taxable income you were allocated for a Unit, which decreased your tax basis in that Unit, will, in effect, become taxable income to you if the Unit is sold at a price greater than your tax basis in that Unit, even if the price is less than your original cost.  A substantial portion of the amount realized, whether or not representing gain, may be ordinary income.

If you are a tax-exempt entity, a mutual fund or a foreign person, you may experience adverse tax consequences from owning Units.

Investment in Units by tax-exempt entities, including employee benefit plans and individual retirement accounts, regulated investment companies or mutual funds and non-U.S. persons raises issues unique to them.  For example, a significant amount of our income allocated to organizations exempt from federal income tax, including

11

individual retirement accounts and other retirement plans, will be unrelated business taxable income and will be taxable to such a holder.  Very little of our income will be qualifying income to a regulated investment company.  Distributions to non-U.S. persons will be reduced by withholding tax at the highest marginal tax rate applicable to individuals, and non-U.S. holders will be required to file United States federal income tax returns and pay tax on their share of our taxable income.

We will treat each purchaser of Units as having the same tax benefits without regard to the Units purchased.  The IRS may challenge this treatment, which could adversely affect the value of the Units.

Because we cannot match transferors and transferees of Units, we will adopt certain positions that do not conform with all aspects of existing Treasury Regulations.  A successful IRS challenge to those positions could adversely affect the timing or amount of tax benefits available to you, the amount of gain from your sale of Units or result in audit adjustments to your tax returns.

You likely will be subject to state and local taxes in states where you do not live as a result of an investment in Units.

In addition to federal income taxes, you likely will be subject to other taxes, including state and local taxes, unincorporated business taxes and estate, inheritance or intangible taxes that are imposed by the various jurisdictions in which we do business or own property, even if you do not live in any of those jurisdictions.  You likely will be required to file state and local income tax returns and pay state and local income taxes in some or all of these jurisdictions.  Further, you may be subject to penalties for failure to comply with those requirements.  You must file all required United States federal, state and local tax returns.  Our counsel has not rendered an opinion on the state or local tax consequences of an investment in the Units.

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ITEM 1B - UNRESOLVED STAFF COMMENTS

None.

ITEM 2 - PROPERTIES

General

We own wholly or as a tenant in common with an unaffiliated third party, seven office buildings and business centers, twelve multifamily properties and three retail properties.  Set forth below is a description of each property:

Wholly Owned Properties

Office Buildings and Business Centers

·NTS Center, which was constructed in 1977, is an office complex with approximately 123,000 net rentable square feet in Louisville, Kentucky.  As of December 31, 2008, there were 8 tenants leasing office space aggregating approximately 59,200 square feet, including 1,000 square feet which was leased but unoccupied.  NTS Center’s tenants are professional service entities, principally in real estate, secondary education and information services.  One of these tenants individually lease more than 10% of NTS Center’s net rentable area.  NTS Center was 47% occupied as of December 31, 2008.

·Sears Office Building, which was constructed in 1987, is an office building with approximately 66,900 net rentable square feet in Louisville, Kentucky.  Sears Office Building was vacant as of December 31, 2008.

·Clarke American, which was constructed in 2000, is a business center with approximately 50,000 net rentable square feet in Louisville, Kentucky.  As of December 31, 2008, one tenant was leasing all 50,000 square feet.  The tenant is a professional service entity in the check printing industry.  Clarke American was 100% occupied as of December 31, 2008.

·Lakeshore Business Center Phase I, which was constructed in 1986, is a business center with approximately 100,400 net rentable square feet in Fort Lauderdale, Florida.  As of December 31, 2008, there were 19 tenants leasing space aggregating approximately 91,700 square feet.  The tenants are professional service entities, principally in engineering, insurance and financial services, telecommunication and dental equipment suppliers.  Three of these tenants individually lease more than 10% of the net rentable area at Lakeshore Business Center Phase I.  Lakeshore Business Center Phase I was 91% occupied as of December 31, 2008.

·Lakeshore Business Center Phase II, which was constructed in 1989, is a business center with approximately 94,600 net rentable square feet in Fort Lauderdale, Florida.  As of December 31, 2008, there were 20 tenants leasing space aggregating approximately 85,600 square feet including 17,500 square feet which was leased but unoccupied.  The tenants are governmental and professional service entities, principally in medical equipment sales, financial and engineering services and technology.  One of these tenants individually leases more than 10% of the net rentable area at Lakeshore Business Center Phase II.  Lakeshore Business Center Phase II was 72% occupied as of December 31, 2008.

·Lakeshore Business Center Phase III, which was constructed in 2000, is a business center with approximately 38,900 net rentable square feet in Fort Lauderdale, Florida.  As of December 31, 2008, there were 4 tenants leasing space aggregating all 38,900 square feet.  The tenants are professional service entities, principally in insurance services, consulting services, real estate development and engineering.  All four of these tenants individually lease more than 10% of the net rentable area at Lakeshore Business Center Phase III.  Lakeshore Business Center Phase III was 100% occupied as of December 31, 2008.

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·Peachtree Corporate Center, which was constructed in 1979, is a business park with approximately 194,700 net rentable square feet in Atlanta, Georgia.  As of December 31, 2008, there were 41 tenants leasing space aggregating approximately 154,100 square feet.  The tenants are professional service entities, principally in sales-related services.  None of these tenants individually lease more than 10% of Peachtree’s net rentable area.  Peachtree was 79% occupied as of December 31, 2008.

Multifamily Properties

·Park Place Apartments (formerly Park Place Apartments Phases I, II and III), which was constructed in three phases, is a 464-unit luxury apartment complex located on a 44.8-acre tract in Lexington, Kentucky.  Phases I and II were constructed between 1987 and 1989 and Phase III was constructed in 2000.  As of December 31, 2008, the property was 93% occupied.

·The Willows of Plainview Apartments (formerly The Willows of Plainview Phases I and II and The Park at the Willows), which was constructed in three phases between 1985 and 1988, is a 310-unit luxury apartment complex located on a 19-acre tract in Louisville, Kentucky.  As of December 31, 2008, the property was 97% occupied.

·Willow Lake Apartments, which was constructed in 1985, is a 207-unit luxury apartment complex located on an 18-acre tract in Indianapolis, Indiana.  As of December 31, 2008, the property was 94% occupied.

·The Lakes Apartments, which was purchased in 2005 and constructed in 1997, is a 230-unit luxury apartment complex located on a 19.7-acre tract in Indianapolis, Indiana.  As of December 31, 2008, the property was 94% occupied.

·The Grove at Richland Apartments, which was purchased in 2006 and constructed in 1998, is a 292-unit luxury apartment complex located on a 10.5-acre tract in Nashville, Tennessee.  As of December 31, 2008, the property was 90% occupied.

·The Grove at Whitworth Apartments, which was purchased in 2006 and constructed in 1994, is a 301-unit luxury apartment complex located on 12.1-acre tract in Nashville, Tennessee.  As of December 31, 2008, the property was 92% occupied.

·The Grove at Swift Creek Apartments, which was purchased in 2006 and constructed in 2000, is a 240-unit luxury apartment complex located on a 32.9-acre tract in Midlothian, Virginia.  As of December 31, 2008, the property was 82% occupied.

·Castle Creek Apartments, which was purchased in 2006 and constructed in 1999, is a 276-unit luxury apartment complex located on a 15.9-acre tract in Indianapolis, Indiana.  As of December 31, 2008, the property was 90% occupied.

·Lake Clearwater Apartments, which was purchased in 2006 and constructed in 1999, is a 216-unit luxury apartment complex located on a 10.6-acre tract in Indianapolis, Indiana.  As of December 31, 2008, the property was 91% occupied.

·Shelby Farms, which was purchased in 2008 and constructed in two phases, is a 450-unit luxury apartment complex located on a 30-acre tract in Memphis, Tennessee. Phase I was constructed in 1997 and Phase II was constructed in 2007. As of December 31, 2008, the property was 87% occupied.

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Retail Properties

·Bed, Bath & Beyond, which was constructed in 1999, is approximately a 35,000 square foot facility in Louisville, Kentucky.  Bed, Bath & Beyond was 100% occupied as of December 31, 2008.

·Outlet Mall, which was constructed in 1983, is a 162,600 square foot mall in Louisville, Kentucky which as of December 31, 2008 was 100% occupied.  The property is occupied by Garden Ridge L.P.

·Springs Station, which was constructed in 2001, is a retail facility with approximately 12,000 net rentable square feet in Louisville, Kentucky.  As of December 31, 2008, there were 6 tenants leasing space aggregating approximately 10,900 square feet.  The tenants are professional service entities,  principally in staffing, financial and medical equipment sales.  Three of these tenants individually lease more than 10% of the net rentable area at Springs Station.  Springs Station was 90% occupied as of December 31, 2008.

Tenant in Common Properties

Multifamily Properties

·The Overlook at St. Thomas, which was purchased in 2007 and constructed in 1991, is a 484-unit luxury apartment complex located on a 24.9-acre tract in Louisville, Kentucky.  As of December 31, 2008, the property was 92% occupied.  We own a 60% tenant in common interest in this property.

·Creek’s Edge at Stony Point, which was purchased in 2007 and constructed in 2006, is a 202-unit luxury apartment complex located on a 26.3-acre tract in Richmond, Virginia.  As of December 31, 2008, the property was 90% occupied.  We own a 51% tenant in common interest in this property.

Corporate Headquarters

Our executive offices are located at 10172 Linn Station Road, Suite 200, Louisville, Kentucky 40223, and our phone number is (502) 426-4800.

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Occupancy Rates

The table below sets forth the average occupancy rate for each of the past three years with respect to each of our properties.

	Years Ended December 31,
	2008		2007		2006
OFFICE BUILDING OCCUPANCY
NTS Center	87	%	78	%	76	%
Sears Office Building (1)	0	%	0	%	0	%
BUSINESS CENTER OCCUPANCY
Clarke American	100	%	100	%	100	%
Lakeshore Business Center Phase I	86	%	73	%	67	%
Lakeshore Business Center Phase II	73	%	82	%	87	%
Lakeshore Business Center Phase III	100	%	98	%	87	%
Peachtree Corporate Center	82	%	84	%	88	%
MULTIFAMILY OCCUPANCY
Park Place Apartments	96	%	95	%	90	%
The Willows	95	%	96	%	95	%
Willow Lake Apartments	96	%	97	%	95	%
The Lakes Apartments	94	%	97	%	97	%
The Grove at Richland	95	%	95	%	97	%
The Grove at Whitworth	94	%	96	%	97	%
The Grove at Swift Creek	88	%	94	%	95	%
Castle Creek	96	%	97	%	96	%
Lake Clearwater	95	%	95	%	91	%
The Overlook at St. Thomas (2)	90	%	93	%	N/A
Creek’s Edge at Stony Point (2)	87	%	84	%	N/A
Shelby Farms	90	%	N/A		N/A
RETAIL OCCUPANCY
Bed, Bath & Beyond	100	%	100	%	100	%
Outlet Mall	100	%	100	%	100	%
Springs Station	60	%	69	%	89	%

(1)Sears Office Building was vacant and unoccupied at December 31, 2008, 2007 and 2006.

(2)Property owned as a tenant in common with an unaffiliated third party.

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Tenant Information

We are not dependent upon any tenant for 10% or more of our revenues.  The loss of any one tenant should not have a material adverse effect on our business or financial performance.  The following table sets forth our ten largest tenants based on annualized base rent from continuing operations as of December 31, 2008.

Tenant	Total Leased Square Feet	Annualized Base Rent (1)		Percentage of Annualized Base Rent (1)		Lease Expiration
Garden Ridge (2)	162,617	$	731,777	1.73	%	03/12/10
Clarke Checks (2)	50,000	512,500		1.21	%	08/31/10
Bed, Bath & Beyond (2)	34,953	384,483		0.91	%	01/31/15
ECI Telecom (3)	29,287	380,731		0.90	%	03/31/18
NTS Development Company (2)	20,368	295,336		0.70	%	03/31/13
John J. Kirlin, Inc. (3)	20,135	256,281		0.61	%	08/10/14
Patterson Dental Supply (3)	15,497	201,328		0.48	%	10/31/13
Kimley Horn & Associates (3)	12,061	162,311		0.38	%	02/28/14
Devry, Inc. (2)	9,294	156,388		0.37	%	03/31/13
First American Default Information services (2)	11,137	129,980		0.31	%	01/31/13

(1)Annualized Base Rent means annual contractual rent.

(2)A tenant of a Louisville, Kentucky property.

(3)A tenant of a Fort Lauderdale, Florida property.

Indebtedness

The tables below reflect our outstanding indebtedness from mortgages and notes payable for our properties owned wholly or through joint ventures as a tenant in common included in continuing operations as of December 31, 2008.  Properties that are not encumbered by mortgages or notes are not listed below.  Some of our mortgages and notes bear interest in relation to the Libor Rate.  As of December 31, 2008, the Libor Rate was 0.44%.  The Libor Rate is a variable rate of interest that is adjusted from time to time based on interest rates set by London financial institutions.

Wholly Owned Properties	Interest Rate		Maturity Date	Balance on December 31, 2008
Lakeshore Business Center Phases I, II and III (1)	Libor + 1.80	%	06/01/09	$	23,907,000
NTS Realty Multifamily Properties I (2)	5.98	%	01/15/15	71,041,740
NTS Realty Multifamily Properties II (3)	5.35	%	01/15/15	32,001,720
NTS Realty I (4)	5.07	%	03/15/15	27,534,884
NTS Realty III	Libor + 1.75	%	05/31/09	6,482,149
Bed, Bath & Beyond (5)	9.00	%	08/01/10	2,412,387
Clarke American	8.45	%	11/01/15	2,277,378
The Lakes Apartments (6)	5.11	%	12/01/14	11,575,911
Shelby Farms (7)	6.03	%	09/01/18	26,328,500
				$	203,561,669

Tenant in Common Properties
The Overlook Apartments (8)	5.72	%	04/11/17	35,268,090
Creek’s Edge Apartments (9)	5.99	%	11/15/17	22,750,000

(1)This note is guaranteed individually and severally by Mr. Nichols and Mr. Brian F. Lavin.

(2)A balloon payment of $62,866,145 is due upon maturity.

(3)A balloon payment of $28,300,138 is due upon maturity.

(4)A balloon payment of $22,311,987 is due upon maturity.

(5)A balloon payment of $2,213,097 is due upon maturity.

(6)A balloon payment of $10,269,282 is due upon maturity.

(7)A balloon payment of $23,148,594 is due upon maturity.

(8)A balloon payment of $30,342,936 is due upon maturity.  We are proportionately liable for this mortgage, limited to our 60% interest as a tenant in common of this property.

(9)A balloon payment of $20,100,323 is due upon maturity.  We are jointly and severally liable for this mortgage.  We own a 51% interest as a tenant in common of this property.

Our mortgages may be prepaid, but are generally subject to a yield-maintenance premium.

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Property Tax

The following table sets forth for each property that we own, the property tax rate and annual property taxes.

SCHEDULE OF ANNUAL PROPERTY TAX RATES AND TAXES - 2008

State	Property	Property Tax Rate (per $100)	Gross Amount Annual Property Taxes (1)
FL	Lakeshore Business Center Phase I	1.97	$	186,924
FL	Lakeshore Business Center Phase II	1.97	196,323
FL	Lakeshore Business Center Phase III	1.97	77,176
GA	Peachtree Corporate Center	3.18	108,842
IN	Willow Lake Apartments	2.95	249,907
IN	The Lakes Apartments	2.95	377,553
IN	Castle Creek Apartments	2.45	491,840
IN	Lake Clearwater Apartments	2.45	365,852
KY	Bed, Bath & Beyond	1.17	26,061
KY	Clarke American	1.12	36,308
KY	NTS Center	1.12	98,795
KY	Outlet Mall	1.12	87,843
KY	The Willows of Plainview Apartments	1.12	152,568
KY	Park Place Apartments	1.09	238,250
KY	Sears Office Building	1.12	60,155
KY	Springs Station	1.17	20,151
KY	The Overlook at St. Thomas (2)	0.97	407,147
TN	Shelby Farms	7.29	694,717
TN	The Grove at Richland Apartments	4.69	477,161
TN	The Grove at Whitworth Apartments	4.69	515,144
VA	The Grove at Swift Creek Apartments	0.95	226,558
VA	Creek’s Edge at Stony Point (2)	1.20	348,576
			$	5,443,851

(1)Does not include any offset for property taxes reimbursed by tenants.  Property taxes in Jefferson County, Kentucky, Fayette County, Kentucky, City of Jeffersontown, Kentucky, and the City of St. Matthews, Kentucky are discounted by approximately 2% if they are paid prior to the due date.  Discounts for early payment in other states generally provide no discount to the gross amount of property tax.

(2)Properties owned as a tenant in common with an unaffiliated third party.

ITEM 3 - LEGAL PROCEEDINGS

   None.

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

   No matters were submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the fourth quarter of the year ended December 31, 2008.

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PART II

ITEM 5 - MARKET FOR REGISTRANT’S LIMITED PARTNERSHIP UNITS AND RELATED PARTNER MATTERS

Common Stock Market Prices and Distributions

Beginning December 29, 2004, our units were listed for trading on the American Stock Exchange under the symbol NLP.  Beginning December 1, 2008, our units ceased trading on the American Stock Exchange and now trade on the NYSE Amex under the symbol NLP.  The approximate number of record holders of our units at December 31, 2008 was 2,111.

High and low unit prices for the period January 1, 2007 through December 31, 2007 were $7.75 to $4.95, respectively.  Quarterly distributions are determined based on current cash balances, cash flow being generated by operations and cash reserves needed for future leasing costs, tenant finish costs and capital improvements.

High and low unit prices for the period January 1, 2008 through December 31, 2008 were $6.65 to $3.00, respectively.  Quarterly distributions are determined based on current cash balances, cash flow being generated by operations and cash reserves needed for future leasing costs, tenant finish costs and capital improvements.

The following table sets forth the price range of our limited partnership units on the NYSE Amex or its predecessor, the American Stock Exchange, and distributions declared for each quarter during the years ended December 31, 2008 and 2007.

	Three Months Ended
	March 31		June 30		September 30		December 31
2008
High	$	5.20	$	6.65	$	6.50	$	5.55
Low	$	4.50	$	4.85	$	4.43	$	3.00
Distributions declared	$	1,138,076	$	910,461	$	910,461	$	569,038
2007
High	$	7.75	$	7.54	$	7.22	$	6.59
Low	$	7.00	$	7.11	$	6.50	$	4.95
Distributions declared	$	1,138,076	$	1,138,076	$	1,138,076	$	1,138,076

We have a policy of paying regular distributions, although there is no assurance as to the payment of future distributions because they depend on future earnings, capital requirements and financial condition.  In addition, the payment of distributions is subject to the restrictions described in Part II, Item 8, Note 2, Section M, to the financial statements and discussed in Part II, Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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On May 16, 2008, we announced that an entity controlled by our Chairman, Mr. J.D. Nichols, commenced a pre-arranged trading plan to purchase limited partnership units of NTS Realty Holdings Limited Partnership (the “Company”) pursuant to Rule 10b5-1 under the Securities Exchange Act of 1934, as amended (the “Act”).  The plan authorizes its administrator, Wells Fargo Investments, LLC, to purchase up to $1.2 million of the Company’s limited partnership units from time to time through no later than April 2010.  Under the terms of the plan, Mr. Nichols has no discretion or control over the timing, effectuation or the amount of each purchase.

On December 1, 2008, we announced that two entities created by Mr. Nichols commenced pre-arranged trading plans to purchase limited partnership units of the Company pursuant to Rule 10b5-1 under the Act.  Each of the plans authorize its administrator, Wells Fargo Investments, LLC, to purchase up to approximately $0.1 million of the Company’s limited partnership units from time to time through no later than November 2009.  Under the terms of the plans, Mr. Nichols has no discretion or control over the timing, effectuation or the amount of each purchase.

On December 15, 2008, we announced that an entity controlled by Mr. Nichols commenced a pre-arranged trading plan to purchase limited partnership units of the Company pursuant to Rule 10b5-1 under the Act.  The plan authorizes its administrator, Wells Fargo Investments, LLC, to purchase up to approximately $0.4 million of the Company’s limited partnership units from time to time through no later than November 2009.  Under the terms of the plan, Mr. Nichols has no discretion or control over the timing, effectuation or the amount of each purchase.

During the year ended December 31, 2008, 118,900 units were purchased by the entities created or controlled by Mr. Nichols pursuant to the trading plans announced May 16, 2008, December 1, 2008 and December 15, 2008, respectively. The table below summarizes activity pursuant to these plans for the quarterly period ended December 31, 2008.

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 (1)
October 2008	27,000	$	4.63	239,891	(2)		(1)
November 2008	20,300	$	4.40	260,191	(2)		(1)
December 2008	11,900	$	3.92	272,091	(2)		(1)
Total	59,200	$	4.32	272,091	(2)		(1)

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

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

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ITEM 6 - SELECTED FINANCIAL DATA

The following table sets forth our selected financial data for 2008, 2007, 2006 and 2005 as well as selected historical combined condensed financial and operating data for 2004 as if NTS-Properties III, NTS-Properties IV, NTS-Properties V, a Maryland limited partnership, NTS-Properties VI, a Maryland limited partnership, NTS-Properties VII, Ltd. (the “Partnerships”) and NTS Private Group were combined on a historical basis.  The combined financial information is presented to provide a basis for discussion.  This historical combined presentation reflects adjustments to the actual historical data to: 1) include a previously unconsolidated joint venture (Blankenbaker Business Center 1A); 2) eliminate the equity investment and minority interests in wholly combined joint ventures in the historical financial information of the applicable partnership; and 3) include any debt used by ORIG and its related interest cost to acquire interests in the Partnerships which was assumed by NTS Realty in the merger. Our selected financial data for 2007 has been restated to reflect the change in our consolidation policy with respect to undivided tenant in common interests as more fully described in Item 8, Note 14 - Restatement of the Consolidated Financial Statements.

We have derived the statement of operations and balance sheet data for the years ended December 31, 2008, 2007, 2006 and 2005 from our audited financial statements.  We have derived the statement of operations data for the period from January 1, 2004 to December 27, 2004 from our audited financial statements and the audited financial statements of the Partnerships and the NTS Private Group.  We have derived the combined condensed statement of operations data consisting of interest expense relating to ORIG’s debt from the unaudited financial statements of ORIG for the year ended December 31, 2004.  In the opinion of management, our unaudited financial statements have been prepared on a basis consistent with our audited financial statements and include all adjustments, consisting of normal recurring accruals, which we consider necessary for a fair presentation of our financial condition and the results of operations as of such date and for such periods under U.S. generally accepted accounting principles.

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SUMMARY STATEMENT OF OPERATIONS AND BALANCE SHEET DATA

													Period Ended
	Years Ended December 31,												December 27,
	2008			2007			2006			2005			2004
				Restated									(unaudited)
STATEMENT OF OPERATIONS DATA
REVENUE:
Rental income	$	39,872,992		$	35,847,494		$	32,419,413		$	16,646,789		$	15,992,521
Tenant reimbursements	1,775,192			1,708,710			1,650,809			1,652,624			1,530,132
Total revenue	41,648,184			37,556,204			34,070,222			18,299,413			17,522,653
EXPENSES:
Operating expenses and operating expenses reimbursed to affiliate	13,946,452			12,434,885			11,492,695			6,779,699			5,925,241
Management fees	2,066,817			1,888,891			1,730,835			777,720			929,175
Property taxes and insurance	5,692,086			4,830,917			4,070,371			2,148,341			1,728,633
Professional and administrative expenses and professional and administrative expenses reimbursed to affiliate	2,878,772			3,143,436			3,499,623			4,077,411			4,747,700
Depreciation and amortization	14,970,783			13,419,185			12,903,509			5,057,066			4,685,294
Total operating expenses	39,554,910			35,717,314			33,697,033			18,840,237			18,016,043
OPERATING INCOME (LOSS)	2,093,274			1,838,890			373,189			(540,824		)	(493,390		)
Interest and other income and interest and other income reimbursed to affiliate	405,673			60,826			147,501			367,571			1,566,179
Interest expense and interest expense reimbursed to affiliate	(11,443,653		)	(11,317,486		)	(10,614,244		)	(4,812,478		)	(6,852,161		)
Loss on disposal of assets	(168,419		)	(66,052		)	(146,254		)	(412,383		)	(16,584		)
Settlement charge	—			—			—			—			(2,896,259		)
Loss from investments in tenants in common	(2,377,927		)	(1,608,295		)	—			—			—
Income from investment in joint venture	—			—			—			953,300			—
Loss from continuing operations	(11,491,052		)	(11,092,117		)	(10,239,808		)	(4,444,814		)	(8,692,215		)
Discontinued operations, net	330,505			1,555,331			1,404,637			2,406,427			(1,850,574		)
Gain on sale of discontinued operations	18,910,133			13,482,291			49,950,486			270,842			—
NET INCOME (LOSS)	$	7,749,586		$	3,945,505		$	41,115,315		$	(1,767,545	)	$	(10,542,789	)
Distributions declared	$	3,528,036		$	4,552,304		$	5,690,804		$	5,690,804		$	—
Distributions declared per limited partnership unit	$	0.31		$	0.40		$	0.50		$	0.50		$	—
BALANCE SHEET DATA (end of year)
Land, buildings and amenities, net	$	278,847,073		$	249,195,593		$	260,381,716		$	103,859,508		$	107,095,228
Total assets	294,115,079			297,456,867			309,251,401			187,808,823			166,547,424
Mortgages and notes payable	203,561,669			206,710,646			218,215,006			135,197,509			109,878,858

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ITEM 7 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This section provides our Management’s Discussion and Analysis of Financial Condition and Results of Operations (‘‘MD&A”).

The following discussion should be read in conjunction with the financial statements and supplementary data appearing in Part II, Item 8.

Critical Accounting Policies

General

A critical accounting policy is one that would materially affect our operations or financial condition, and requires management to make estimates or judgments in certain circumstances.  These judgments often result from the need to make estimates about the effect of matters that are inherently uncertain.  Critical accounting policies discussed in this section are not to be confused with accounting principles and methods disclosed in accordance with U.S. generally accepted accounting principles (‘‘GAAP’’).  GAAP requires information in financial statements about accounting principles, methods used and disclosures pertaining to significant estimates.  The following disclosure discusses judgments known to management pertaining to trends, events or uncertainties known which were taken into consideration upon the application of those policies and the likelihood that materially different amounts would be reported upon taking into consideration different conditions and assumptions.

Impairment and Valuation

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

The merger was accounted for using the purchase method of accounting in accordance with SFAS No. 141 ‘‘Business Combinations.’’  NTS Realty was treated as the purchasing entity.  For the merger, the portion of each partnership’s assets and liabilities acquired from unaffiliated third parties was adjusted to reflect its fair market value.  That portion owned by affiliates of the general partners of the Partnerships was reflected at historical cost.  The assets and liabilities contributed by NTS Private Group were adjusted to reflect their fair market value, except for that portion owned by Mr. Nichols, which was reflected at historical cost due to his common control over the contributing entities.

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In accordance with SFAS No. 141, we allocate the purchase price of each acquired investment property among land, buildings and improvements, other intangibles, including acquired above market leases, acquired below market leases and acquired in place lease origination cost which is the market cost avoidance of executing the acquired leases.  Allocation of the purchase price is an area that requires complex judgments and significant estimates.  We use information contained in third-party appraisals as the primary basis for allocating the purchase price between land and buildings.  A pro rata portion of the purchase price is allocated to the value of avoiding a lease-up period for acquired in-place leases.  The value of in-place leases is amortized to expense over the remaining initial term of the respective leases.  A portion of the purchase price is allocated to the estimated lease origination cost based on estimated lease execution costs for similar leases and considered various factors including geographic location and size of leased space.  We then evaluate acquired leases based upon current market rates at the acquisition date and various other factors including geographic location, size and the location of leased space within the property, tenant profile and the credit risk of the tenant in determining whether the acquired lease is above or below market.  After acquired leases are determined to be at, above or below market, we allocate a pro rata portion of the purchase price to any acquired above or below market lease based upon the present value of the difference between the contractual lease rate and the estimated market rate.  We also consider an allocation of purchase price to in-place leases that have a customer relationship intangible value.  The characteristics we consider in allocating these values include the nature and extent of existing business relationships with the tenant, growth prospects for developing new business with the tenant and the tenant’s credit quality and expectations of lease renewals.  We did not have any tenants with whom we have identified a developed relationship that we believe had any intangible value.

Recognition of Rental Income

Under GAAP, we are required to recognize rental income based on the effective monthly rent for each lease.  The effective monthly rent is equal to the average monthly rent during the term of the lease, not the stated rent for any particular month.  The process, known as ‘‘straight-lining’’ or ‘‘stepping’’ rent generally has the effect of increasing rental revenues during the early phases of a lease and decreasing rental revenues in the latter phases of a lease.  Due to the impact of “straight-lining,” on a historical consolidating basis, rental income exceeded the cash collected for rent by approximately $0.3 million for the year ended December 31, 2008.  Cash collected for rent exceeded rental income by approximately $0.3 million and $0.2 million for the years ended December 31, 2007 and 2006, respectively.  If rental income calculated on a straight-line basis exceeds the cash rent due under the lease, the difference is recorded as an increase in deferred rent receivable and included as a component of accounts receivable on the relevant balance sheet.  If the cash rent due under the lease exceeds rental income calculated on a straight-line basis, the difference is recorded as a decrease in deferred rent receivable and is recorded as a decrease of accounts receivable on the relevant balance sheet.  We defer recognition of contingent rental income, such as percentage or excess rent, until the specified target that triggers the contingent rental income is achieved.  We periodically review the collectability of outstanding receivables.  Allowances are generally taken for tenants with outstanding balances due for a period greater than ninety days and tenants with outstanding balances due for a period less than ninety days but that we believe are potentially uncollectible.

Recognition of Lease Termination Income

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

Cost Capitalization and Depreciation Policies

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

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Liquidity and Capital Resources

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

	Years Ended December 31,
	2008			Restated 2007			2006
Operating activities	$	7,866,000		$	8,075,000		$	9,077,000
Investing activities	1,414,000			10,227,000			(57,725,000		)
Financing activities	(10,125,000		)	(17,485,000		)	43,267,000
Net (decrease) increase in cash and equivalents	$	(845,000	)	$	817,000		$	(5,381,000	)

Cash Flow from Operating Activities

Net cash provided by operating activities decreased to approximately $7.9 million from $8.1 million, for the years ended December 31, 2008 and 2007, respectively.  This decrease was primarily due to an increase in cash used to satisfy accounts payable and accrued expenses primarily due to the sale of Atrium Center, Blankenbaker Business Center Phases I and II, Plainview Center, Plainview Point Office Center Phases I and II, Plainview Point Office Center Phase III, and the ITT Parking Lot (the “Office Portfolio”), along with a decrease in other liabilities including a decrease in land deposits and in the valuation of our interest rate swap.

Net cash provided by operating activities decreased from approximately $9.1 million for the year ended December 31, 2006 to approximately $8.1 million for the year ended December 31, 2007.  The decrease is primarily the result of an increased loss from continuing operations.  One of the most significant components of this increased loss was higher interest expense in our multifamily segment.

Cash Flow from Investing Activities

Net cash provided by investing activities decreased from approximately $10.2 million, for the year ended December 31, 2007 to approximately $1.4 million, for the year ended December 31, 2008.  The change was primarily due to $23.8 million in additional proceeds related to property dispositions than in the comparable prior period, partially offset by issuing notes receivable to the unaffiliated third party purchaser of the Office Portfolio for $3.5 million along with $10.4 million decrease in cash used to invest in joint ventures as a tenant in common, $1.7 million decrease in cash used for additions to land, buildings and amenities and $0.3 million decrease in deposits on property acquisitions.

Net cash used in investing activities was approximately $57.7 million for the year ended December 31, 2006 compared to cash provided by investing activities of approximately $10.2 million for the year ended December 31, 2007.  The change was primarily the result of decreased property acquisitions and dispositions in 2007 as compared to 2006 along with an increase in proceeds through investment in joint ventures as a tenant in common in 2007, as compared to 2006.

Cash Flow from Financing Activities

Net cash used in financing activities decreased from approximately $17.5 million for the year ended December 31, 2007 to approximately $10.1 million for the years ended December 31, 2008.  Our 2008 activity included repayment of mortgages and our revolving note payable from proceeds of our sale of the Office Portfolio totaling approximately $36.3 million along with principal payments on mortgages of $3.0 million, an additional payment of our revolving note payable of $4.6 million and cash distributions of $4.1 million, which were partially offset by an increase in our revolving note payable $5.0 million, a $6.2 million increase in mortgage payable, and an increase in mortgages payable of $26.3 million issued for the permanent financing of Shelby Farms.

Net cash provided by financing activities was approximately $43.3 million in 2006 as compared to cash used in financing activities of approximately $17.5 million in 2007.  The change is the result of additional payments on mortgages payable of $21.2 million in connection with the sale of Springs Medical Office Center and Springs Office Center compared to $7.0 million of additional payments on mortgages payable in the comparable

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prior period along with $38.0 million decrease in proceeds from mortgages payable and an $8.0 million decrease in proceeds from the revolving note payable.

Future Liquidity

Our future liquidity depends significantly on our properties’ occupancy remaining at a level which allows us to make debt payments and have adequate working capital, currently and in the future.  If occupancy were to fall below that level and remain at or below that level for a significant period of time, our ability to make payments due under our debt agreements and to continue paying daily operational costs would be greatly impaired.  In the next twelve months, we intend to operate the properties in a similar manner to their operation in recent years.  Cash reserves, which consist of unrestricted cash as shown on our balance sheet, were $0 on December 31, 2008.

We made quarterly distributions of $0.10 per unit to our limited partners of record on April 16, 2008, $0.08 per unit to our limited partners of record on July 17 and October 16, 2008, respectively, and $0.05 per unit to our limited partners of record on January 16, 2009.

We do not anticipate a significant impact to our liquidity as a result of the vacancy at the Sears Office Building.  However, we may incur significant expenses if we enter into lease agreements for this property.

Pursuant to leasing agreements signed by December 31, 2008, we are obligated to incur expenditures of approximately $1.2 million funded by borrowings on our debt during the next twelve months primarily for renovations and tenant origination costs necessary to continue leasing our properties. This discussion of future liquidity details our material commitments. We anticipate seeking renewal or refinancing of our note payable coming due in the next twelve months.

On March 14, 2008, we borrowed an additional $6.2 million on the $24.0 million mortgage payable.

Our availability on the revolving note payable was approximately $8.5 million at December 31, 2008.

On April 11, 2006, pursuant to the terms of the settlement agreement with respect to the class action litigation involving the Partnerships, the independent directors of our managing general partner approved an amended and restated management agreement with NTS Development Company, our affiliate.  The independent directors engaged a nationally recognized real estate expert to assist them in their review of the existing management agreement.  The amended and restated management agreement became effective as of December 29, 2005 and is automatically renewed annually unless terminated pursuant to its terms.  The independent directors review the amended and restated management agreement periodically.  The resulting disposition fees related to sales of our properties were approximately $1.6 million, $0.6 million and $0.9 million, construction supervision fees were approximately $0.2 million, $0.3 million and $0.2 million, and commercial leasing fees of approximately $41,000, $0.4 million and $0.5 million for the years ended December 31, 2008, 2007 and 2006, respectively, which may reasonably be expected to have a significant and material continuing impact on our future liquidity.

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Property Transactions

Acquisitions

During the years ended December 31, 2008, 2007 and 2006, we made the following property acquisitions:

Wholly Owned Properties - Multifamily	Location	Units	Our Ownership		Date of Purchase		Purchase Price
Shelby Farms (1)	Memphis, TN	450	100	%	June	2008	$	41,000,000
Castle Creek Apartments	Indianapolis, IN	276	100	%	March	2006	$	27,000,000
Lake Clearwater Apartments	Indianapolis, IN	216	100	%	March	2006	$	23,000,001
The Grove at Richland Apartments	Nashville, TN	292	100	%	February	2006	$	45,757,500
The Grove at Swift Creek Apartments	Richmond, VA	240	100	%	February	2006	$	27,200,000
The Grove at Whitworth Apartments	Nashville, TN	301	100	%	February	2006	$	44,254,500

Tenant in Common Properties — Multifamily	Location	Units	Our Ownership		Date of Purchase		Purchase Price
Creek’s Edge at Stony Point	Richmond, VA	202	51	%	August	2007	$	32,300,000
The Overlook at St. Thomas	Louisville, KY	484	60	%	March	2007	$	46,000,000

(1)Financed by a $26.3 million mortgage payable to a bank.

Dispositions

During the years ended December 31, 2008, 2007 and 2006 we made the following property dispositions:

Wholly Owned Properties - Multifamily	Units	Our Ownership		Date of Sale
Golf Brook Apartments (1)	195	100	%	February	2006
Sabal Park Apartments (2)	162	100	%	February	2006

Wholly Owned Properties - Commercial	Square Feet	Our Ownership		Date of Sale
Atrium Center (7)	104,286	100	%	May	2008
Blankenbaker Business Center I (7)	160,689	100	%	May	2008
Blankenbaker Business Center II (7)	77,408	100	%	May	2008
Anthem Office Center (7)	85,305	100	%	May	2008
Plainview Center (7)	98,000	100	%	May	2008
Plainview Point Office Center Phase I and II (7)	57,301	100	%	May	2008
Plainview Point Office Center Phase III (7)	61,680	100	%	May	2008
ITT Parking Lot (7)	NA	100	%	May	2008
Springs Medical Office Center (5)	100,565	100	%	February	2007
Springs Office Center (6)	125,964	100	%	February	2007
Commonwealth Business Center Phase I (3)	60,661	100	%	May	2006
Commonwealth Business Center Phase II (4)	65,869	100	%	May	2006

(1)Gain of approximately $28.7 million.

(2)Gain of approximately $19.6 million.

(3)Gain of approximately $1.1 million.

(4)Gain of approximately $0.6 million.

(5)Gain of approximately $8.9 million.

(6)Gain of approximately $4.6 million.

(7)Gain of approximately $18.9 million.

On May 1, 2008, we sold the Office Portfolio.  All prior periods presented have been reclassified as items held for sale and discontinued operations, as appropriate.

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

We were unable to invest approximately $4.6 million of proceeds from the sale of the Office Portfolio in replacement “like-kind” property.  Under Section 1031 of the Internal Revenue Code certain tax consequences may

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result for the limited partners of record due to our inability to use all of these funds in a “like-kind exchange.”  The consequences include the recognition of gain on the transaction and related tax attributes.

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

Property	Location	Status
Atrium Center	Louisville, KY	Sold 2008
Blankenbaker Business Center I	Louisville, KY	Sold 2008
Blankenbaker Business Center II	Louisville, KY	Sold 2008
Anthem Office Center	Louisville, KY	Sold 2008
Plainview Center	Louisville, KY	Sold 2008
Plainview Point Office Center Phase I and II	Louisville, KY	Sold 2008
Plainview Point Office Center Phase III	Louisville, KY	Sold 2008
ITT Parking Lot	Louisville, KY	Sold 2008
Springs Medical Office Center	Louisville, KY	Sold 2007
Springs Office Center	Louisville, KY	Sold 2007
Commonwealth Business Center Phase I	Louisville, KY	Sold 2006
Commonwealth Business Center Phase II	Louisville, KY	Sold 2006
Golf Brook Apartments	Orlando, FL	Sold 2006
Sabal Park Apartments	Orlando, FL	Sold 2006

The assets and liabilities held for sale were separately identified on our balance sheet at December 31, 2007.  No assets or liabilities were classified as held for sale on our balance sheet at December 31, 2008.

The components of discontinued operations are outlined below and include the results of operations for the respective periods in which we owned such assets during the years ended December 31, 2008, 2007 and 2006.

	Years Ended December 31,
	2008			2007			2006
REVENUE:
Rental income	$	2,281,996		$	7,231,295		$	10,604,799
Tenant reimbursements	189,462			320,361			546,091
Total revenue	2,471,458			7,551,656			11,150,890
EXPENSES:
Operating expenses and operating expenses reimbursed to affiliate	794,448			2,424,590			3,707,044
Management fees	112,725			383,748			545,951
Property taxes and insurance	201,928			588,097			798,600
Depreciation and amortization	—			502,140			1,982,526
Total operating expenses	1,109,101			3,898,575			7,034,121
DISCONTINUED OPERATING INCOME	1,362,357			3,653,081			4,116,769
Interest and other income	8,806			50,255			24,601
Interest expense	(1,040,658		)	(2,102,328		)	(2,636,755		)
Loss on disposal of assets	—			(45,677		)	(99,978		)
DISCONTINUED OPERATIONS, NET	$	330,505		$	1,555,331		$	1,404,637

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

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RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2008 AS COMPARED TO DECEMBER 31, 2007,

AS COMPARED TO DECEMBER 31, 2006

This section includes our actual results of operations for the years ended December 31, 2008, 2007 and 2006.  As of December 31, 2008, we owned wholly or as a tenant in common with an unaffiliated third party, seven office and business centers, twelve multifamily properties and three retail properties.  We generate substantially all of our operating income from property operations.

Net income for the three years ended December 31, 2008, 2007 and 2006 was approximately $7.8 million, $3.9 million and $41.1 million, respectively.  During 2006, we acquired The Grove at Richland Apartments, The Grove at Swift Creek Apartments, The Grove at Whitworth Apartments (February 2006), Castle Creek Apartments and Lake Clearwater Apartments (March 2006).  During 2008, we acquired Shelby Farms Apartments (June 2008).  Collectively these acquisitions are referred to as our “2006 acquisitions” and our “2008 acquisition”, respectively.  Our increased net income for the year ended December 31, 2008 as compared to 2007 was driven by our gain on sale of discontinued operations of approximately $18.9 million up from $13.5 million during the year ended in 2007, which was partially offset by a $1.6 million increase in depreciation expense.  Our decrease in net income for the year ended December 31, 2007 as compared to 2006 was due to a $37.0 million decrease in our gain on sale of discontinued operations of approximately $13.5 million in 2007 down from $49.9 million in 2006.

Rental Income and Tenant Reimbursements

Rental income and tenant reimbursements from continuing operations for the years ended December 31, 2008 and 2007 were approximately $41.6 million and $37.6 million, respectively.  The increase of $4.0 million, or 11%, was primarily the result of increased rental income of $2.3 million, or 58% from our  2008 acquisition along with an overall increase in rental income of $0.9 million across all of our remaining multifamily properties.  The increase is also due to a $0.7 million increase in rental income across the commercial segment.

Rental income and tenant reimbursements from continuing operations for the years ended December 31, 2007 and 2006 were approximately $37.6 million and $34.1 million, respectively.  The increase of $3.5 million, or 10%, was the result of our 2006 acquisitions, which contributed additional revenue of $2.9 million.  The remaining increase is primarily the result of an overall increase in rental income at all multifamily properties.

Operating Expenses and Operating Expenses Reimbursed to Affiliate

Operating expenses from continuing operations for the years ended December 31, 2008 and 2007 were approximately $9.5 million and $8.0 million, respectively.  The increase of $1.5 million, or 19%, was primarily the result of a $0.4 million increase in operating expenses due to our 2008 acquisition along with a $0.6 million increase across all multifamily properties for repairs and maintenance.  The increase is also the result of a $0.3 million increase at Lakeshore Business Centers for repairs and maintenance.

Operating expenses from continuing operations for the years ended December 31, 2007 and 2006 were approximately $8.0 million and $7.5 million, respectively.  The increase of $0.5 million, or 7%, was primarily the result of our 2006 acquisitions.

Operating expenses reimbursed to affiliate from continuing operations for the years ended December 31, 2008 and 2007 were approximately $4.5 million and $4.4 million, respectively.  The increase of $0.1 million, or 2%, was primarily due to the cost of reimbursing NTS Development Company for the employees of our 2008 acquisition.

Operating expenses reimbursed to affiliate from continuing operations for the years ended December 31, 2007 and 2006 were approximately $4.4 million and $4.0 million, respectively.  The increase of $0.4 million, or 10%, was primarily due to the cost of reimbursing NTS Development Company for the employees of our 2006 acquisitions.

We do not have any employees.  Pursuant to our management agreement, NTS Development Company employs the individuals who provide services necessary to operate our properties and conduct our business.  NTS

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Development Company provides employees that may also perform services for other properties and business enterprises.  In the situation where a particular employee benefits multiple operations, the employee’s cost is proportionately charged out to the entity receiving the services.  We only reimburse charges from NTS Development Company for actual costs of employee services incurred for our benefit. The cost of services provided to us by NTS Development Company’s employees are classified in our consolidated Statements of Operations as “Operating expenses reimbursed to affiliate.”  The services provided by others are classified as “Operating expenses.”

Operating expenses reimbursed to affiliate are for the services performed by employees of NTS Development Company, an affiliate of our general partner.  These employee services include property management, leasing, maintenance, security and other services necessary to manage and operate our business.

Operating expenses reimbursed to affiliate consisted approximately of the following:

	Years Ended December 31,
	2008		Restated 2007		2006
Property	$	2,910,000	$	2,881,000	$	2,533,000
Multifamily Leasing	544,000		398,000		365,000
Administrative	967,000		1,099,000		1,086,000
Other	58,000		69,000		48,000
Total	$	4,479,000	$	4,447,000	$	4,032,000

Management Fees

Management fees from continuing operations for the years ended December 31, 2008 and 2007 were approximately $2.1 million and $1.9 million, respectively.  The increase of $0.2 million, or 11%, was primarily due to our 2008 acquisition along with our management fee on a one-time lease termination payment by a former tenant at Lakeshore Business Center II in 2008.

Management fees from continuing operations for the years ended December 31, 2007 and 2006 were approximately $1.9 million and $1.7 million, respectively.  The increase of $0.2 million, or 12%, was primarily due to our 2006 acquisitions.

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

Property Taxes and Insurance

Property taxes and insurance from continuing operations for the years ended December 31, 2008 and 2007 were approximately $5.7 million, and $4.8 million, respectively.  The increase of $0.9 million, or 19%, was primarily due to increased property tax expense of $0.7 million at Castle Creek Apartments, Lake Clearwater Apartments and The Lakes Apartments as a result of increased property tax assessments.  We are continuing to appeal the property tax assessments on these three properties located in Marion County, Indiana.  There can be no assurance these appeals will be successful or completed in a timely manner.  This increase is also due to a $0.5 million increase in property taxes and insurance from our 2008 acquisition, offset by a $0.3 million decrease in property tax expense at Willow Lake Apartments.

Property taxes and insurance from continuing operations for the years ended December 31, 2007 and 2006 were approximately $4.8 million, and $4.1 million, respectively.  The increase of $0.7 million, or 17%, was

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primarily due to our 2006 acquisitions, which contributed additional expense of $0.5 million along with a $0.2 million increase in property tax expense at Willow Lake Apartments and The Lakes Apartments.

Professional and Administrative Expenses and Professional and Administrative Expenses Reimbursed to Affiliate

Professional and administrative expenses from continuing operations for the years ended December 31, 2008 and 2007 were approximately $1.3 million and $1.4 million, respectively.  The decrease of $0.1 million, or 7%, was primarily due to an overall decrease in legal and professional fees.

Professional and administrative expenses from continuing operations for the years ended December 31, 2007 and 2006 were approximately $1.4 million and $1.9 million, respectively.  The decrease of $0.5 million, or 26%, was primarily due to a decrease in legal fees related to the class action litigation filed in Kentucky including the settlement fees of $0.4 million along with an overall decrease in general litigation fees and loan fees.

Professional and administrative expenses reimbursed to affiliate from continuing operations for the years ended December 31, 2008 and 2007 were approximately $1.6 million and $1.7 million, respectively.  The decrease of $0.1 million, or 6%, was primarily due to decreased personnel costs and compensation reimbursed to NTS Development Company as a result of the sale of the Office Portfolio.

Professional and administrative expenses reimbursed to affiliate from continuing operations for the years ended December 31, 2007 and 2006 were approximately $1.7 million and $1.6 million, respectively.  The increase of $0.1 million, or 6%, was primarily due to increased personnel costs and compensation which were the result of our 2006 acquisitions and a change in allocation of personnel costs.

We do not have any employees.  Pursuant to our management agreement, NTS Development Company employs the individuals who provide services necessary to operate our properties and conduct our business.  NTS Development Company provides employees that may also perform services for other properties and business enterprises.  In the situation where a particular employee benefits multiple operations, the employee’s cost is proportionately charged out to the entity receiving the services.  We only reimburse charges from NTS Development Company for actual costs of employee services incurred for our benefit. The cost of services provided to us by NTS Development Company’s employees are classified in our consolidated Statements of Operations as “Professional and administrative expenses reimbursed to affiliate.”  The services provided by others are classified as “Professional and administrative expenses.”

Professional and administrative expenses reimbursed to affiliate are for the services performed by employees of NTS Development 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 administrative expenses reimbursed to affiliate consisted of the following:

	Years Ended December 31,
	2008		2007		2006
Finance	$	388,000	$	423,000	$	400,000
Accounting	765,000		820,000		824,000
Investor Relations	294,000		335,000		227,000
Human Resources	20,000		18,000		18,000
Overhead	152,000		136,000		109,000
Total	$	1,619,000	$	1,732,000	$	1,578,000

Depreciation and Amortization

Depreciation and amortization from continuing operations for the years ended December 31, 2008 and 2007 was approximately $15.0 million and $13.4 million, respectively.  The increase of $1.6 million, or 12%, was primarily due to our 2008 acquisition.

31

Depreciation and amortization from continuing operations for the years ended December 31, 2007 and 2006 was approximately $13.4 million and $12.9 million, respectively.  The increase of $0.5 million, or 4%, was primarily due to an increase in depreciation expense at Castle Creek Apartments and Lake Clearwater Apartments.

Interest and Other Income

Interest and other income from continuing operations for the years ended December 31, 2008 and 2007 was approximately $0.4 million and $0.1 million, respectively.  The increase of $0.3 million was primarily due to interest earned on the proceeds from the sale of the Office Portfolio along with interest earned on our notes receivable from an unaffiliated third party as consideration from the sale of the Office Portfolio and miscellaneous income from a prior tenant at NTS Center.

Interest and other income from continuing operations for the years ended December 31, 2007 and 2006 was approximately $0.1 million and $0.1 million, respectively.  For the years ended December 31, 2007 and 2006 there was no material change in interest and other income.

Interest Expense

Interest expense from continuing operations for the years ended December 31, 2008 and 2007 was approximately $11.4 million and $11.3 million, respectively.  For the years ended December 31, 2008 and 2007 there was no material change in interest expense.

Interest expense from continuing operations for the years ended December 31, 2007 and 2006 was approximately $11.3 million and $10.6 million, respectively.  The increase of $0.7 million, or 7%, was primarily the result of acquiring additional debt for our 2006 acquisitions.

Loss on Disposal of Assets

Loss on disposal of assets from continuing operations for the years ended December 31, 2008, 2007 and 2006 can be attributed to assets that were not fully depreciated at the time of replacement, spread amongst the majority of our properties.  The 2008 replacements included roof replacements, heating and air conditioning units, tenant finish renovations and signage. The 2007 replacements include heating and air conditioning units, tenant improvements, signage, fitness equipment and telephone system replacement, amongst others.  The 2006 replacements include heating and air conditioning units, common area renovations, stairwell upgrades, access control upgrades, roof replacements, and tenant improvements, amongst others.

Loss From Investment in Tenants in Common

Loss from investment in tenants in common for the years ended December 31, 2008 and 2007, includes net operating losses attributable to our investments in tenants in common with an unaffiliated third party acquired in 2007.  The properties are The Overlook at St. Thomas and Creek’s Edge at Stony Point.

Discontinued Operations, Net

Discontinued operations, net for the years ended December 31, 2008 and 2007 were approximately $0.3 million and $1.6 million, respectively.  The decrease of $1.3 million, or 81%, was due to the sale of the Office Portfolio.

Discontinued operations, net for the years ended December 31, 2007 and 2006 were approximately $1.6 million and $1.4 million, respectively.  The increase of $0.2 million, or 14%, was due to an increase in net operating results of $0.3 million at Anthem Office Center.

Gain on Sale of Discontinued Operations

Gain on sale of discontinued operations for the year ended December 31, 2008 was approximately $18.9 million, due to the sale of the Office Portfolio in May 2008.

Gain on sale of discontinued operations for the year ended December 31, 2007 was approximately $13.5 million due to the sale of the Springs Medical Office Center and the Springs Office Building in February 2007.

32

Gain on sale of discontinued operations for the year ended December 31, 2006 was approximately $50.0 million due to the sale of Golf Brook Apartments and Sabal Park Apartments in February 2006 and the sale of Commonwealth Business Center Phases I and II in May 2006.

Contractual Obligations and Commercial Commitments

The following table represents our obligations and commitments to make future payments as of December 31, 2008 under contracts, such as debt and lease agreements including principal and interest, 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	$	265,745,947	$	43,727,448	$	27,669,957	$	25,918,378	$	168,430,164
Capital lease obligations	—		—		—		—		—
Operating leases (1)	—		—		—		—		—
Other long-term obligations (2)	—		—		—		—		—
Total contractual cash obligations	$	265,745,947	$	43,727,448	$	27,669,957	$	25,918,378	$	168,430,164

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

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

33

ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our primary market risk exposure with regard to financial instruments is expected to be our exposure to changes in interest rates.  We refinanced substantially all of our debt acquired at the time of our merger with instruments, which bear interest at a fixed rate, with the exception of approximately $30.4 million at variable rates.  We anticipate that a hypothetical 100 basis point increase in interest rates would increase interest expense on our variable rate debt by approximately $0.3 million annually.

We entered into an interest rate swap agreement beginning in September 2007 that effectively converted $18.0 million of our variable-rate debt bearing interest at the LIBOR one month rate to a fixed rate basis through September 2009, when the contract expires.

The fair value of the interest rate swap agreement at December 31, 2008 was approximately $0.5 million and is included in Other Liabilities on our Consolidated Balance Sheet.  During the year ended December 31, 2008, we recognized a net loss of approximately $0.5 million on the interest rate swap agreement after any net payments received or made.

34

ITEM 8 – CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors

NTS Realty Holdings Limited Partnership:

We have audited the accompanying consolidated balance sheets of NTS Realty Holdings Limited Partnership (the “Company”) as of December 31, 2008 and 2007, and the related consolidated statements of operations, partners’ equity and cash flows for each of the three years in the period ended December 31, 2008.  Our audits also included the financial statement schedule listed in the Index at Part IV, Item 15(2).  These financial statements and schedule are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  We were not engaged to perform an audit of the Company’s internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of NTS Realty Holdings Limited Partnership at December 31, 2008 and 2007 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2008, in conformity with U.S. generally accepted accounting principles.  Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As described in Note 14 to the consolidated financial statements, the 2007 consolidated financial statements have been restated.

	/s/ Ernst & Young LLP
Louisville, Kentucky
March 30, 2009

35

NTS REALTY HOLDINGS LIMITED PARTNERSHIP

Consolidated Balance Sheets as of December 31, 2008 and 2007

	2008		Restated –  See Note 14  2007
ASSETS:
Cash and equivalents	$	—	$	845,337
Cash and equivalents - restricted	554,115		710,282
Accounts receivable, net of allowance for doubtful accounts of $90,932 and $100,028 at December 31, 2008 and 2007, respectively	1,642,311		973,363
Notes receivable	3,500,000		—
Land, buildings and amenities, net	278,847,073		249,195,593
Long-lived assets held for sale	—		33,958,931
Investments in and advances to tenants in common	6,432,165		8,810,092
Other assets	3,139,415		2,963,269
Total assets	$	294,115,079	$	297,456,867
LIABILITIES:
Mortgages and notes payable	$	203,561,669	$	206,710,646
Accounts payable and accrued expenses	2,637,291		3,734,486
Accounts payable and accrued expenses due to affiliate	267,388		573,621
Distributions payable	569,038		1,138,076
Security deposits	821,999		817,314
Long-lived liabilities held for sale	—		3,102,787
Other liabilities	5,168,237		4,512,030
Total liabilities	213,025,622		220,588,960
COMMITMENTS AND CONTINGENCIES (NOTE 9)
PARTNERS’ EQUITY	81,089,457		76,867,907
Total liabilities and partners’ equity	$	294,115,079	$	297,456,867

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

36

 NTS REALTY HOLDINGS LIMITED PARTNERSHIP

Consolidated Statements of Operations for the Years Ended December 31, 2008, 2007 and 2006

	2008			Restated -  See Note 14  2007			2006
REVENUE:
Rental income	$	39,872,992		$	35,847,494		$	32,419,413
Tenant reimbursements	1,775,192			1,708,710			1,650,809
Total revenue	41,648,184			37,556,204			34,070,222
EXPENSES:
Operating expenses	9,467,119			7,988,011			7,461,163
Operating expenses reimbursed to affiliate	4,479,333			4,446,874			4,031,532
Management fees	2,066,817			1,888,891			1,730,835
Property taxes and insurance	5,692,086			4,830,917			4,070,371
Professional and administrative expenses	1,259,792			1,411,276			1,922,057
Professional and administrative expenses reimbursed to affiliate	1,618,980			1,732,160			1,577,566
Depreciation and amortization	14,970,783			13,419,185			12,903,509
Total operating expenses	39,554,910			35,717,314			33,697,033
OPERATING INCOME	2,093,274			1,838,890			373,189
Interest and other income	405,673			60,826			147,501
Interest expense	(11,443,653		)	(11,317,486		)	(10,614,244		)
Loss on disposal of assets	(168,419		)	(66,052		)	(146,254		)
Loss from investments in tenants in common	(2,377,927		)	(1,608,295		)	—
LOSS FROM CONTINUING OPERATIONS	(11,491,052		)	(11,092,117		)	(10,239,808		)
Discontinued operations, net	330,505			1,555,331			1,404,637
Gain on sale of discontinued operations	18,910,133			13,482,291			49,950,486
NET INCOME	$	7,749,586		$	3,945,505		$	41,115,315
Loss from continuing operations allocated to limited partners	$	(10,769,637	)	$	(10,395,751	)	$	(9,596,995	)
Discontinued operations, net allocated to limited partners	309,755			1,457,687			1,316,460
Gain on sale of discontinued operations allocated to limited partners	17,722,944			12,635,869			46,814,798
NET INCOME ALLOCATED TO LIMITED PARTNERS	$	7,263,062		$	3,697,805		$	38,534,263
Loss from continuing operations per limited partnership unit	$	(1.01	)	$	(0.98	)	$	(0.90	)
Discontinued operations, net per limited partnership unit	0.03			0.14			0.12
Gain on sale of discontinued operations per limited partnership unit	1.66			1.19			4.39
NET INCOME PER LIMITED PARTNERSHIP UNIT	$	0.68		$	0.35		$	3.61
Weighted average number of limited partnership interests	10,666,269			10,666,322			10,667,117

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

37

 NTS REALTY HOLDINGS LIMITED PARTNERSHIP

Consolidated Statements of Cash Flows for the Years Ended December 31, 2008, 2007 and 2006

	2008			Restated –  See Note 14  2007			2006
OPERATING ACTIVITIES:
Net income	$	7,749,586		$	3,945,505		$	41,115,315
Adjustments to reconcile net income to net cash provided by operating activities:
Gain from sale of discontinued assets	(18,910,133		)	(13,482,291		)	(49,950,486		)
Loss on disposal of assets	168,419			111,729			246,232
Depreciation and amortization	15,662,011			14,709,779			15,947,736
Write-off of loan costs	—			36,868			—
Loss from investments in tenants in common	2,377,927			1,608,295			—
Changes in assets and liabilities:
Cash and equivalents - restricted	156,167			(244,765		)	(78,659		)
Accounts receivable	122,953			538,455			(97,155		)
Other assets	1,773,415			(710,423		)	(1,204,628		)
Accounts payable and accrued expenses	(1,097,195		)	(130,019		)	1,062,545
Accounts payable and accrued expenses due to affiliate	(306,233		)	(182,465		)	382,948
Security deposits	(140,737		)	(98,064		)	148,906
Other liabilities	309,343			1,972,101			1,504,311
Net cash provided by operating activities	7,865,523			8,074,705			9,077,065
INVESTING ACTIVITIES:
Additions to land, buildings and amenities	(4,050,169		)	(5,759,609		)	(4,620,764		)
Proceeds from sale of discontinued operations	49,963,973			26,104,758			77,483,821
Acquisitions	(41,000,000		)	—			(131,162,176		)
Deposits on property acquisitions	—			300,000			(300,000		)
Notes receivable	(3,500,000		)	—			—
Cash and equivalents - restricted	—			—			874,079
Investments in and advances to tenants in common	—			(10,418,387		)	—
Net cash provided by (used in) investing activities	1,413,804			10,226,762			(57,725,040		)
FINANCING ACTIVITIES:
Proceeds from mortgages payable	60,310,500			4,500,000			42,500,000
Revolving note payable, net	(18,447,611		)	8,051,729			16,878,031
Principal payments on mortgages payable	(2,971,554		)	(2,962,771		)	(2,814,553		)
Additional payments on mortgages payable	(44,650,813		)	(21,200,000		)	(7,022,103		)
Additions to loan costs	(268,112		)	(182,788		)	(583,664		)
Cash distributions	(4,097,074		)	(5,690,550		)	(5,690,804		)
Net cash (used in) provided by financing activities	(10,124,664		)	(17,484,380		)	43,266,907
NET (DECREASE) INCREASE IN CASH AND EQUIVALENTS	(845,337		)	817,087			(5,381,068		)
CASH AND EQUIVALENTS, beginning of year	845,337			28,250			5,409,318
CASH AND EQUIVALENTS, end of year	$	—		$	845,337		$	28,250
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Acquisitions of land, buildings and amenities by debt assumption	$	—		$	—		$	(33,377,982	)
Mortgage payable assumed in acquisition	$	—		$	—		$	33,377,982
Interest paid	$	12,131,229		$	12,707,600		$	12,579,071

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

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NTS REALTY HOLDINGS LIMITED PARTNERSHIP

Consolidated Statements of Partners’ Equity (1) for the Years Ended December 31, 2008, 2007 and 2006

	General  Partner  Interests	Limited  Partners  Interests		General  Partner			Limited  Partners			Total
PARTNERS’ EQUITY:
Balances on January 1, 2006	714,491	10,667,117		2,639,743			39,410,452			42,050,195
Net income	—	—		2,581,052			38,534,263			41,115,315
Distributions declared	—	—		(357,246		)	(5,333,558		)	(5,690,804		)
Balances on December 31, 2006	714,491	10,667,117		4,863,549			72,611,157			77,474,706
Net income	—	—		247,700			3,697,805			3,945,505
Distributions declared	—	—		(285,795		)	(4,266,509		)	(4,552,304		)
Retirement of limited partnership interests	—	(848	)	—			—			—
Balances on December 31, 2007	714,491	10,666,269		4,825,454			72,042,453			76,867,907
Net income	—	—		486,524			7,263,062			7,749,586
Distributions declared	—	—		(221,492		)	(3,306,544		)	(3,528,036		)
Balances on December 31, 2008	714,491	10,666,269		$	5,090,486		$	75,998,971		$	81,089,457

(1)For the periods presented, there are no elements of other comprehensive income as defined by the Financial Accounting Standards Board, Statement of Financial Accounting Standards Statement No. 130, “Reporting Comprehensive Income.”

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

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NTS REALTY HOLDINGS LIMITED PARTNERSHIP

Notes to Consolidated Financial Statements

Note 1 - Organization

NTS Realty Holdings Limited Partnership (“NTS Realty”), is a limited partnership, organized in the state of Delaware in 2003 and was formed by the merger of 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. (the “Partnerships”), along with other real estate entities affiliated with their general partners, specifically Blankenbaker Business Center 1A and the NTS Private Group’s assets and liabilities.  The merger was completed on December 28, 2004 after a majority of each Partnership’s limited partners voted for the merger.  The Partnerships and Blankenbaker Business Center 1A were terminated by the merger and ceased to exist.  Concurrent with the merger, ORIG, LLC (“ORIG”), a Kentucky limited liability company, affiliated with the Partnerships’ general partners, contributed substantially all of its assets and liabilities to NTS Realty, including the NTS Private Group properties.  The merger was part of a court approved settlement of class action litigation involving the partnerships.

We are in the business of developing, constructing, owning and operating multifamily properties, commercial and retail real estate.  As of December 31, 2008, we owned wholly or as a tenant in common with an unaffiliated third party, 22 properties, comprised of 12 multifamily properties; 7 office and business centers and 3 retail properties.  The properties are located in and around Louisville (8) and Lexington (1), Kentucky; Fort Lauderdale (3), Florida; Indianapolis (4), Indiana; Memphis (1) and Nashville (2), Tennessee; Richmond (2), Virginia; and Atlanta (1), Georgia.  Our office and business centers aggregate approximately 668,000 square feet.  We own multifamily properties containing 3,672 units and retail properties containing approximately 210,000 square feet.

The terms “we,” “us” or “our,” as the context requires, may refer to NTS Realty, one of the Partnerships or their interests in the properties and joint ventures listed below.

Note 2 - Significant Accounting Policies

A) Basis of Presentation

The consolidated financial statements include the accounts of all wholly-owned properties.  Our properties owned as a tenant in common with an unaffiliated third party are accounted for under the equity method.  Intercompany transactions and balances have been eliminated.  These properties owned as tenants in common had previously been consolidated in our 2007 financial statements, the year they were acquired.  See Note 14 — Restatement of the Consolidated Financial Statements for a discussion of this change.

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

B) Recent Accounting Pronouncements

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

In December 2007, the FASB issued SFAS No. 141(R) (“SFAS 141 (R)”), “Business Combinations.”  SFAS 141(R) requires the acquiring entity in a business combination to measure the assets acquired, liabilities assumed (including contingencies) and any noncontrolling interests at their fair values on the acquisition date.  The statement also requires that acquisition-related transaction costs be expensed as incurred and acquired research and development value be capitalized.  In addition, acquisition-related restructuring costs are to be capitalized.  SFAS 141 (R) is effective for acquisitions starting January 1, 2009.  We do not believe SFAS 141(R) will have a material impact on our consolidated financial statements.

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In December 2007, the FASB issued SFAS No. 160 (“SFAS 160”), “Noncontrolling Interests in Consolidated Financial Statements.”  SFAS 160 clarifies that a noncontrolling interest in a subsidiary is an ownership interest in a consolidated entity which should be reported as equity in the parent’s consolidated financial statements.  SFAS 160 is effective for fiscal years beginning after December 15, 2008.  We do not believe SFAS 160 will have a material impact on our consolidated financial statements.

C) Properties and Investments in Tenants in Common

During 2008, 2007 and 2006 NTS Realty acquired the following properties:

Property	Location	Units	Date of Purchase
Shelby Farms(1)	Memphis, Tennessee	450	June	2008
Creek’s Edge at Stony Point(2)	Richmond, Virginia	202	August	2007
The Overlook at St. Thomas(3)	Louisville, Kentucky	484	March	2007
Castle Creek Apartments	Indianapolis, Indiana	276	March	2006
Lake Clearwater Apartments	Indianapolis, Indiana	216	March	2006
The Grove at Richland	Nashville, Tennessee	292	February	2006
The Grove at Whitworth	Nashville, Tennessee	301	February	2006
The Grove at Swift Creek	Richmond, Virginia	240	February	2006

(1)Financed by a $26.3 million mortgage payable to a bank.

(2)Property owned as a tenant in common with an unaffiliated third party.  Financed by a $22.8 million mortgage payable to a bank.  We are jointly and severally liable for this mortgage.  We own a 51% interest as a tenant in common of this property.

(3)Property owned as a tenant in common with an unaffiliated third party.  Financed by a $35.3 million mortgage payable to a bank.  We are proportionately liable for this mortgage, limited to our 60% interest as a tenant in common of this property.

D) Tax Status

We are treated as a partnership or pass-through entity for federal income tax purposes.  As such, no provisions for income taxes were made.  The taxable income or loss was passed through to the holders of the partnership units for inclusion on their individual income tax returns.

A reconciliation of net income for financial statement purposes versus that for income tax reporting is as follows:

	Year Ended  December 31,
	2008			2007
Net income	$	7,749,586		$	3,945,505
Items handled differently for tax purposes:
Depreciation and amortization	3,960,175			1,425,226
Prepaid rent and other capitalized costs	395,404			323,566
Gain on sale of discontinued operations	(7,849,306		)	—
Loss on disposal of assets	(333,483		)	(124,901		)
Deferred gain on 1031 exchange properties	—			(14,760,041		)
Acquisition costs	(158,025		)	(158,025		)
Other	493,127			629,259
Taxable income(loss)	$	4,257,478		$	(8,719,411	)

E) Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in accordance with U.S. generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

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F) Reclassifications of 2007 and 2006 Financial Statements

Certain reclassifications have been made to the December 31, 2007 and 2006 financial statements to conform with December 31, 2008 classifications.  Our NTS Center property was reclassified during 2008 from discontinued operations to continuing operations as it is no longer classified as held for sale on our balance sheet.  This reclassification did not have a material impact on the related financial statement line items on our consolidated balance sheets or statements of operations and no effect on previously reported operating results or partners’ equity.

G) Cash and Equivalents

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

H) Cash and Equivalents - Restricted

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

I) Basis of Property and Depreciation

Land, buildings and amenities are stated at cost.  Costs directly associated with the acquisition, development and construction of a project are capitalized.  Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which are 5-30 years for land improvements, 7-30 years for buildings and improvements and 5-30 years for amenities.  Tenant improvements are generally depreciated over the life of the initial or renewal term of the respective tenant lease.  The aggregate cost of our wholly owned properties for federal tax purposes is approximately $220.2 million at December 31, 2008.

Depreciation expense from continuing operations for the years ended December 31, 2008, 2007 and 2006 was as approximately follows:

	Year Ended December 31,
	2008		Restated  2007		2006
NTS Realty	$	14,641,000	$	13,226,000	$	12,106,000
	$	14,641,000	$	13,226,000	$	12,106,000

Depreciation expense included in discontinued operations was approximately $0.5 million and $1.9 million for the years ended December 31, 2007 and 2006, respectively.

The acquisitions of wholly owned properties were accounted for using the purchase method of accounting in accordance with SFAS No. 141 “Business Combinations.”  The assets and liabilities purchased were recorded at their fair market value at the date of the acquisition.  We allocated the purchase price for the properties to net tangible and identified intangible assets acquired based on fair values (including land, buildings, tenant improvements, acquired above and below market leases and the origination cost of acquired in place leases) and acquired liabilities.  The intangible assets recorded will be amortized over a period of one year, which approximates the weighted average lease lives.    No above or below market leases exist.  No customer relationship intangibles exist.  At the date of the acquisitions, the carrying value of mortgages and other liabilities approximated fair market value.  We retained an independent appraiser to assess fair value based on estimated cash flow projections that utilize discount and capitalizations rates deemed appropriate and available market information.  Our joint venture properties acquired were accounted for using the equity method.

SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets,” specifies circumstances in which certain long-lived assets must be reviewed for impairment.  If the carrying amount of an asset exceeds the sum of its expected future cash flows, the asset’s carrying value must be written down to fair value.  In determining the value of an investment property and whether the investment property is impaired, management considers several factors such as projected rental and vacancy rates, property operating expenses, capital expenditures and interest rates.  The capitalization rate used to determine property valuation is based on the market in which the investment property is located, length of leases, tenant financial strength, the economy in

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general, demographics, environment, property location, visibility, age and physical condition among others.  All of these factors are considered by management in determining the value of any particular investment property.  The value of any particular investment property is sensitive to the actual results of any of these factors, either individually or taken as a whole.  If the actual results differ from management’s judgment, the valuation could be negatively or positively affected.  Application of this standard for the years ended December 31, 2008, 2007, and 2006, did not result in an impairment loss.

J) Accounts Payable Due to Affiliate

Accounts payable due to affiliate includes amounts owed to NTS Development Company for reimbursement of salary and overhead expenses and fees for services rendered as provided for in our management agreement.

K) Revenue Recognition

Our multifamily communities have resident leases with terms generally of twelve months or less.  We recognize rental revenue on an accrual basis when due from residents.  Rental concessions and other inducements to the leases are recognized to revenue on a straight-line basis over the life of the respective leases.  In accordance with our standard lease terms, rental payments are generally due on a monthly basis.

Our commercial properties and retail properties are accounted for as operating leases.  We accrue minimum rents on a straight-line basis over the initial or renewal terms of their respective leases.  Substantially all of our retail tenants are also required to pay overage rents based on sales over a stated base amount during the lease year.  We recognize overage rents only when each tenant’s sales exceeds it sales threshold.  We structure our leases to allow us to recover a significant portion of our real estate taxes, property operating and repairs and maintenance expenses from our commercial tenants.  Property operating expenses typically include utility, insurance, security, janitorial, landscaping and other administrative expenses.  We accrue reimbursements from tenants for recoverable portions of all these expenses as revenue in the period the applicable expenditures are incurred.  We also receive estimated payments for these reimbursements from substantially all our tenants throughout the year.  We do this to reduce the risk of loss on uncollectible accounts once we perform the final year-end billings for recoverable expenditures.  We recognize the difference between estimated recoveries and the final billed amounts in the subsequent year and we believe these differences are not material in any period presented.

We recognize revenue in accordance with each tenant’s lease agreement.  Certain of our lease agreements are structured to include scheduled and specified rent increases over the lease term.  For financial reporting purposes, the income from these leases is being recognized on a straight-line basis over the initial lease term.  Accrued income from these leases in accounts receivable was approximately $1.0 million, $0.7 million and $1.0 million at December 31, 2008, 2007 and 2006, respectively.  All commissions paid to commercial leasing agents and incentives paid to tenants are deferred and amortized on a straight-line basis over the applicable initial or renewal lease term.

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

L) Advertising

We expense advertising costs as incurred.  Advertising expense was immaterial to us during 2008, 2007, and 2006.

M) Distribution Policy

We pay distributions if and when authorized by our managing general partner.  We are required to pay distributions on a quarterly basis, commencing in the first quarter of 2005, equal to sixty-five percent (65%) of our “net cash flow from operations” as this term is defined in regulations promulgated by the Treasury Department under the Internal Revenue Code of 1986, as amended; provided that if a law is enacted or existing law is modified or interpreted in a manner that subjects us to taxation as a corporation or otherwise subjects us to entity level taxation for federal, state or local income tax purposes, we will adjust the amount distributed to reflect our obligation to pay tax.  Any distribution other than a distribution with respect to the final quarter of a calendar year shall be made no later than forty-five (45) days after the last day of such quarter based on our estimate of “net cash flow from operations” for the year.  Any distribution with respect to the final quarter of a calendar year shall be

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made no later than ninety (90) days after the last day of such quarter based on actual “net cash flow from operations” for the year, adjusted for any excess or insufficient distributions made with respect to the first three quarters of the calendar year.

“Net cash flow from operations” may be reduced by the amount of reserves as determined by us each quarter.  We will establish these reserves for, among other things, working capital or capital improvement needs.  Therefore, there is no assurance that we will have “net cash flow from operations” from which to pay distributions in the future.  For example, our partnership agreement permits our managing general partner to reinvest sales or refinancing proceeds in new and existing properties or to create reserves to fund future capital expenditures.  Because “net cash flow from operations” is calculated after reinvesting sales or refinancing proceeds or establishing reserves, we may not have any “net cash flow from operations” from which to pay distributions.

Note 3 - Concentration of Credit Risk

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

Our financial instruments that are exposed to concentrations of credit risk consist of cash and equivalents and cash and equivalents - restricted.  We maintain our cash accounts primarily with banks located in Kentucky.  The total cash balances are insured by the FDIC up to $250,000 per bank account.  At December 31, 2008, we may at times, in certain accounts, have deposits in excess of $250,000 per bank account.

Note 4 - Land, Buildings and Amenities

NTS Realty

The following schedule provides an analysis of our investment in property held for lease as of December 31:

	2008			Restated  2007
Land and improvements	$	66,725,244		$	61,107,979
Buildings and improvements	236,240,662			202,027,905
Amenities	19,183,827			15,184,294
Less accumulated depreciation	(43,302,660		)	(29,124,585		)
	$	278,847,073		$	249,195,593

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Note 5 - Mortgages and Notes Payable

Mortgages and notes payable as of December 31 consist of the following:

	2008		Restated  2007
Mortgage payable to an insurance company in monthly installments of principal and interest, bearing fixed interest at 5.07%, maturing on March 15, 2015, secured by certain land, buildings and amenities, with a carrying value of $42,317,557	$	27,534,884	$	28,238,625
Mortgage payable to a bank for $24.0 million with monthly installments of principal and interest, bearing interest at a variable rate based on LIBOR one-month rate plus 1.8%, currently 3.23%, due June 1, 2009, secured by certain land, buildings and amenities, with a carrying value of $17,245,371 and a $800,880 letter of credit. The mortgage is guaranteed by Mr. Nichols and Mr. Lavin	23,907,000		17,818,000
Mortgage payable to an insurance company in monthly installments of principal and interest, bearing fixed interest at 5.98%, maturing January 15, 2015, secured by certain land, buildings and amenities, with a carrying value of $146,571,741	71,041,740		72,141,872
Mortgage payable to an insurance company in monthly installments of principal and interest, bearing fixed interest at 5.35%, maturing January 15, 2015, secured by certain land, buildings and amenities, with a carrying value of $146,571,741	32,001,720		32,511,394
Revolving note payable to a bank for $15 million, with interest payable in monthly installments, unsecured, at a variable rate based on LIBOR plus 1.75%, currently 4.39%, due May 31, 2009	6,482,149		24,929,760
Mortgage payable to a bank in monthly installments of principal and interest, bearing fixed interest at 9.00%, maturing August 1, 2010, secured by certain land, buildings and amenities, with a carrying value of $2,643,707	2,412,387		2,524,433
Mortgage payable to an insurance company in monthly installments of principal and interest, bearing fixed interest at 8.45%, maturing November 1, 2015, secured by certain land, buildings and amenities, with a carrying value of $2,056,339	2,277,378		2,510,076
Mortgage payable to an insurance company in monthly installments of principal and interest, bearing fixed interest at 8.38%, maturing December 1, 2010, secured by certain land, buildings and amenities(1)	—		2,610,501
Mortgage payable to a bank in monthly installments of principal and interest, bearing fixed interest at 5.11%, maturing December 1, 2014, secured by certain land, buildings and amenities, with a carrying value of $12,828,436	11,575,911		11,758,589
Mortgage payable to a bank, with interest payable in monthly installments, bearing interest at LIBOR plus 1.75%, maturing July 1, 2008, secured by certain land, buildings and amenities	—		14,277,897
Mortgage payable to a bank, with interest payable in monthly installments, bearing fixed interest at 6.03%, maturing September 1, 2018, secured by certain land, buildings and amenities, with a carrying value of $39,385,199	26,328,500		—
	$	203,561,669	$	209,321,147

(1) This mortgage payable was included in our long-lived liabilities held for sale at December 31, 2007.

Based on the borrowing rates currently available to us for loans with similar terms and average maturities, the fair value of long-term debt on December 31, 2008 was approximately $217.6 million.

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

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

Interest paid for the twelve months ended December 31, 2008 and 2007 was approximately $12.1 million and $12.7 million, respectively.

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Our mortgages may be prepaid but are generally subject to a yield-maintenance premium.  Certain mortgages and notes payable contain covenants and requirements that we maintain specified debt limits and ratios related to our debt balances and property values.  We complied with all covenants and requirements at December 31, 2008.  We anticipate renewing or refinancing our mortgages and note payable coming due within the next twelve months. On May 1, 2008, we re-paid our mortgage payable to a bank maturing July 1, 2008.

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

The fair value of the interest rate swap agreement at December 31, 2008 was approximately $0.5 million, based on observable market input, a level 2 fair value per SFAS 157, and is included in Other Liabilities on our Consolidated Balance Sheet.  During the year ended December 31, 2008, we recognized a net loss of approximately $0.5 million on the interest rate swap agreement after any net payments received or made.

Scheduled maturities of debt are as follows:

For the Years Ended December 31,	Amount
2009	$	33,404,582
2010	5,354,917
2011	3,345,766
2012	3,838,146
2013	4,075,076
Thereafter	153,543,182
	$	203,561,669

Mortgages payable for our tenant in common properties as of December 31 consist of the following:

	2008		2007
Mortgage payable to a bank in monthly installments of principal and interest bearing fixed interest at 5.72%, maturing April 11, 2017, secured by certain land, buildings and amenities, with a carrying value of $41,004,825 (1)	$	35,268,090	$	35,715,686
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 $29,722,052 (2)	$	22,750,000	$	22,750,000

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

(2)We are jointly and severally liable under this mortgage.

Note 6 – Investments in and Advances to Tenants in Common

We own a tenant in common interest in and operate the following properties:

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

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

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Presented below are the summarized balance sheets and statements of operations for the years ended December 31, 2008 and 2007 for these properties:

	2008		2007
Summarized Balance Sheets
Land, buildings and amenities	$	70,726,877	$	75,328,089
Other, net	1,525,783		1,647,005
Total assets	$	72,252,660	$	76,975,094
Mortgages payable and other liabilities	$	58,697,143	$	59,162,979
Equity	13,555,517		17,812,115
Total liabilities and equity	$	72,252,660	$	76,975,094

	2008			2007
Summarized Statements of Operations
Revenue	$	8,030,366		$	5,254,284
Operating Loss	$	(801,670	)	$	(420,778	)
Net Loss	$	(4,543,764	)	$	(2,923,740	)

Note 7 - Rental Income

NTS Realty

The following is a schedule of minimum future rental income on noncancellable operating leases for continuing operations as of December 31, 2008:

For the Years Ended December 31,	Amount
2009	$	6,466,699
2010	5,300,917
2011	4,419,100
2012	3,640,513
2013	2,314,447
Thereafter	2,549,886
	$	24,691,562

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Note 8 - Related Party Transactions

Pursuant to our management agreement, NTS Development Company receives fees for a variety of services performed for our benefit.  NTS Development Company also receives fees under separate management agreements for each of our properties owned as a tenant in common with an unaffiliated third party.  Property management fees are paid in an amount equal to 5% of the gross collected revenue from our wholly-owned properties and 3.5% of the gross collected revenue from our properties owned as a tenant in common with an unaffiliated third party.  We were the beneficiary of a preferential ownership interest, disproportionately greater than our initial cash investment in each property owned as a tenant in common with an unaffiliated third party.  Construction supervision fees are paid in an amount equal to 5% of the costs incurred which relate to capital improvements.  These construction supervision fees are capitalized as part of land, buildings and amenities.  Also pursuant to the agreement, NTS Development Company receives commercial leasing fees equal to 4% of the gross rental amount for new leases and 2% of the gross rental amount for new leases in which a broker is used and for renewals or extensions.  Disposition fees are paid to NTS Development Company in an amount of 1% to 4% of the aggregate sales price of a property pursuant to our management agreement and up to a 6% fee upon disposition on our properties owned as a tenant in common with an unaffiliated third party under separate management agreements.  NTS Development Company is reimbursed its actual costs for services rendered to NTS Realty.  NTS Development Company has agreed to accept a lower management fee for the properties we own as a tenant in common with an unaffiliated third party in exchange for a larger potential disposition fee.

Employee costs are allocated amongst NTS Realty, other affiliates of our managing general partner and for the benefit of third parties, so that a full time employee can be shared by multiple entities.  Each employee’s services, which are dedicated to a particular entity’s operations, are allocated as a percentage of each employee’s costs to that entity.  We only reimburse charges from NTS Development Company for actual costs of employee services incurred for our benefit.

We were charged the following amounts pursuant to an agreement with NTS Development Company for the years ended December 31, 2008, 2007 and 2006.  These charges include items, which have been expensed as operating expenses reimbursed to affiliate or professional and administrative expenses reimbursed to affiliate and items, which have been capitalized as other assets or as land, buildings and amenities.  Certain of these items are included in our results of discontinued operations.

	Years Ended December 31,
	2008		Restated 2007		2006
Property management fees	$	2,179,542	$	2,272,639	$	2,276,785
Operating expenses reimbursement – Property	3,064,381		3,373,231		3,385,953
Operating expenses reimbursement – Multifamily Leasing	544,032		398,221		396,381
Operating expenses reimbursement – Administrative	1,065,381		1,361,468		1,475,141
Operating expenses reimbursement – Other	72,240		100,858		104,837
Total operating expenses reimbursed to affiliate	4,746,034		5,233,778		5,362,312
Professional and administrative expenses reimbursed to affiliate	1,618,980		1,732,160		1,577,566
Related party transactions capitalized	231,057		638,894		739,782
Disposition fees included in gain on sale of discontinued operations	1,558,390		578,000		928,035
Total related party transactions	$	10,334,003	$	10,455,471	$	10,884,480

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

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During the years ended December 31, 2008, 2007 and 2006, we were charged approximately $55,000, $79,000 and $66,000, respectively for property maintenance fees from affiliates of NTS Development Company.

NTS Development Company leased 20,368 square feet in NTS Center, at a rental rate of $14.50 per square foot.  We received rental payments of approximately $295,000 from NTS Development Company during each of the years ended December 31, 2008, 2007 and 2006.  The average per square foot rental rate for similar space in NTS Center as of December 31, 2008, 2007 and 2006 was $14.88, $13.80 and $13.85 per square foot, respectively.

NTS Development Company leased 1,604 square feet in Commonwealth Business Center Phase I, at a rental rate of $5.50 per square foot during the year ended December 31, 2006.  We received rental payments of approximately $3,700 from NTS Development Company during the year ended December 31, 2006.  Commonwealth Business Center Phase I was sold on May 18, 2006.

Note 9 - Commitments and Contingencies

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

Litigation

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

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Note 10 - - Segment Reporting

Our reportable operating segments include - Multifamily, Commercial, Retail and Land Real Estate Operations.  The following financial information of the operating segments has been prepared using a management approach, which is consistent with the basis and manner in which our management internally disaggregates financial information for the purpose of assisting in making internal operating decisions.  We evaluate performance based on stand-alone operating segment net income or loss.

	Year Ended December 31, 2008
	Multifamily			Commercial			Retail			Land		Partnership			Total
Rental income	$	32,593,672		$	6,129,240		$	1,266,770		$	—	$	(116,690	)	$	39,872,992
Tenant reimbursements	—			1,680,796			94,396			—		—			1,775,192
Total revenue	32,593,672			7,810,036			1,361,166			—		(116,690		)	41,648,184
Operating expenses and operating expenses reimbursed to affiliate	11,156,015			2,645,560			144,877			—		—			13,946,452
Management fees	1,632,708			368,665			65,444			—		—			2,066,817
Property taxes and insurance	4,598,307			913,849			54,990			—		124,940			5,692,086
Professional and administrative expenses and professional and administrative expenses reimbursed to affiliate	—			—			—			—		2,878,772			2,878,772
Depreciation and amortization	12,808,225			1,879,709			282,849			—		—			14,970,783
Total operating expenses	30,195,255			5,807,783			548,160			—		3,003,712			39,554,910
Operating income (loss)	2,398,417			2,002,253			813,006			—		(3,120,402		)	2,093,274
Interest and other income	32,329			74,497			—			—		298,847			405,673
Interest expense	(8,413,788		)	(1,980,131		)	(442,618		)	—		(607,116		)	(11,443,653		)
Loss on disposal of assets	(28,008		)	(140,411		)	—			—		—			(168,419		)
Loss from investments in tenants in common	(2,377,927		)	—			—			—		—			(2,377,927		)
(Loss) income from continuing operations	(8,388,977		)	(43,792		)	370,388			—		(3,428,671		)	(11,491,052		)
Discontinued operations, net	—			319,745			—			10,760		—			330,505
Gain on sale of discontinued operations	—			18,789,535			—			120,598		—			18,910,133
Net (loss) income	$	(8,388,977	)	$	19,065,488		$	370,388		$	131,358	$	(3,428,671	)	$	7,749,586
Land, buildings and amenities, net	$	241,102,933		$	30,406,685		$	7,337,455		$	—	$	—		$	278,847,073
Expenditures for land, buildings and amenities	$	41,419,222		$	2,883,206		$	162,867		$	—	$	—		$	44,465,295
Segment liabilities	$	43,285,964		$	3,715,922		$	2,559,413		$	—	$	163,464,323		$	213,025,622

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	Year Ended December 31, 2007 - Restated
	Multifamily			Commercial			Retail			Land		Partnership			Total
Rental income	$	29,370,439		$	5,456,552		$	1,363,887		$	—	$	(343,384	)	$	35,847,494
Tenant reimbursements	—			1,630,697			78,013			—		—			1,708,710
Total revenue	29,370,439			7,087,249			1,441,900			—		(343,384		)	37,556,204
Operating expenses and operating expenses reimbursed to affiliate	9,987,130			2,300,094			147,661			—		—			12,434,885
Management fees	1,462,841			355,285			70,765			—		—			1,888,891
Property taxes and insurance	3,748,883			891,472			55,553			—		135,009			4,830,917
Professional and administrative expenses and professional and administrative expenses reimbursed to affiliate	—			—			—			—		3,143,436			3,143,436
Depreciation and amortization	11,437,573			1,710,406			271,206			—		—			13,419,185
Total operating expenses	26,636,427			5,257,257			545,185			—		3,278,445			35,717,314
Operating income (loss)	2,734,012			1,829,992			896,715			—		(3,621,829		)	1,838,890
Interest and other income	39,681			4,261			7			—		16,877			60,826
Interest expense	(8,252,490		)	(1,719,493		)	(442,013		)	—		(903,490		)	(11,317,486		)
Loss on disposal of assets	(9,959		)	(56,093		)	—			—		—			(66,052		)
Loss from investments in tenants in common	(1,608,295		)	—			—			—		—			(1,608,295		)
(Loss) income from continuing operations	(7,097,051		)	58,667			454,709			—		(4,508,442		)	(11,092,117		)
Discontinued operations, net	—			1,524,831			—			30,500		—			1,555,331
Gain on sale of discontinued operations	—			13,482,291			—			—		—			13,482,291
Net (loss) income	$	(7,097,051	)	$	15,065,789		$	454,709		$	30,500	$	(4,508,442	)	$	3,945,505
Land, buildings and amenities, net	$	212,331,909		$	29,433,363		$	7,430,321		$	—	$	—		$	249,195,593
Expenditures for land, buildings and amenities	$	557,936		$	1,549,843		$	—		$	—	$	—		$	2,107,779
Segment liabilities from continuing operations, net	$	16,137,350		$	4,980,208		$	2,633,487		$	151	$	193,734,977		$	217,486,173
Segment liabilities from discontinued operations, net	—			3,102,787			—			—		—			3,102,787
Segment liabilities	$	16,137,350		$	8,082,995		$	2,633,487		$	151	$	193,734,977		$	220,588,960

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	Year Ended December 31, 2006
	Multifamily			Commercial			Retail			Land		Partnership			Total
Rental income	$	25,939,491		$	5,435,799		$	1,354,527		$	—	$	(310,404	)	$	32,419,413
Tenant reimbursements	—			1,573,504			77,305			—		—			1,650,809
Total revenue	25,939,491			7,009,303			1,431,832			—		(310,404		)	34,070,222
Operating expenses and operating expenses reimbursed to affiliate	8,988,419			2,359,852			144,424			—		—			11,492,695
Management fees	1,314,282			344,135			72,418			—		—			1,730,835
Property taxes and insurance	3,031,176			866,762			40,969			—		131,464			4,070,371
Professional and administrative expenses and professional and administrative expenses reimbursed to affiliate	—			—			—			—		3,499,623			3,499,623
Depreciation and amortization	10,749,444			1,870,338			283,727			—		—			12,903,509
Total operating expenses	24,083,321			5,441,087			541,538			—		3,631,087			33,697,033
Operating income (loss)	1,856,170			1,568,216			890,294			—		(3,941,491		)	373,189
Interest and other income	31,513			52,949			8,303			—		54,736			147,501
Interest expense	(7,853,071		)	(1,378,780		)	(391,073		)	—		(991,320		)	(10,614,244		)
Loss on disposal of assets	(82,145		)	(64,109		)	—			—		—			(146,254		)
(Loss) income from continuing operations	(6,047,533		)	178,276			507,524			—		(4,878,075		)	(10,239,808		)
Discontinued operations, net	9,767			1,365,916			—			28,954		—			1,404,637
Gain on sale of discontinued operations	48,271,343			1,679,143			—			—		—			49,950,486
Net income (loss)	$	42,233,577		$	3,223,335		$	507,524		$	28,954	$	(4,878,075	)	$	41,115,315
Land, buildings and amenities, net	$	223,109,517		$	29,580,109		$	7,692,090		$	—	$	—		$	260,381,716
Expenditures for land, buildings and amenities	$	167,284,412		$	1,482,499		$	—		$	—	$	—		$	168,766,911
Segment liabilities from continuing operations, net	$	15,787,554		$	5,113,700		$	2,741,026		$	151	$	204,917,387		$	228,559,818
Segment liabilities from discontinued operations, net	—			3,216,877			—			—		—			3,216,877
Segment liabilities	$	15,787,554		$	8,330,577		$	2,741,026		$	151	$	204,917,387		$	231,776,695

52

Note 11 - - Selected Quarterly Financial Data (Unaudited)

Restated

	For the Quarters Ended
2008	March 31			June 30			September 30			December 31
Total revenues	$	9,887,574		$	9,755,596		$	11,130,464		$	10,874,550
Operating income (loss)	1,435,949			(301,894		)	251,163			708,056
Discontinued operations, net (1)	574,152			(238,741		)	(3,615		)	(1,291		)
Loss from continuing operations allocated to limited partners (1)	(2,005,379		)	(2,909,175		)	(3,119,697		)	(2,735,386		)
Discontinued operations, net allocated to limited partners (1)	538,106			(223,753		)	(3,388		)	(1,210		)
Gain on sale of discontinued operations allocated to limited partners	—			17,722,944			—			—
Loss from continuing operations per limited partnership unit (1)	(0.19		)	(0.27		)	(0.29		)	(0.26		)
Discontinued operations, net per limited partnership unit (1)	0.05			(0.02		)	—			—
Gain on sale of discontinued operations per limited partnership unit	—			1.66			—			—

	For the Quarters Ended
2007	March 31			June 30			September 30			December 31
Total revenues	$	9,224,755		$	9,319,304		$	9,467,795		$	9,544,350
Operating income (loss)	501,569			(177,594		)	613,618			901,297
Discontinued operations, net (1)	82,091			252,110			545,714			675,416
Loss from continuing operations allocated to limited partners (1)	(2,083,809		)	(3,111,452		)	(2,350,914		)	(2,849,576		)
Discontinued operations, net allocated to limited partners (1)	76,938			236,282			511,454			633,013
Gain on sale of discontinued operations allocated to limited partners	12,635,869			—			—			—
Loss from continuing operations per limited partnership unit (1)	(0.20		)	(0.29		)	(0.22		)	(0.27		)
Discontinued operations, net per limited partnership unit (1)	0.01			0.02			0.05			0.06
Gain on sale of discontinued operations per limited partnership unit	1.19			—			—			—

(1) Loss from continuing operations was not affected by the restatement. Our NTS Center property was re-classified during 2008 from discontinued operations to continuing operations as it is no longer classified as held for sale on our balance sheet.

53

Previously Reported

	For the Quarters Ended
2008	March 31			June 30			September 30
Total revenues	$	11,389,013		$	11,358,632		$	13,169,625
Operating income (loss)	921,477			(723,235		)	23,895
Discontinued operations, net	735,815			(99,319		)	(3,615		)
Loss from continuing operations allocated to limited partners	(2,156,892		)	(3,039,844		)	(3,119,697		)
Discontinued operations, net allocated to limited partners	689,620			(93,084		)	(3,388		)
Gain on sale of discontinued operations allocated to limited partners	—			17,722,944			—
Loss from continuing operations per limited partnership unit	(0.20		)	(0.28		)	(0.29		)
Discontinued operations, net per limited partnership unit	0.06			(0.01		)	—
Gain on sale of discontinued operations per limited partnership unit	—			1.66			—

	For the Quarters Ended
2007	March 31			June 30			September 30			December 31
Total revenues	$	9,142,700		$	10,284,809		$	10,851,286		$	11,160,405
Operating income (loss)	473,524			(488,184		)	298,422			472,449
Discontinued operations, net	98,250			277,749			671,808			812,121
Loss from continuing operations allocated to limited partners	(2,098,952		)	(3,135,482		)	(2,469,091		)	(2,977,696		)
Discontinued operations, net allocated to limited partners	92,082			260,312			629,931			761,136
Gain on sale of discontinued operations allocated to limited partners	12,635,881			—			—			—
Loss from continuing operations per limited partnership unit	(0.20		)	(0.29		)	(0.23		)	(0.28		)
Discontinued operations, net per limited partnership unit	0.01			0.02			0.06			0.07
Gain on sale of discontinued operations per limited partnership unit	1.19			—			—			—

54

Note 12 - - Real Estate Transactions

Acquisitions

During the years ended December 31, 2008, 2007 and 2006, we had property acquisitions summarized as follows:

Wholly Owned Properties - Multifamily	Location	Units	Our Ownership		Date of Purchase		Purchase Price
Shelby Farms (1)	Memphis, TN	450	100	%	June	2008	$	41,000,000
Castle Creek Apartments	Indianapolis, IN	276	100	%	March	2006	$	27,000,000
Lake Clearwater Apartments	Indianapolis, IN	216	100	%	March	2006	$	23,000,001
The Grove at Richland Apartments	Nashville, TN	292	100	%	February	2006	$	45,757,500
The Grove at Swift Creek Apartments	Richmond, VA	240	100	%	February	2006	$	27,200,000
The Grove at Whitworth Apartments	Nashville, TN	301	100	%	February	2006	$	44,254,500

Tenant in Common Properties – Multifamily	Location	Units	Our Ownership		Date of Purchase		Purchase Price
Creek’s Edge at Stony Point	Richmond, VA	202	51	%	August	2007	$	32,300,000
The Overlook at St. Thomas	Louisville, KY	484	60	%	March	2007	$	46,000,000

(1)Financed by a $26.3 million mortgage payable to a bank.

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

	(Unaudited)
	Years Ended  December 31,
	2008			2007
Total revenues	$	43,816,736		$	42,002,953
Total operating expenses	41,667,378			40,055,201
Operating income	2,149,358			1,947,752
Interest and other income	405,673			60,826
Interest expense	(12,322,467		)	(13,124,486		)
Loss of disposal of assets	(168,419		)	(66,052		)
Loss from investment in tenants in common	(2,377,927		)	(1,608,295		)
Loss from continuing operations	(12,313,782		)	(12,790,255		)
Discontinued operations, net	330,505			1,555,331
Gain on sale of discontinued operations	18,910,133			13,482,291
Net income	$	6,926,856		$	2,247,367
Net income allocated to limited partners	$	6,491,983		$	2,106,278
Loss from continuing operations per limited partnership unit	$	(1.08	)	$	(1.12	)
Discontinued operations, net per limited partnership unit	0.03			0.14
Gain on sale of discontinued operations per limited partnership unit	1.66			1.19
Net income per limited partnership unit	$	0.61		$	0.21
Weighted average number of limited partnership interests	10,666,269			10,666,322

55

Dispositions

During the years ended December 31, 2008, 2007 and 2006 we made the following property dispositions:

Wholly Owned Property - Multifamily	(Unaudited)  Units	Our Ownership		Date of Sale
Golf Brook Apartments (1)	195	100	%	February	2006
Sabal Park Apartments (2)	162	100	%	February	2006

Wholly Owned Property - Commercial	(Unaudited)  Square Feet	Our Ownership		Date of Sale
Atrium Center (7)	104,286	100	%	May	2008
Blankenbaker Business Center I (7)	160,689	100	%	May	2008
Blankenbaker Business Center II (7)	77,408	100	%	May	2008
Anthem Office Center (7)	85,305	100	%	May	2008
Plainview Center (7)	98,000	100	%	May	2008
Plainview Point Office Center Phase I and II (7)	57,301	100	%	May	2008
Plainview Point Office Center Phase III (7)	61,680	100	%	May	2008
ITT Parking Lot (7)	NA	100	%	May	2008
Springs Medical Office Center (5)	100,565	100	%	February	2007
Springs Office Center (6)	125,964	100	%	February	2007
Commonwealth Business Center Phase I (3)	60,661	100	%	May	2006
Commonwealth Business Center Phase II (4)	65,869	100	%	May	2006

(1)Gain of approximately $28.7 million.

(2)Gain of approximately $19.6 million.

(3)Gain of approximately $1.1 million.

(4)Gain of approximately $0.6 million.

(5)Gain of approximately $8.9 million.

(6)Gain of approximately $4.6 million.

(7)Gain of approximately $18.9 million.

In May 2008, we sold Atrium Center, Blankenbaker Business Center I, Blankenbaker Business Center II, Anthem Office Center, Plainview Center, Plainview Point Office Center Phases I and II, Plainview Point Office Center Phase III, and the ITT Parking Lot (the “Office Portfolio”).  Our NTS Center property was re-classified during 2008 from discontinued operations to continuing operations, as it is no longer classified as held for sale on our balance sheet.  All prior periods presented have been reclassified as items held for sale and discontinued operations, as appropriate.

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

We were unable to invest approximately $4.6 million of proceeds from the sale of the Office Portfolio in replacement “like kind” property.  Under Section 1031 of the Internal Revenue Code certain tax consequences may result for the limited partners of record due to our inability to use all of these funds in a “like-kind exchange.”  The consequences include the recognition of gain on the transaction and related tax attributes.

56

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

Property	Location	Status
Atrium Center	Louisville, KY	Sold 2008
Blankenbaker Business Center I	Louisville, KY	Sold 2008
Blankenbaker Business Center II	Louisville, KY	Sold 2008
Anthem Office Center	Louisville, KY	Sold 2008
Plainview Center	Louisville, KY	Sold 2008
Plainview Point Office Center Phase I and II	Louisville, KY	Sold 2008
Plainview Point Office Center Phase III	Louisville, KY	Sold 2008
ITT Parking Lot	Louisville, KY	Sold 2008
Springs Medical Office Center	Louisville, KY	Sold 2007
Springs Office Center	Louisville, KY	Sold 2007
Commonwealth Business Center Phase I	Louisville, KY	Sold 2006
Commonwealth Business Center Phase II	Louisville, KY	Sold 2006
Golf Brook Apartments	Orlando, FL	Sold 2006
Sabal Park Apartments	Orlando, FL	Sold 2006

The assets and liabilities held for sale were separately identified on our balance sheet at December 31, 2007.  No assets or liabilities were classified as held for sale on our balance sheet at December 31, 2008.

The components of discontinued operations are outlined below and include the results of operations for the respective periods in which we owned such assets during the years ended December 31, 2008, 2007 and 2006.

	Years Ended December 31,
	2008			2007			2006
REVENUE:
Rental income	$	2,281,996		$	7,231,295		$	10,604,799
Tenant reimbursements	189,462			320,361			546,091
Total revenue	2,471,458			7,551,656			11,150,890
EXPENSES:
Operating expenses and operating expenses reimbursed to affiliate	794,448			2,424,590			3,707,044
Management fees	112,725			383,748			545,951
Property taxes and insurance	201,928			588,097			798,600
Depreciation and amortization	—			502,140			1,982,526
Total operating expenses	1,109,101			3,898,575			7,034,121
DISCONTINUED OPERATING INCOME	1,362,357			3,653,081			4,116,769
Interest and other income	8,806			50,255			24,601
Interest expense	(1,040,658		)	(2,102,328		)	(2,636,755		)
Loss on disposal of assets	—			(45,677		)	(99,978		)
DISCONTINUED OPERATIONS, NET	$	330,505		$	1,555,331		$	1,404,637

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

57

Note 13 — Deferred Compensation Plans

Officers Plan

On December 6, 2006, our managing general partner, NTS Realty Capital, established the NTS Realty Capital Officer Deferred Compensation Plan (the “Officer Plan”).  The Officer Plan permits each eligible officer (the “Participant”) to receive an annual equity bonus of our phantom units, as approved by the Board of Directors, on a deferred basis.  To be eligible, each Participant must be a designated officer on January 1 and December 1 of any year in which the Officer Plan is in effect.   The Officer Plan is unfunded and unsecured.  Amounts deferred by individual officers are an obligation of NTS Realty.

Participants may elect to defer the receipt of the annual equity bonus under this plan, or receive the bonus in the year that it is earned.  Participants may elect to defer receipt until their death, disability, separation of service, or a date specified by the Participant.

An account is maintained for each Participant in the Officer Plan, with a balance equivalent to a phantom investment in NTS Realty Units.  A Participant’s interest in an account is valued by multiplying the number of phantom units credited by the fair market value of NTS Realty units at the respective date.  Participants are 100% vested at all times in the value of the account.  All Participants will be paid based on the value of their account.

During the years ended December 31, 2008, 2007 and 2006, each Participant elected to defer receipt of the annual equity bonus.  Therefore, each Participant’s account was credited with 841, 350 and 1000 phantom units, respectively, as approved by the Board of Directors.  As of December 31, 2008 and 2007, liabilities of approximately $53,800 and $54,500, the fair market value of 15,337 and 10,800 of our units, respectively, was included in our “Other Liabilities”.  The obligation is recorded as a liability because no units will be issued in connection with this plan.  The obligation amount may vary according to the market value of our units.

Directors Plan

On November 7, 2006, NTS Realty Capital, established the NTS Realty Capital Directors Deferred Compensation Plan (the “Director Plan”).  The Director Plan permits each eligible member of NTS Realty’s Board of Directors (the “Participant”) to receive an annual equity bonus of our phantom units, as approved by the Board of Directors, on a deferred basis.  To be eligible, each Participant must be considered to be “independent” under the standards promulgated from time to time by the New York Stock Exchange.  The Director Plan is unfunded and unsecured.  Amounts deferred by individual directors are an obligation of NTS Realty.

Participants may elect to defer under the Director Plan some or all of his Annual Retainer.  Participants may elect to defer receipt until their death, disability, separation of service, or a date specified by the Participant.

An account is maintained for each Participant in the Director Plan, with a balance equivalent to a phantom investment in NTS Realty units.  A Participant’s interest in an account is valued by multiplying the number of phantom units credited by the fair market value of NTS Realty units at the respective date.  Participants are 100% vested at all times in the value of the account.  All Participants will be paid based on the value of their account.

During 2006, no units were issued in connection with this plan.

During the year ended December 31, 2008 and 2007, each Participant elected to defer receipt of some or all, of his annual retainer.  Therefore, each Participant’s account was credited with 3,528 and 2,390 phantom units, respectively.  As of December 31, 2008 and 2007, liabilities of approximately $62,300 and $36,200, the fair market value of 17,754 and 7,170 of our units, respectively, was included in our “Other Liabilities”.  The obligation is recorded as a liability because no units will be issued in connection with this plan.  The obligation amount may vary according to the market value of our units.

Compensation expense for 2008, 2007 and 2006 under the Officers and Directors Plans totaled approximately $32,600, $31,400 and $59,400, respectively.

58

Note 14 — Restatement of the Consolidated Financial Statements

We recently received a comment letter from the Securities and Exchange Commission related to a staff review of our 2007 annual report on Form 10-K.  The comment letter addressed our basis of presentation for consolidating the undivided tenant in common interests of The Overlook at St. Thomas and Creek’s Edge at Stony Point properties, both acquired in 2007.  We have previously consolidated real estate ventures based on our majority ownership and other elements, which afforded control of the properties.

As part of our efforts to respond to the comment letter, we reviewed the authoritative literature, specifically SOP 78-9, “Accounting for Investments in Real Estate Capital Ventures”, and have determined that our consolidation policy for these undivided tenant in common interests was not appropriate.  Accordingly, we have restated our financial statements to reflect the proper accounting for these undivided tenant in common interests using the equity method of accounting.  This restatement of our 2007 financial statements and subsequent interim periods does not affect our partners’ equity, loss from continuing operations, net income or corresponding per limited partnership unit amounts as previously reported.

The following tables present the effect of the restatement on our Consolidated Balance Sheet, Consolidated Statements of Operations and Cash Flows including the 2008 reclassification of amounts previously classified as held for sale and discontinued operations related to our NTS Center property, as discussed in Note 2:

Consolidated Balance Sheet:

	As of December 31, 2007
	Restated		Previously  Reported
ASSETS:
Cash and equivalents	$	845,337	$	1,577,082
Cash and equivalents - restricted	710,282		965,862
Accounts receivable, net of allowance for doubtful accounts	973,363		818,430
Notes receivable	—		—
Land, buildings and amenities, net	249,195,593		320,312,690
Long-lived assets held for sale	33,958,931		38,615,919
Investments in and advances to tenants in common	8,810,092		—
Other assets	2,963,269		3,331,886
Total assets	$	297,456,867	$	365,621,869
LIABILITIES:
Mortgages and notes payable	$	206,710,646	$	265,176,332
Accounts payable and accrued expenses	3,734,486		4,080,205
Accounts payable and accrued expenses due to affiliate	573,621		640,102
Distributions payable	1,138,076		1,138,076
Security deposits	817,314		871,225
Long-lived liabilities held for sale	3,102,787		3,131,383
Other liabilities	4,512,030		4,714,616
Total liabilities	220,588,960		279,751,939
MINORITY INTEREST	—		9,002,023
COMMITMENTS AND CONTINGENCIES (NOTE 9)
PARTNERS’ EQUITY	76,867,907		76,867,907
Total liabilities and partners’ equity	$	297,456,867	$	365,621,869

59

Consolidated Statement of Operations:

	For the year ended  December 31, 2007
	Restated			Previously  Reported
REVENUE:
Rental income	$	35,847,494		$	39,844,410
Tenant reimbursements	1,708,710			1,594,790
Total revenue	37,556,204			41,439,200
EXPENSES:
Operating expenses	7,988,011			9,068,352
Operating expenses reimbursed to affiliate	4,446,874			4,967,150
Management fees	1,888,891			2,005,100
Property taxes and insurance	4,830,917			5,272,547
Professional and administrative expenses	1,411,276			1,411,276
Professional and administrative expenses reimbursed to affiliate	1,732,160			1,732,160
Depreciation and amortization	13,419,185			16,226,404
Total operating expenses	35,717,314			40,682,989
OPERATING INCOME	1,838,890			756,211
Interest and other income	60,826			92,911
Interest expense	(11,317,486		)	(13,388,598		)
Loss on disposal of assets	(66,052		)	(69,010		)
Loss from investments in tenants in common	(1,608,295		)	—
Minority interest	—			(1,211,772		)
LOSS FROM CONTINUING OPERATIONS (1)	(11,092,117		)	(11,396,714		)
Discontinued operations, net (1)	1,555,331			1,859,928
Gain on sale of discontinued operations	13,482,291			13,482,291
NET INCOME	$	3,945,505		$	3,945,505
Loss from continuing operations allocated to limited partners	$	(10,395,751	)	$	(10,681,225	)
Discontinued operations, net allocated to limited partners	1,457,687			1,743,161
Gain on sale of discontinued operations allocated to limited partners	12,635,869			12,635,869
NET INCOME ALLOCATED TO LIMITED PARTNERS	$	3,697,805		$	3,697,805
Loss from continuing operations per limited partnership unit	$	(0.98	)	$	(1.00	)
Discontinued operations, net per limited partnership unit	0.14			0.16
Gain on sale of discontinued operations per limited partnership unit	1.19			1.19
NET INCOME PER LIMITED PARTNERSHIP UNIT	$	0.35		$	0.35
Weighted average number of limited partnership interests	10,666,322			10,666,322

(1)Loss from continuing operations was not affected by the restatement.  Our NTS Center property was re-classified during 2008 from discontinued operations to continuing operations as it is no longer classified as held for sale on our balance sheet.

60

Consolidated Statement of Cash Flows:

	For the year ended  December 31, 2007
	Restated			Previously  Reported
OPERATING ACTIVITIES:
Net income	$	3,945,505		$	3,945,505
Adjustments to reconcile net income to net cash provided by operating activities:
Gain from sale of discontinued assets	(13,482,291		)	(13,482,291		)
Loss on disposal of assets	111,729			114,687
Depreciation and amortization	14,709,779			17,841,334
Write-off of loan costs	36,868			36,868
Loss from investments in tenants in common	1,608,295			—
Minority interest	—			(1,211,772		)
Changes in assets and liabilities:
Cash and equivalents - restricted	(244,765		)	(500,345		)
Accounts receivable	538,455			504,606
Other assets	(710,423		)	(769,641		)
Accounts payable and accrued expenses	(130,019		)	215,700
Accounts payable and accrued expenses due to affiliate	(182,465		)	(115,984		)
Security deposits	(98,064		)	(32,669		)
Other liabilities	1,972,101			2,191,799
Net cash provided by operating activities	8,074,705			8,737,797
INVESTING ACTIVITIES:
Additions to land, buildings and amenities	(5,759,609		)	(5,841,663		)
Proceeds from sale of discontinued operations	26,104,758			26,104,758
Acquisitions	—			(78,352,173		)
Deposits on property acquisitions	300,000			300,000
Notes receivable	—			—
Cash and equivalents - restricted	—			—
Investments in and advances to tenants in common	(10,418,387		)	—
Investments in joint ventures by minority interest, net	—			10,213,795
Net cash provided by (used in) investing activities	10,226,762			(47,575,283		)
FINANCING ACTIVITIES:
Proceeds from mortgages payable	4,500,000			86,000,000
Revolving note payable, net	8,051,729			8,051,729
Principal payments on mortgages payable	(2,962,771		)	(3,247,085		)
Additional payments on mortgages payable	(21,200,000		)	(43,950,000		)
Additions to loan costs	(182,788		)	(777,776		)
Cash distributions	(5,690,550		)	(5,690,550		)
Net cash (used in) provided by financing activities	(17,484,380		)	40,386,318
NET INCREASE IN CASH AND EQUIVALENTS	817,087			1,548,832
CASH AND EQUIVALENTS, beginning of year	28,250			28,250
CASH AND EQUIVALENTS, end of year	$	845,337		$	1,577,082
Interest paid	$	12,707,600		$	14,786,803

61

ITEM 9 - CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A - CONTROLS AND PROCEDURES

Restatement of Financial Statements — We have restated our historical balance sheet as of December 31, 2007; our consolidated statements of operations and cash flows for the year ended December 31, 2007; selected financial data as of and for the year ended December 31, 2007; and selected quarterly financial data for each interim period of 2007 and 2008 in this annual report on Form 10-K as discussed in Item 8, Note 14 — Restatement of the Financial Statements.  The related certification of our Chief Executive Officer and Chief Financial Officer, filed as exhibits 31.1, 31.2, 32.1 and 32.2, should be read in conjunction with this Item 9A.

Disclosure Controls and Procedures - - As of December 31, 2008, we, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e) and 15(d)-15(e).  Subsequently we identified a material weakness in our internal control over financial reporting with respect to our consolidation of the undivided tenant in common interests of the Overlook at St. Thomas and Creek’s Edge at Stony Point properties.  Solely as a result of this material weakness, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of December 31, 2008.  Concurrent with the filing of this annual report on Form 10-K, we, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, again evaluated the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e) and 15(d)-15(e).  Based upon this subsequent evaluation, including the remedial actions described below, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective.

Remediation of a Material Weakness in Internal Control Over Financial Reporting — As of the date of this filing, we have fully remediated the material weakness in our internal control over financial reporting with respect to accounting for undivided tenant in common interests.  We have revised our accounting policy for these undivided tenant in common interests and implemented controls and procedures to properly identify and account for these undivided tenant in common interests.

Management’s Report on Internal Control Over Financial Reporting - Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act.  Our internal control system is designed to provide reasonable assurance regarding the preparation and fair presentation of published financial statements.  Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that compliance with the policies or procedures may deteriorate or be circumvented.

As of December 31, 2008, we did not maintain effective internal controls over our accounting for undivided tenant in common interests, resulting in the restatement of our financial statements as of and for the year ended December 31, 2007 and the subsequent interim periods.  We have concluded that this control deficiency constitutes a material weakness.

Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2008.  In making this assessment, management used the criteria established in Internal Controls-Integrated Framework issued by the Committee of Sponsoring Organizations of the Tradeway Commission, or COSO.  Based on management’s assessment and the criteria established by COSO, management believes that our internal control over financial reporting was not effective as of December 31, 2008 with respect to accounting for undivided tenant in common interests.

Changes in Internal Control Over Financial Reporting — We revised our accounting policy for undivided tenant in common interests.  There have been no other changes in our internal control over financial reporting during the year ended December 31, 2008, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

62

This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this annual report.

ITEM 9A (T) - CONTROLS AND PROCEDURES

This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this annual report.

ITEM 9B - OTHER INFORMATION

None.

63

PART III

ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this Item 10 is incorporated by reference to, and will be contained in, our definitive proxy statement, which we anticipate filing no later than April 30, 2009.

ITEM 11 - EXECUTIVE COMPENSATION

The information required by this Item 11 is incorporated by reference to, and will be contained in, our definitive proxy statement, which we anticipate filing no later than April 30, 2009.

ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this Item 12 is incorporated by reference to, and will be contained in, our definitive proxy statement, which we anticipate filing no later than April 30, 2009.

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this Item 13 is incorporated by reference to, and will be contained in, our definitive proxy statement, which we anticipate filing no later than April 30, 2009.

ITEM 14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this Item 14 is incorporated by reference to, and will be contained in, our definitive proxy statement, which we anticipate filing no later than April 30, 2009.

64

PART IV

ITEM 15 - EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

1 - Financial Statements

The financial statements along with the report from Ernst & Young LLP dated March     , 2009, appear in Part II, Item 8.  The following schedules should be read in conjunction with those financial statements.

2 - Financial Statement Schedules

Schedules	Page No.
Schedule III-Real Estate and Accumulated Depreciation	67-68
All other schedules have been omitted because they are not applicable, are not required, or because the required information is included in the financial statements or notes thereto.

3 - Exhibits

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

65

Exhibit No.
10.13	Purchase and Sale Agreement between NTS Realty Holdings Limited Partnership together with Creek’s Edge Investors, LLC and CG Stony Point, LLC, dated June 20, 2007 (Creek’s Edge at Stony Point)	(12)
10.14	Purchase and Sale Agreement between NTS Realty Holdings Limited Partnership and Ascent Properties, LLC, dated August 1, 2007 (The Office Portfolio)	(13)
10.15	Purchase and Sale Agreement between NTS Realty Holdings Limited Partnership and Colonial Realty Limited Partnership and Colonial Properties Services, Inc., dated June 11, 2008 (Shelby Farms)	(14)
14.01	Code of Conduct and Ethics of NTS Realty Holdings Limited Partnership, adopted as of December 28, 2004	(4)
31.1	Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended	(15)
31.2	Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended	(15)
32.1	Certification of Chief Executive Officer Pursuant to U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	(15)
32.2	Certification of Chief Financial Officer Pursuant to U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	(15)
99.01	Form of Lock-Up Agreement by and between NTS Realty Holdings Limited Partnership and each of the executive officers of NTS Realty Capital, Inc.	(1)
99.02	Registration Statement on Form S-4/A (Amendment No. 5), as filed by the Registrant with the Securities and Exchange Commission on October 27, 2004	(3)

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

66

NTS REALTY HOLDINGS LIMITED PARTNERSHIP

SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

AS OF DECEMBER 31, 2008

			Initial Cost				Cost Capitalized Subsequent to Acquisition					Total Amounts at End of Period						Accumulated
Property Description	Encumbrances		Land		Buildings and Improvements		Land			Buildings and Improvements		Land		Buildings and Improvements		Total (1)		Depreciation (2)		Year Constructed
Commercial
Clarke American (3)	2,277,378		521,736		2,165,877		—			—		521,736		2,165,877		2,687,613		631,274		2000
Lakeshore I (4)	—		2,128,882		3,661,323		—			2,378,121		2,128,882		6,039,444		8,168,326		1,106,679		1986
Lakeshore II (4)	—		3,171,812		3,772,955		4,200			545,672		3,176,012		4,318,627		7,494,639		1,240,776		1989
Lakeshore III (4)	—		1,264,136		3,252,297		—			168,589		1,264,136		3,420,886		4,685,022		755,160		2000
NTS Center	—		1,074,010		2,977,364		1,029			920,600		1,075,039		3,897,964		4,973,003		741,693		1977
Peachtree	—		1,417,444		3,459,185		—			962,752		1,417,444		4,421,937		5,839,381		1,380,921		1979
Sears	—		925,539		1,390,215		—			501,055		925,539		1,891,270		2,816,809		401,602		1987
Multifamily
Castle Creek (5)	—		3,262,814		23,538,500		24,037			51,111		3,286,851		23,589,611		26,876,462		4,048,853		1999
Lake Clearwater (5)	—		2,778,541		20,064,789		4,343			36,145		2,782,884		20,100,934		22,883,818		3,393,869		1999
Park Place (6)	—		5,181,523		21,082,463		61,191			534,500		5,242,714		21,616,963		26,859,677		3,647,843		1987
Shelby Farms (7)	26,328,500		5,625,335		34,989,698		—			—		5,625,335		34,989,698		40,615,033		1,229,833		1997
Richland (6)	—		11,372,241		34,321,460		5,858			126,579		11,378,099		34,448,039		45,826,138		6,358,707		1998
Swift Creek (6)	—		5,524,124		21,626,475		—			77,541		5,524,124		21,704,016		27,228,140		4,684,873		2000
Whitworth (6)	—		11,973,900		32,220,180		—			319,105		11,973,900		32,539,285		44,513,185		6,205,742		1994
The Lakes (8)	11,575,911		2,636,790		13,187,093		51,948			169,762		2,688,738		13,356,855		16,045,593		3,217,157		1992
The Willows (6)	—		3,015,448		10,947,277		42,139			848,879		3,057,587		11,796,156		14,853,743		1,731,544		1985
Willow Lake (6)	—		2,555,062		8,368,028		45,283			451,699		2,600,345		8,819,727		11,420,072		1,500,512		1985
Retail
Bed, Bath & Beyond (9)	2,412,387		734,860		2,290,252		—			—		734,860		2,290,252		3,025,112		381,404		1999
Outlet Mall	—		1,008,618		2,763,070		(115,064		)	110,823		893,554		2,873,893		3,767,447		413,042		1983
Springs Station	—		427,465		978,891		—			164,164		427,465		1,143,055		1,570,520		231,176		2001
Partnership (4) (5) (6) (7)	160,967,493		—		—		—			—		—		—		—		—		N/A
	$	203,561,669	$	66,600,280	$	247,057,392	$	124,964		$	8,367,097	$	66,725,244	$	255,424,489	$	322,149,733	$	43,302,660

(1)Aggregate cost of real estate for tax purposes is approximately $220,856,000.

(2)Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which are 5-30 years for land improvements, 7-30 years for buildings and improvements and 5-30 years for amenities.  Tenant improvements are generally depreciated over the life of the respective tenant lease.

(3)Mortgage held by an insurance company secured by certain land and a building.

(4)$23,907,000  mortgage held by a bank secured by Lakeshore Business Center Phases I, II and III.

(5)$27,534,884 mortgage held by an insurance company secured by Castle Creek and Lake Clearwater.

(6)$71,041,740  and $32,001,720 mortgages held by an insurance company secured by Park Place Apartments, The Grove at Richland, The Grove at Swift Creek, The Grove at Whitworth, The Willows of Plainview and Willow Lake.

(7)Mortgage held by an insurance company secured by certain land, buildings and amenities.

(8)Mortgage held by FHLMC secured by certain land, building and amenities.

(9)Mortgage held by an insurance company secured by certain land, buildings and amenities.

67

NTS REALTY HOLDINGS LIMITED PARTNERSHIP

SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

FOR THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006

	Real Estate			Accumulated Depreciation
Balances on January 1, 2006	$	178,095,661		$	6,965,793
Additions during period:
Acquisitions	166,683,023			—
Improvements	4,671,436			—
Depreciation	—			14,013,581
Deductions during period:
Retirements	(28,797,809		)	(1,018,243		)
Balances on December 31, 2006	320,652,311			19,961,131
Additions during period:
Acquisitions (2)	—			—
Improvements (2)	5,815,103			—
Depreciation (2)	—			13,727,008
Deductions during period:
Retirements (2)	(13,988,461		)	(1,254,263		)
Balances on December 31, 2007 (2)	312,478,953			32,433,876
Additions during period:
Acquisitions	40,615,032			—
Improvements	4,055,553			—
Depreciation (1)	—			14,641,880
Deductions during period:
Retirements	(34,999,805		)	(3,773,096		)
Balances on December 31, 2008	$	322,149,733		$	43,302,660

(1)The additions charged to accumulated depreciation on this schedule will differ from the depreciation and amortization on the Statements of Cash Flows due to the amortization of loan costs and capitalized leasing costs.

(2)Amounts have been restated to reflect the proper accounting for undivided tenant in common interests in The Overlook at St. Thomas and Creek’s Edge at Stony Point using the equity method of accounting.

68

SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be 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:	March 31, 2009
	By:	/s/ Gregory A. Wells
		Gregory A. Wells
		Its:	Chief Financial Officer
		Date:	March 31, 2009

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By:	/s/ J.D. Nichols
	J.D. Nichols
	Its:	Chairman of the Board
	Date:	March 31, 2009
By:	/s/ Brian F. Lavin
	Brian F. Lavin
	Its:	Director
	Date:	March 31, 2009
By:	/s/ Mark D. Anderson
	Mark D. Anderson
	Its:	Director
	Date:	March 31, 2009
By:	/s/ John Daly
	John Daly
	Its:	Director
	Date:	March 31, 2009
By:	/s/ John S. Lenihan
	John S. Lenihan
	Its:	Director
	Date:	March 31, 2009

69

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Brian F. Lavin, certify that:

1.I have reviewed this annual report on Form 10-K of NTS Realty Holdings Limited Partnership;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:       March 31, 2009

/s/ Brian F. Lavin

President and Chief Executive Officer of

NTS Realty Capital, Inc., the Managing General Partner of

NTS Realty Holdings Limited Partnership

1

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Gregory A. Wells, certify that:

1.I have reviewed this annual report on Form 10-K of NTS Realty Holdings Limited Partnership;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:       March 31, 2009

/s/ Gregory A. Wells

Chief Financial Officer of

NTS Realty Capital, Inc., the Managing General Partner of

NTS Realty Holdings Limited Partnership

1

EX-32.1

EXHIBIT 32.1

CERTIFICATION

I, Brian F. Lavin, President and Chief Executive Officer of NTS Realty Capital, Inc., the managing general partner of NTS Realty Holdings Limited Partnership (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

1.The Annual Report on Form 10-K of the Company for the annual period ended December 31, 2008 (the “Report”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and

2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated:	March 31, 2009
Name:	/s/ Brian F. Lavin
	Brian F. Lavin
Title:	President and Chief Executive Officer of
	NTS Realty Capital, Inc., the Managing General
	Partner of NTS Realty Holdings Limited Partnership

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

1

EX-32.2

EXHIBIT 32.2

CERTIFICATION

I, Gregory A. Wells, Chief Financial Officer of NTS Realty Capital, Inc., the managing general partner of NTS Realty Holdings Limited Partnership (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

1.The Annual Report on Form 10-K of the Company for the annual period ended December 31, 2008 (the “Report”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and

2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated:	March 31, 2009
Name:	/s/ Gregory A. Wells
	Gregory A. Wells
Title:	Chief Financial Officer of
	NTS Realty Capital Inc., the Managing General
	Partner of NTS Realty Holdings Limited Partnership

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

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