UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2013

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.)

600 North Hurstbourne Parkway Suite 300 Louisville, Kentucky		40222
(Address of principal executive offices)		(Zip Code)

(502) 426-4800

(Registrant’s telephone number, including area code)

Not applicable

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

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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

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 the 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 Exchange Act). Yes o No x

APPLICABLE ONLY TO CORPORATE ISSUERS

As of November 8, 2013, there were 11,095,274 of the registrant’s limited partnership units outstanding.

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PART I — FINANCIAL INFORMATION

Item 1 — Financial Statements

NTS REALTY HOLDINGS LIMITED PARTNERSHIP

Condensed Consolidated Balance Sheets as of September 30, 2013 (Unaudited) and December 31, 2012

	(Unaudited)
	September 30, 2013		December 31, 2012
ASSETS:
Cash and equivalents	$	2,160,637	$	1,240,818
Cash and equivalents - restricted	4,777,177		4,021,586
Accounts receivable, net of allowance for doubtful accounts of $106,822 at September 30, 2013 and $81,163 at December 31, 2012, respectively	1,467,867		1,770,696
Land, buildings and amenities, net	274,578,257		285,383,595
Investments in and advances to joint ventures	1,933,691		4,977,948
Investments in and advances to tenants in common	286,371		-
Other assets	4,000,755		4,169,736

Total assets	$	289,204,755	$	301,564,379

LIABILITIES:
Mortgages and notes payable	$	258,086,322	$	264,772,316
Accounts payable and accrued expenses	3,991,500		4,931,794
Accounts payable and accrued expenses due to affiliates	404,770		336,688
Distributions payable	554,764		554,764
Security deposits	996,030		932,978
Other liabilities	6,012,107		4,399,016
Investments in and advances to tenants in common	1,634,716		1,806,948

Total liabilities	271,680,209		277,734,504

COMMITMENTS AND CONTINGENCIES (NOTE 14)

EQUITY:
Partners’ equity	12,562,662		18,093,842
Noncontrolling interests	4,961,884		5,736,033

Total equity	17,524,546		23,829,875

Total liabilities and equity	$	289,204,755	$	301,564,379

NTS REALTY HOLDINGS LIMITED PARTNERSHIP

Condensed Consolidated Statement of Equity (1) as of September 30, 2013

(Unaudited)

	(Unaudited)
	General Partner Interests	Limited Partners’ Interests		General Partner			Limited Partners			Noncontrolling Interests			Total
EQUITY:
Initial equity	714,491	10,667,117		$	3,131,381		$	46,750,444		$	-		$	49,881,825
Contributions from noncontrolling interests	-	-		-			-			9,952,176			9,952,176
Net loss prior years	-	-		(154,367		)	(1,810,921		)	(3,475,143		)	(5,440,431		)
Consolidated net loss current year	-	-		(249,012		)	(3,617,877		)	(492,674		)	(4,359,563		)
Cash distributions declared to date	-	-		(1,900,546		)	(28,230,381		)	(1,022,475		)	(31,153,402		)
Retirement of limited partnership interests to date	-	(286,334	)	-			(1,356,059		)	-			(1,356,059		)

Balances on September 30, 2013	714,491	10,380,783		$	827,456		$	11,735,206		$	4,961,884		$	17,524,546

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

(1) For the periods presented, there are no elements of other comprehensive income as defined by the Financial Accounting Standards Board, Accounting Standards Codification Topic 220 Comprehensive Income.

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NTS Realty Holdings Limited Partnership

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended

September 30, 2013 and 2012

(Unaudited)

	(Unaudited)						(Unaudited)
	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
REVENUE:
Rental income	$	14,485,773		$	14,060,694		$	42,797,358		$	41,463,171
Tenant reimbursements	486,953			464,180			1,343,053			1,399,945

Total revenue	14,972,726			14,524,874			44,140,411			42,863,116

EXPENSES:
Operating expenses	3,979,537			4,148,164			10,801,822			12,046,910
Operating expenses reimbursed to affiliates	1,605,335			1,628,423			4,698,190			4,688,801
Management fees	757,937			714,877			2,298,282			2,123,988
Property taxes and insurance	2,075,529			1,811,310			6,010,564			5,436,235
Professional and administrative expenses	529,337			509,271			2,139,519			947,264
Professional and administrative expenses reimbursed to affiliates	474,227			539,469			1,441,975			1,409,716
Depreciation and amortization	3,918,494			4,464,143			12,334,311			13,359,897

Total expenses	13,340,396			13,815,657			39,724,663			40,012,811

OPERATING INCOME	1,632,330			709,217			4,415,748			2,850,305

Interest and other income	10,738			14,435			1,627,432			51,768
Interest expense	(3,443,661		)	(3,513,070		)	(10,296,702		)	(10,498,310		)
Loss on disposal of assets	(41,024		)	(40,882		)	(83,311		)	(205,197		)
Loss from investments in joint ventures	(27,994		)	(3,194		)	(74,833		)	(166,770		)
(Loss) income from investments in tenants in common	(434,681		)	(435,704		)	52,103			(1,445,430		)

CONSOLIDATED NET LOSS	(2,304,292		)	(3,269,198		)	(4,359,563		)	(9,413,634		)
Net loss attributable to noncontrolling interests	(161,995		)	(207,561		)	(492,674		)	(758,765		)

NET LOSS	$	(2,142,297	)	$	(3,061,637	)	$	(3,866,889	)	$	(8,654,869	)

Loss allocated to limited partners	$	(2,155,905	)	$	(3,058,676	)	$	(4,078,825	)	$	(8,807,435	)
Net loss attributable to noncontrolling interests allocated to limited partners	(151,563		)	(194,195		)	(460,948		)	(709,904		)

NET LOSS ALLOCATED TO LIMITED PARTNERS	$	(2,004,342	)	$	(2,864,481	)	$	(3,617,877	)	$	(8,097,531	)

Loss per limited partnership unit	$	(0.20	)	$	(0.30	)	$	(0.39	)	$	(0.85	)
Net loss attributable to noncontrolling interests per limited partnership unit	(0.01		)	(0.02		)	(0.04		)	(0.07		)

NET LOSS PER LIMITED PARTNERSHIP UNIT	$	(0.19	)	$	(0.28	)	$	(0.35	)	$	(0.78	)

Weighted average number of limited partnership interests	10,380,783			10,380,783			10,380,783			10,380,783

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

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NTS REALTY HOLDINGS LIMITED PARTNERSHIP

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2013 and 2012

(Unaudited)

	(Unaudited)
	Nine Months Ended September 30,
	2013			2012
OPERATING ACTIVITIES:
Consolidated net loss	$	(4,359,563	)	$	(9,413,634	)
Adjustments to reconcile consolidated net loss to net cash provided by operating activities:
Loss on disposal of assets	83,311			205,197
Depreciation and amortization	12,858,535			13,904,329
Loss from investments in joint ventures	74,833			166,770
(Income) loss from investments in tenants in common	(52,103		)	1,445,430
Changes in assets and liabilities:
Cash and equivalents — restricted	(755,591		)	(1,766,849		)
Accounts receivable	302,829			35,677
Other assets	(385,171		)	871,575
Accounts payable and accrued expenses	(940,294		)	(376,436		)
Accounts payable and accrued expenses due to affiliates	68,082			(15,968		)
Security deposits	63,052			24,388
Other liabilities	1,613,091			1,452,393

Net cash provided by operating activities	8,571,011			6,532,872

INVESTING ACTIVITIES:
Additions to land, buildings and amenities	(1,555,553		)	(2,490,371		)
Investments in joint ventures	(460,576		)	(2,475,600		)
Investments in tenants in common	(612,000		)	-

Net cash used in investing activities	(2,628,129		)	(4,965,971		)

FINANCING ACTIVITIES:
Distributions to noncontrolling interest holders	(281,475		)	(249,000		)
Distributions from joint ventures	3,430,000			-
Distributions from tenants in common	205,500			120,000
Revolving note payable, net	(3,355,931		)	3,606,189
Principal payments on mortgages payable	(3,330,063		)	(3,026,894		)
Additions to loan costs	(26,803		)	-
Cash distributions	(1,664,291		)	(1,664,291		)

Net cash used in financing activities	(5,023,063		)	(1,213,996		)

NET INCREASE IN CASH AND EQUIVALENTS	919,819			352,905

CASH AND EQUIVALENTS, beginning of period	1,240,818			1,165,137

CASH AND EQUIVALENTS, end of period	$	2,160,637		$	1,518,042

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

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NTS REALTY HOLDINGS LIMITED PARTNERSHIP

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The unaudited condensed consolidated financial statements included herein should be read in conjunction with NTS Realty Holdings Limited Partnership’s (“NTS Realty”) 2012 annual report on Form 10-K as filed with the Securities and Exchange Commission on March 22, 2013. The Condensed Consolidated Balance Sheet as of December 31, 2012, has been derived from the audited consolidated financial statements of NTS Realty as of that date. Certain information and note disclosures normally included in our annual financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted. In the opinion of NTS Realty Capital, Inc., our managing general partner (“NTS Realty Capital”), all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation have been made to the accompanying unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2013 and 2012. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the full year or any other interim period. As used in this quarterly report on Form 10-Q, the terms “we,” “us,” or “our,” as the context requires, may refer to NTS Realty, its wholly-owned properties, properties held by wholly-owned subsidiaries, its interests in consolidated and unconsolidated joint venture investments or interests in properties held as a tenant in common with an unaffiliated third party.

Note 1 — Summary of Significant Accounting Policies

Organization and Distribution Policy

We are in the business of developing, constructing, owning and operating multifamily properties, commercial and retail real estate. As of September 30, 2013, we owned wholly, as a tenant in common with unaffiliated third parties or through joint venture investments with both affiliated and unaffiliated third parties, 24 properties, comprised of 15 multifamily properties, 7 commercial properties and 2 retail properties. The properties are located in and around Louisville (7) and Lexington (1), Kentucky; Fort Lauderdale (3) and Orlando (3), Florida; Indianapolis (4), Indiana; Memphis (1) and Nashville (2), Tennessee; Richmond (2), Virginia; and Atlanta (1), Georgia. Our commercial properties aggregate approximately 736,000 square feet, which includes approximately 125,000 square feet at our property held as a joint venture with an unaffiliated third party, and our retail properties contain approximately 47,000 square feet. We own multifamily properties containing 4,393 rental units, which includes 686 rental units at our properties held as a tenant in common with an unaffiliated third party.

We pay distributions if and when authorized by our managing general partner using proceeds from advances drawn on our revolving note payable to a bank. We are required to pay distributions on a quarterly basis of an amount no less than 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.

“Net cash flow from operations” may be 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.

We paid quarterly distributions of $0.05 per unit to limited partners on April 12, 2013, July 12, 2013 and October 11, 2013.

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Basis of Presentation

The unaudited condensed consolidated financial statements include the accounts of all wholly-owned properties and properties that are less than wholly-owned, but which we control or for which we are the primary beneficiary. The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810 Consolidation provides guidance on the identification and accounting for variable interest entities (“VIEs”). We consolidate a VIE when we are determined to be the primary beneficiary based on the qualitative factors affecting:

· Our power to direct the activities of a VIE that most significantly affect the VIE’s economic performance; and

· Our obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.

Our determination of the primary beneficiary of a VIE considers all relationships between us and the VIE, including management agreements and other contractual arrangements, when determining the party with the controlling financial interest, as defined, by accounting standards. There have been no changes during 2013 in conclusions about whether an entity qualifies as a VIE or whether we are the primary beneficiary of any previously identified VIE. During the nine months ended September 30, 2013, we did not provide financial or other support to a previously identified VIE that we were not previously contractually obligated to provide. Our unconsolidated joint venture interests and 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.

We own a joint venture investment with an unaffiliated third party in a commercial office building located in Louisville, Kentucky. The building, known as 600 North Hurstbourne, was developed by our affiliate, NTS Development Company. This joint venture, Campus One, LLC, is a variable interest entity. We are not the primary beneficiary. NTS Corporation through its subsidiaries, NTS Development Company and NTS Management Company, holds the right to receive significant benefits through its agreement as developer and manager, respectively. Our interest in this variable interest entity is accounted for using the equity method. Our ownership interest is reflected as investments in and advances to joint ventures on our condensed consolidated balance sheets as of September 30, 2013 and December 31, 2012.

As of October 31, 2012, we entered into a joint venture investment agreement with an unaffiliated third party to invest in a commercial office building totaling approximately 125,000 square feet at 700 North Hurstbourne Parkway on the ShelbyHurst property in Louisville, Kentucky, adjacent to our 600 North Hurstbourne property. The building is being developed by our affiliate, NTS Development Company, with construction expected to be completed in late 2014 to early 2015. The building will be managed by an affiliate of NTS Development Company. We are obligated to contribute approximately $2.6 million, for a 49% ownership interest. We intend to fund our share of this investment with cash on hand, cash from operations or borrowing on new or existing debt. At September 30, 2013, we had funded approximately $0.4 million of this commitment. The joint venture has entered into a $16.5 million construction financing agreement with a bank. We are a guarantor under this agreement and are proportionately liable for this obligation, limited to our 49% ownership interest. The joint venture expects to invest a total of approximately $22.0 million in the construction of the building and completion of tenant space.

This joint venture, Campus Two, LLC, is a variable interest entity. We are not the primary beneficiary. NTS Corporation through its subsidiaries, NTS Development Company and NTS Management Company, holds the right to receive significant benefits through its agreement as developer and manager, respectively. NTS Development Company is responsible for the development of the building on time and within budget. The development fee for these services is 2% of the projected costs. NTS Management Company is responsible for leasing and managing the building and is entitled to earn leasing commissions, management fees, construction supervision fees of 10%, asset management fees and a disposition fee for its services. Our interest in this variable interest entity is accounted for using the equity method. Our ownership interest is reflected as investments in and advances to joint ventures on our condensed consolidated balance sheets as of September 30, 2013 and December 31, 2012.

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Fair Value of Financial Instruments

FASB ASC Topic 820 Fair Value Measurements and Disclosures 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. FASB ASC Topic 820 emphasizes that fair value is a market-based measurement, not an entity specific measurement.

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

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

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

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

We did not have any material financial assets or liabilities that are required to be recorded at fair value as of September 30, 2013 or December 31, 2012.

Financial Instruments

FASB ASC Topic 825 Financial Instruments requires disclosures about fair value of financial instruments in both interim and annual financial statements.

Certain of our assets and liabilities are considered financial instruments. Fair value estimates, methods and assumptions are set forth below.

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

Deferred compensation plans: Our Officer and Director Plans as of September 30, 2013 and December 31, 2012 reflected liabilities of approximately $0.7 million and $0.9 million, respectively, the fair market value of 139,178 and 132,022 units, respectively, and are included in our other liabilities using Level 1 measurement. Compensation expense for the Officer and Director Plans for the nine months ended September 30, 2013 and 2012 totaled approximately ($290,000) and $236,000, respectively. The income item resulted from a fluctuation in the fair market value of the respective units.

Mortgages and notes payable: As of September 30, 2013 and December 31, 2012, we determined the estimated fair values of our mortgages and notes payable using Level 2 measurement were approximately $272.0 million and $293.1 million, respectively, by discounting expected future cash payments utilizing a discount rate equivalent to the rate at which similar instruments would be originated at the reporting date.

Note 2 — Going Private Proposal

On December 27, 2012, NTS Realty and NTS Realty Capital entered into an Agreement and Plan of Merger (the “Merger Agreement”) with NTS Merger Parent, LLC (“Parent”), an entity controlled by our founder and Chairman, J.D. Nichols, and our President and Chief Executive Officer, Brian F. Lavin, and NTS Merger Sub, LLC (“Merger Sub”, and together with Mr. Nichols, Mr. Lavin, Parent and certain of their respective affiliates, the “Purchasers”), a wholly-owned subsidiary of Parent. Upon consummation of the transactions proposed in the Merger Agreement, Merger Sub would merge with and into NTS Realty and NTS Realty would continue as the surviving entity (the “Merger”).

Also on December 27, 2012, we entered into a Voting and Support Agreement (the “Support Agreement”) with the Purchasers in which they agreed to vote their limited partnership units in favor of approving the Merger Agreement and the Merger. As of the date hereof, the Purchasers collectively own of record limited partnership units representing approximately 59% of the aggregate voting power entitled to vote on approval of the Merger Agreement.

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On October 18, 2013, the special committee of the board of directors of NTS Realty Capital delivered notice (“Notice”) to Parent and Merger Sub informing Parent and Merger Sub that the special committee, in consultation with its legal and financial advisors, had conducted a thorough review of their rights and options under the Merger Agreement. Having completed this phase of its review and analysis, the special committee terminated the Merger Agreement pursuant to Section 7.1(b)(i) thereof as a result of the failure of the transactions contemplated by the Merger Agreement to close by September 30, 2013. In making this decision, the special committee weighed numerous factors, including our improving financial performance during the nine months that passed since the execution of the Merger Agreement, and determined that, on balance, it was in the best interests of the unaffiliated holders of our limited partnership units to terminate the Merger Agreement at the time of the Notice. The Notice further provided that notwithstanding the termination, the special committee continues to consider additional potential actions, and reserves all of its rights.

In connection with the termination of the Merger Agreement, the Support Agreement has also terminated pursuant to its terms.

Note 3 — 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.

Note 4 — Real Estate Transactions

Acquisitions

FASB ASC Topic 805 Business Combinations 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.

Upon acquisition of wholly-owned properties or joint venture investments that are less than wholly-owned, but which we control or for which we are the primary beneficiary, the assets and liabilities purchased are recorded at their fair market value at the date of the acquisition using the acquisition method in accordance with FASB ASC Topic 805 Business Combinations. We recognize the net tangible and identified intangible assets for each of the properties 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 are amortized over the weighted average lease lives. We identify any above or below market leases or customer relationship intangibles that exist at the acquisition date. We recognize mortgages and other liabilities at fair market value at the date of the acquisition. We utilize an independent appraiser to assess fair value based on estimated cash flow projections for the tangible assets acquired that utilize discount and capitalization rates deemed appropriate and available market information. We expense acquisition costs as incurred. Noncontrolling interests are recorded for the portion of the equity in a subsidiary not attributable to us.

FASB ASC Topic 360 Property, Plant, and Equipment specifies circumstances in which certain long-lived assets must be reviewed for impairment. If this review indicates 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 other factors, 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. Application of this standard for the three and nine months ended September 30, 2013 and 2012, did not result in an impairment loss.

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

	(Unaudited)
	September 30, 2013		December 31, 2012
Summarized Balance Sheets
Land, buildings and amenities, net	$	20,301,987	$	16,381,730
Other, net	4,921,987		3,364,752
Total assets	$	25,223,974	$	19,746,482

Mortgages payable and other liabilities	$	21,277,666	$	9,587,404
Equity	3,946,308		10,159,078
Total liabilities and equity	$	25,223,974	$	19,746,482

	(Unaudited)						(Unaudited)
	Three Months Ended						Nine Months Ended
	September 30, 2013			September 30, 2012			September 30, 2013			September 30, 2012
Summarized Statements of Operations
Revenue	$	658,265		$	538,975		$	1,816,635		$	871,814

Operating income (loss)	$	82,489		$	52,412		$	108,418		$	(204,927	)

Net loss	$	(57,131	)	$	(6,519	)	$	(152,720	)	$	(340,348	)

Net loss attributable to investments in joint ventures	$	(27,994	)	$	(3,194	)	$	(74,833	)	$	(166,770	)

Contributions

600 North Hurstbourne	$	-		$	512,245		$	371,950		$	5,052,245

700 North Hurstbourne	$	143,000		$	-		$	568,000		$	-

Distributions

600 North Hurstbourne	$	7,000,000		$	-		$	7,000,000		$	-

700 North Hurstbourne	$	-		$	-		$	-		$	-

We made contributions of approximately $0.1 million and $0.2 million to our joint venture properties for the three months ended September 30, 2013 and 2012, respectively. We made contributions of approximately $0.5 million and $2.5 million to our joint venture properties for the nine months ended September 30, 2013 and 2012, respectively.

We received distributions of approximately $3.4 million from our joint venture properties for each of the three and nine months ended September 30, 2013. We did not receive any distributions from our joint venture properties for the three and nine months ended September 30, 2012.

Note 10 — 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 Apartments: 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 Apartments: 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 these properties:

	(Unaudited)
	September 30, 2013			December 31, 2012
Summarized Balance Sheets
Land, buildings and amenities, net	$	51,123,412		$	53,388,802
Other, net	2,742,559			1,036,366
Total assets	$	53,865,971		$	54,425,168

Mortgages payable and other liabilities	$	54,180,257		$	55,597,106
Equity	(314,286		)	(1,171,938		)
Total liabilities and equity	$	53,865,971		$	54,425,168

	(Unaudited)						(Unaudited)
	Three Months Ended						Nine Months Ended
	September 30, 2013			September 30, 2012			September 30, 2013		September 30, 2012

Summarized Statements of Operations
Revenue	$	2,559,247		$	2,366,550		$	7,600,041	$	7,054,579

Operating income (loss)	$	41,797		$	49,564		$	1,106,018	$	(109,771	)

Net (loss) income	$	(752,571	)	$	(780,232	)	$	7,652	$	(2,588,864	)

Net (loss) income attributable to investments in tenants in common	$	(434,681	)	$	(435,704	)	$	52,103	$	(1,445,430	)

Contributions

The Overlook at St. Thomas Apartments	$	-		$	-		$	-	$	-

Creek’s Edge at Stony Point Apartments	$	-		$	-		$	1,200,000	$	-

Distributions

The Overlook at St. Thomas Apartments	$	100,000		$	100,000		$	300,000	$	200,000

Creek’s Edge at Stony Point Apartments	$	50,000		$	-		$	50,000	$	-

We made contributions of approximately $0.6 million to our tenants in common properties for the nine months ended September 30, 2013. We did not make any contributions to our tenants in common properties for the three months ended September 30, 2013 and for the three and nine months ended September 30, 2012.

We received distributions of approximately $0.1 million from our tenants in common properties for each of the three months ended September 30, 2013 and 2012. We received distributions of approximately $0.2 million and $0.1 million from our tenants in common properties for the nine months ended September 30, 2013 and 2012, respectively.

The continuing net losses of The Overlook at St. Thomas Apartments reduced our investment to zero. Subsequent to our investment being reduced to zero, we recognized losses in excess of our investments and recorded the resulting liability on our unaudited condensed consolidated balance sheets at September 30, 2013 and December 31, 2012. The continuing net losses of Creek’s Edge at Stony Point Apartments reduced our investment to zero at December 31, 2012. Subsequent to our investment being reduced to zero, we recognized losses in excess of our investments and recorded the resulting liability on our unaudited condensed consolidated balance sheet at December 31, 2012. During the nine months ended September 30, 2013, we made a capital contribution to Creek’s Edge at Stony Point Apartments and recorded the resulting asset on our unaudited condensed consolidated balance sheet at September 30, 2013.

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Note 11 — Mortgages and Notes Payable

Mortgages and notes payable consist of the following:

	(Unaudited)
	September 30, 2013		December 31, 2012
Revolving note payable to a bank for $10.0 million, with interest payable in monthly installments at a variable rate based on LIBOR one-month rate plus 2.50%, currently 2.68%, due September 30, 2014	$	4,928,283	$	8,284,214

Note payable to an insurance company in monthly installments of principal and interest, bearing fixed interest at 2.99%, maturing October 28, 2013	10,715		105,951

Mortgage payable to a bank in monthly installments of principal and interest, bearing interest at a variable rate based on LIBOR one-month rate plus 3.50%, currently 3.68%, due September 1, 2014, secured by certain land, buildings and amenities with a carrying value of $15,808,712. The mortgage is guaranteed by Mr. Nichols and Mr. Lavin	19,872,602		20,196,602

Mortgage payable to an insurance company in monthly installments of principal and interest, bearing fixed interest at 8.45%, maturing November 1, 2015, secured by certain land, buildings and amenities with a carrying value of $1,602,560	860,328		1,123,399

Mortgage payable to Federal Home Loan Mortgage Corporation 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 $9,659,293	10,559,685		10,737,113

Mortgage payable to a bank in monthly installments of principal and interest, bearing fixed interest at 6.03%, maturing September 1, 2018, secured by certain land, buildings and amenities with a carrying value of $28,520,060	25,715,641		25,954,857

Mortgage payable to Federal Home Loan Mortgage Corporation in monthly installments of principal and interest, bearing interest at a variable rate based on LIBOR one-month rate plus 3.33%, currently 3.51%, maturing July 1, 2016, secured by certain land, buildings and amenities with a carrying value of $15,386,289	14,027,744		14,241,632

Mortgage payable to Federal Home Loan Mortgage Corporation in monthly installments of principal and interest, bearing interest at a variable rate based on LIBOR one-month rate plus 3.50%, currently 3.68%, maturing July 1, 2016, secured by certain land, buildings and amenities with a carrying value of $10,071,981	9,219,723		9,356,127

Mortgage payable to Federal Home Loan Mortgage Corporation in monthly installments of principal and interest, bearing fixed interest at 5.40%, maturing January 1, 2020, secured by certain land, buildings and amenities with a carrying value of $17,388,246	13,185,034		13,341,798

Mortgage payable to Federal Home Loan Mortgage Corporation in monthly installments of principal and interest, bearing fixed interest at 5.40%, maturing January 1, 2020, secured by certain land, buildings and amenities with a carrying value of $31,525,064	25,620,434		25,925,048

Mortgage payable to Federal Home Loan Mortgage Corporation in monthly installments of principal and interest, bearing fixed interest at 5.40%, maturing January 1, 2020, secured by certain land, buildings and amenities with a carrying value of $16,556,861	15,984,304		16,174,350

Mortgage payable to Federal Home Loan Mortgage Corporation in monthly installments of principal and interest, bearing fixed interest at 5.40%, maturing January 1, 2020, secured by certain land, buildings and amenities with a carrying value of $30,348,810	26,260,944		26,573,174

Mortgage payable to Federal Home Loan Mortgage Corporation in monthly installments of principal and interest, bearing fixed interest at 5.40%, maturing January 1, 2020, secured by certain land, buildings and amenities with a carrying value of $15,006,184	10,808,027		10,936,529

Mortgage payable to Federal Home Loan Mortgage Corporation in monthly installments of principal and interest, bearing fixed interest at 5.40%, maturing January 1, 2020, secured by certain land, buildings and amenities with a carrying value of $19,807,614	29,060,214		29,405,726

Mortgage payable to Federal Home Loan Mortgage Corporation in monthly installments of principal and interest, bearing fixed interest at 5.40%, maturing January 1, 2020, secured by certain land, buildings and amenities with a carrying value of $8,698,807	10,385,764		10,509,246

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	(Unaudited)
	September 30, 2013		December 31, 2012
Mortgage payable to Federal Home Loan Mortgage Corporation in monthly installments of principal and interest, bearing fixed interest at 5.40%, maturing January 1, 2020, secured by certain land, buildings and amenities with a carrying value of $11,496,115	17,004,376		17,206,550

Mortgage payable to an insurance company with interest payable in monthly installments until June 1, 2013, thereafter payable in monthly installments of principal and interest, bearing fixed interest at 5.09%, maturing May 1, 2018, secured by certain land, buildings and amenities with a carrying value of $31,690,046	24,582,504		24,700,000

Total mortgages and notes payable	$	258,086,322	$	264,772,316

Our $10.0 million revolving note payable to a bank is due September 30, 2014. As of September 30, 2013, our availability to draw on our revolving note payable was approximately $5.1 million.

Based on the borrowing rates currently available to us for loans with similar terms and average maturities, the fair value of our mortgages and notes payable on September 30, 2013, was approximately $272.0 million, which was determined using Level 2 measurement.

Interest paid for the nine months ended September 30, 2013 and 2012 was approximately $10.1 million and $10.3 million, respectively.

All but one of our mortgages may be prepaid. Mortgages where prepayment is permitted are generally subject to either a yield-maintenance premium or defeasance. 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 September 30, 2013. We anticipate renewing or refinancing our mortgages and notes payable coming due within the next twelve months.

Mortgages payable for our unconsolidated tenants in common properties consist of the following:

	(Unaudited)
	September 30, 2013		December 31, 2012
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 $29,948,842 (1)	$	32,725,387	$	33,174,478

Mortgage payable to an insurance company in monthly installments of principal and interest, bearing fixed interest at 5.99%, maturing November 15, 2017, secured by certain land, buildings and amenities with a carrying value of $21,174,570 (2)	$	20,390,706	$	21,830,408

(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.

Based on the borrowing rates currently available to us for loans with similar terms and average maturities, the fair value of our mortgages payable for our unconsolidated tenants in common properties at September 30, 2013, was approximately $58.2 million, which was determined using Level 2 measurement.

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Mortgages payable for our unconsolidated joint venture properties consist of the following:

	(Unaudited)
	September 30, 2013		December 31, 2012
Mortgage payable to a life insurance company in monthly installments of principal and interest, bearing fixed interest at 4.35%, maturing September 1, 2028, secured by certain buildings and amenities with a carrying value of $16,295,186 (3)	$	17,300,000	$	9,032,551

Construction mortgage payable to a bank for $16.5 million with interest payable in monthly installments, bearing interest at a variable rate based on LIBOR one-month rate plus 2.40%, currently 2.58%, maturing July 1, 2017, secured by certain buildings and amenities under construction (4)	$	1,565,534	$	-

(3) We are proportionately liable for this mortgage, limited to our 49% ownership interest.

(4) We are a guarantor of this construction loan made to Campus Two, LLC. We are proportionately liable for the $16.5 million obligation, limited to our 49% ownership interest.

Based on the borrowing rates currently available to us for loans with similar terms and average maturities, the fair value of our mortgages payable for our unconsolidated joint venture properties at September 30, 2013, was approximately $18.3 million, which was determined using Level 2 measurement.

Note 12 — Accounts Payable and Accrued Expenses Due to Affiliates

Accounts payable and accrued expenses due to affiliates includes amounts owed to NTS Development Company and/or its affiliate, NTS Management Company, (collectively referred to as “NTS Development”), for reimbursement of salary and overhead expenses and fees for services rendered as provided for in our various management agreements.

Note 13 — Related Party Transactions

Pursuant to our various management agreements, 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 consolidated joint venture properties, our unconsolidated joint venture properties, our properties owned as a tenant in common with unaffiliated third parties and our properties owned by our eight wholly-owned subsidiaries financed through Federal Home Loan Mortgage Corporation (“FHLMC”). Property management fees are paid in an amount equal to 5% of the gross collected revenue from our wholly-owned properties, consolidated and unconsolidated joint venture properties and properties owned by our eight wholly-owned subsidiaries financed through FHLMC. Property management fees are paid in an amount equal to 3.5% of the gross collected revenue from our unconsolidated properties owned as a tenant in common with unaffiliated third parties. We are 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 generally paid in an amount equal to 5% of the costs incurred which relate to capital improvements and significant repairs. 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 agreements and up to a 6% fee upon disposition on our properties owned as a tenant in common with unaffiliated third parties under separate management agreements. 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. NTS Development is reimbursed its actual costs for services rendered to NTS Realty.

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 charges from NTS Development for actual costs of employee services incurred for our benefit. Many business enterprises employ individuals serving on their behalf and record their associated employment costs as salaries, employment taxes and benefits in their respective statements of operations. The cost of services provided to us by NTS Development’s employees are classified in our condensed consolidated statements of operations as professional and administrative expenses reimbursed to affiliates.

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We were charged the following amounts pursuant to our various agreements with NTS Development for the three and nine months ended September 30, 2013 and 2012. These charges include items which have been expensed as operating expenses reimbursed to affiliates or professional and administrative expenses reimbursed to affiliates and items that have been capitalized as other assets or as land, buildings and amenities.

	(Unaudited)
	Three Months Ended September 30,
	2013		2012
Property management fees	$	758,000	$	715,000

Operating expenses reimbursement - property	1,100,000		1,066,000
Operating expenses reimbursement - multifamily leasing	220,000		208,000
Operating expenses reimbursement - administrative	266,000		318,000
Operating expenses reimbursement - other	19,000		36,000

Total operating expenses reimbursed to affiliates	1,605,000		1,628,000

Professional and administrative expenses reimbursed to affiliates	474,000		539,000

Construction supervision and leasing fees	102,000		32,000

Total related party transactions	$	2,939,000	$	2,914,000

Total related party transactions with our investments in tenants in common	$	356,000	$	373,000

Total related party transactions with our investments in joint ventures (1)	$	205,000	$	67,000

	(Unaudited)
	Nine Months Ended September 30,
	2013		2012
Property management fees	$	2,298,000	$	2,124,000

Operating expenses reimbursement - property	3,231,000		3,088,000
Operating expenses reimbursement - multifamily leasing	587,000		618,000
Operating expenses reimbursement - administrative	817,000		868,000
Operating expenses reimbursement - other	63,000		115,000

Total operating expenses reimbursed to affiliates	4,698,000		4,689,000

Professional and administrative expenses reimbursed to affiliates	1,442,000		1,410,000

Construction supervision and leasing fees	173,000		102,000

Total related party transactions	$	8,611,000	$	8,325,000

Total related party transactions with our investments in tenants in common	$	1,099,000	$	1,072,000

Total related party transactions with our investments in joint ventures (1)	$	565,000	$	564,000

(1) Construction supervision fees at 600 North Hurstbourne and 700 North Hurstbourne are charged at a rate of 10%.

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

During the three months ended September 30, 2013 and 2012, we were charged approximately $24,000 and $17,000, respectively, for property maintenance fees from affiliates of NTS Development. During the nine months ended September 30, 2013 and 2012, we were charged approximately $73,000 and $51,000, respectively, for property maintenance fees from affiliates of NTS Development.

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Until May 31, 2012, NTS Development Company leased 20,368 square feet of office space in NTS Center at a rental rate of $14.50 per square foot. Beginning June 1, 2012, NTS Development Company leased 17,843 square feet of office space in 600 North Hurstbourne at a rental rate of $21.50 per square foot. The average per square foot rental rate for similar office space in 600 North Hurstbourne as of September 30, 2013 was $22.19 per square foot. NTS Development Company also leased 1,902 square feet of storage space in NTS Center at a rental rate of $5.50 per square foot. We recognized rents of approximately $3,000 from NTS Development Company for each of the three months ended September 30, 2013 and 2012. We recognized rents of approximately $8,000 and $131,000 from NTS Development Company for the nine months ended September 30, 2013 and 2012, respectively.

Our unconsolidated joint venture, Campus One, LLC, recognized rents of approximately $98,000 from NTS Development Company for each of the three months ended September 30, 2013 and 2012. Our unconsolidated joint venture, Campus One, LLC, recognized rents of approximately $295,000 and $131,000 from NTS Development Company for the nine months ended September 30, 2013 and 2012, respectively.

Pluris Property Fund I, L.P. (“PPFI”), our joint venture partner, owns a 49% noncontrolling interest in Golf Brook Apartments and Sabal Park Apartments. Pluris Property Fund II, L.P. (“PPFII”), our joint venture partner, owns a 26.5% noncontrolling interest in Lakes Edge Apartments. PPFI and PPFII are related parties as the son-in-law of our President and CEO, Brian F. Lavin, is a member of the general partner of each of PPFI and PPFII.

Note 14 — 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, cash flows 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.

We rely primarily on Fannie Mae and Freddie Mac for permanent financing on our properties. There is significant uncertainty surrounding the futures of Fannie Mae and Freddie Mac. Should Fannie Mae or Freddie Mac have their mandates changed or reduced, be disbanded or reorganized by the government or otherwise discontinue providing liquidity to our sector, it would significantly reduce our access to debt capital and/or increase borrowing costs and would significantly reduce our sales of assets and/or the values realized upon sale. Disruptions in the floating rate tax-exempt bond market (where interest rates reset weekly) and in the credit market’s perception of Fannie Mae and Freddie Mac, which guarantee and provide liquidity for these bonds, have been experienced in the past and may be experienced in the future and could result in an increase in interest rates on these debt obligations.

Litigation

On January 27, 2013, we received notice that Dannis, Stephen, et al. v. Nichols, J.D., et al., Case No. 13-CI-00452, a putative unitholder class action lawsuit, was filed on January 25, 2013 in Jefferson County Circuit Court of the Commonwealth of Kentucky against us, each of the members of the board of directors of NTS Realty Capital, NTS Realty Capital, NTS Realty Partners, LLC, Parent and Merger Sub alleging, among other things, that the board of directors breached their fiduciary duties to our unitholders in connection with the board’s approval of the Merger between Merger Sub and NTS Realty. On March 14, 2013, plaintiffs filed an amended complaint and added NTS Development Company and NTS Management Company as additional defendants. The amended complaint seeks, among other things, to enjoin the defendants from completing the Merger as contemplated by the terminated Merger Agreement. We believe these allegations are without merit and we intend to vigorously defend against them.

On February 12, 2013, we received notice that R. Jay Tejera v. NTS Realty Holdings LP et al., Civil Action No. 8302-VCP, another putative unitholder class action lawsuit, was filed on February 12, 2013 in the Court of Chancery in the State of Delaware against us, each of the members of the board of directors of NTS Realty Capital, Parent and NTS Realty Capital, alleging, among other things, that the board of directors breached their fiduciary duties to our unitholders in connection with the board’s approval of the Merger between Merger Sub and NTS Realty. The complaint seeks, among other things, money damages. We believe these allegations are without merit and we intend to vigorously defend against them.

Table of Contents

	(Unaudited)
	Three Months Ended September 30, 2013
	Multifamily			Commercial			Retail			Partnership			Total
Rental income	$	12,958,303		$	1,390,688		$	142,064		$	(5,282	)	$	14,485,773
Tenant reimbursements	-			461,638			25,315			-			486,953

Total revenue	12,958,303			1,852,326			167,379			(5,282		)	14,972,726

Operating expenses and operating expenses reimbursed to affiliates	4,947,870			610,528			26,474			-			5,584,872
Management fees	653,945			95,771			8,221			-			757,937
Property taxes and insurance	1,756,790			268,981			20,585			29,173			2,075,529
Professional and administrative expenses and professional and administrative expenses reimbursed to affiliates	-			-			-			1,003,564			1,003,564
Depreciation and amortization	3,439,185			441,470			37,839			-			3,918,494

Total expenses	10,797,790			1,416,750			93,119			1,032,737			13,340,396

Operating income (loss)	2,160,513			435,576			74,260			(1,038,019		)	1,632,330

Interest and other income	8,973			1,755			-			10			10,738
Interest expense	(3,209,834		)	(138,644		)	(51		)	(95,132		)	(3,443,661		)
Loss on disposal of assets	(37,797		)	(3,227		)	-			-			(41,024		)
Loss from investments in joint ventures	-			(27,994		)	-			-			(27,994		)
Loss from investments in tenants in common	(434,681		)	-			-			-			(434,681		)

Consolidated net (loss) income	(1,512,826		)	267,466			74,209			(1,133,141		)	(2,304,292		)

Net loss attributable to noncontrolling interests	(161,995		)	-			-			-			(161,995		)

Net (loss) income	$	(1,350,831	)	$	267,466		$	74,209		$	(1,133,141	)	$	(2,142,297	)

Land, buildings and amenities, net	$	246,645,233		$	24,661,020		$	3,272,004		$	-		$	274,578,257

Expenditures for land, buildings and amenities	$	278,262		$	140,576		$	-		$	-		$	418,838

Segment liabilities from continuing operations	$	242,563,205		$	2,261,010		$	64,439		$	26,791,555		$	271,680,209

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	(Unaudited)
	Three Months Ended September 30, 2012
	Multifamily			Commercial			Retail			Partnership			Total
Rental income	$	12,522,069		$	1,412,310		$	132,089		$	(5,774	)	$	14,060,694
Tenant reimbursements	-			442,139			22,041			-			464,180

Total revenue	12,522,069			1,854,449			154,130			(5,774		)	14,524,874

Operating expenses and operating expenses reimbursed to affiliates	5,040,296			709,055			27,236			-			5,776,587
Management fees	622,260			85,422			7,195			-			714,877
Property taxes and insurance	1,528,855			235,306			17,976			29,173			1,811,310
Professional and administrative expenses and professional and administrative expenses reimbursed to affiliates	-			-			-			1,048,740			1,048,740
Depreciation and amortization	3,956,138			467,376			40,629			-			4,464,143

Total expenses	11,147,549			1,497,159			93,036			1,077,913			13,815,657

Operating income (loss)	1,374,520			357,290			61,094			(1,083,687		)	709,217

Interest and other income	12,629			270			-			1,536			14,435
Interest expense	(3,262,541		)	(151,798		)	(13		)	(98,718		)	(3,513,070		)
Loss on disposal of assets	(31,029		)	(9,853		)	-			-			(40,882		)
Loss from investment in joint venture	-			(3,194		)	-			-			(3,194		)
Loss from investments in tenants in common	(435,704		)	-			-			-			(435,704		)

Consolidated net (loss) income	(2,342,125		)	192,715			61,081			(1,180,869		)	(3,269,198		)

Net loss attributable to noncontrolling interests	(207,561		)	-			-			-			(207,561		)

Net (loss) income	$	(2,134,564	)	$	192,715		$	61,081		$	(1,180,869	)	$	(3,061,637	)

Land, buildings and amenities, net	$	260,000,531		$	25,759,256		$	3,425,734		$	-		$	289,185,521

Expenditures for land, buildings and amenities	$	333,371		$	17,946		$	-		$	-		$	351,317

Segment liabilities from continuing operations	$	246,254,484		$	2,557,400		$	57,603		$	28,716,469		$	277,585,956

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	(Unaudited)
	Nine Months Ended September 30, 2013
	Multifamily			Commercial			Retail			Partnership			Total
Rental income	$	38,188,299		$	4,207,207		$	418,025		$	(16,173	)	$	42,797,358
Tenant reimbursements	-			1,268,935			74,118			-			1,343,053

Total revenue	38,188,299			5,476,142			492,143			(16,173		)	44,140,411

Operating expenses and operating expenses reimbursed to affiliates	13,504,555			1,914,778			80,679			-			15,500,012
Management fees	1,994,114			281,645			22,523			-			2,298,282
Property taxes and insurance	5,094,495			775,891			52,659			87,519			6,010,564
Professional and administrative expenses and professional and administrative expenses reimbursed to affiliates	-			-			-			3,581,494			3,581,494
Depreciation and amortization	10,856,894			1,358,412			119,005			-			12,334,311

Total expenses	31,450,058			4,330,726			274,866			3,669,013			39,724,663

Operating income (loss)	6,738,241			1,145,416			217,277			(3,685,186		)	4,415,748

Interest and other income	1,585,747			38,443			3,037			205			1,627,432
Interest expense	(9,582,229		)	(427,414		)	(169		)	(286,890		)	(10,296,702		)
Loss on disposal of assets	(80,041		)	(3,270		)	-			-			(83,311		)
Loss from investments in joint ventures	-			(74,833		)	-			-			(74,833		)
Income from investments in tenants in common	52,103			-			-			-			52,103

Consolidated net (loss) income	(1,286,179		)	678,342			220,145			(3,971,871		)	(4,359,563		)

Net loss attributable to noncontrolling interests	(492,674		)	-			-			-			(492,674		)

Net (loss) income	$	(793,505	)	$	678,342		$	220,145		$	(3,971,871	)	$	(3,866,889	)

Land, buildings and amenities, net	$	246,645,233		$	24,661,020		$	3,272,004		$	-		$	274,578,257

Expenditures for land, buildings and amenities	$	1,093,743		$	461,810		$	-		$	-		$	1,555,553

Segment liabilities from continuing operations	$	242,563,205		$	2,261,010		$	64,439		$	26,791,555		$	271,680,209

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	(Unaudited)
	Nine Months Ended September 30, 2012
	Multifamily			Commercial			Retail			Partnership			Total
Rental income	$	36,826,858		$	4,257,367		$	396,269		$	(17,323	)	$	41,463,171
Tenant reimbursements	-			1,333,392			66,553			-			1,399,945

Total revenue	36,826,858			5,590,759			462,822			(17,323		)	42,863,116

Operating expenses and operating expenses reimbursed to affiliates	14,528,417			2,125,580			81,714			-			16,735,711
Management fees	1,824,580			275,934			23,474			-			2,123,988
Property taxes and insurance	4,625,646			675,254			47,816			87,519			5,436,235
Professional and administrative expenses and professional and administrative expenses reimbursed to affiliates	-			-			-			2,356,980			2,356,980
Depreciation and amortization	11,857,381			1,380,628			121,888			-			13,359,897

Total expenses	32,836,024			4,457,396			274,892			2,444,499			40,012,811

Operating income (loss)	3,990,834			1,133,363			187,930			(2,461,822		)	2,850,305

Interest and other income	40,409			845			-			10,514			51,768
Interest expense	(9,749,584		)	(454,799		)	(37		)	(293,890		)	(10,498,310		)
Loss on disposal of assets	(142,267		)	(62,930		)	-			-			(205,197		)
Loss from investment in joint venture	-			(166,770		)	-			-			(166,770		)
Loss from investments in tenants in common	(1,445,430		)	-			-			-			(1,445,430		)

Consolidated net (loss) income	(7,306,038		)	449,709			187,893			(2,745,198		)	(9,413,634		)

Net loss attributable to noncontrolling interests	(758,765		)	-			-			-			(758,765		)

Net (loss) income	$	(6,547,273	)	$	449,709		$	187,893		$	(2,745,198	)	$	(8,654,869	)

Land, buildings and amenities, net	$	260,000,531		$	25,759,256		$	3,425,734		$	-		$	289,185,521

Expenditures for land, buildings and amenities	$	1,784,206		$	706,165		$	-		$	-		$	2,490,371

Segment liabilities from continuing operations	$	246,254,484		$	2,557,400		$	57,603		$	28,716,469		$	277,585,956

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Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations

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

Going Private Proposal

In connection with the termination of the Merger Agreement, the Support Agreement has also terminated pursuant to its terms.

Critical Accounting Policies

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. Our critical accounting policies, as previously disclosed in our most recent annual report on Form 10-K, which was filed with the Securities and Exchange Commission on March 22, 2013, discuss judgments known to management pertaining to trends, events or uncertainties 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 and remain unchanged during the quarter ended September 30, 2013.

Results of Operations

As of September 30, 2013, we owned wholly, as a tenant in common with unaffiliated third parties or through joint venture investments with both affiliated and unaffiliated third parties, 24 properties, comprised of 15 multifamily properties, 7 commercial properties and 2 retail properties. We generate substantially all of our operating income from property operations.

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Net losses for the three months ended September 30, 2013 and 2012 were approximately $2.1 million and $3.1 million, respectively. The change in net loss for the three months ended September 30, 2013 as compared to September 30, 2012 was primarily due to a $0.8 million increase in operating income across the multifamily segment, a $0.6 million decrease in deferred compensation expense, a $0.1 million increase in operating income across the commercial segment and a $0.1 million decrease in interest expense. This was partially offset by an increase in legal and professional fees primarily related to the going private proposal of approximately $0.6 million. There were no other material offsetting changes in net loss for the three months ended September 30, 2013 and 2012.

Net losses for the nine months ended September 30, 2013 and 2012 were approximately $3.9 million and $8.7 million, respectively. The change in net loss for the nine months ended September 30, 2013 as compared to September 30, 2012 was primarily due to a $2.7 million increase in operating income across the multifamily segment, a $1.5 million increase in interest and other income across the multifamily segment primarily from a non-recurring settlement received for landscaping and tree damage and a $0.5 million decrease in deferred compensation expense. In addition, there was a $1.5 million increase in income from investments in tenants in common primarily from a $0.8 million non-recurring settlement received for landscaping and tree damage and a $0.7 million increase in operating income across the tenants in common properties. This was partially offset by an increase in legal and professional fees primarily related to the going private proposal of approximately $1.7 million. There were no other material offsetting changes in net loss for the nine months ended September 30, 2013 and 2012.

The following tables include certain selected summarized operating data for the three and nine months ended September 30, 2013 and 2012. This data should be read in conjunction with our financial statements, including the notes attached hereto.

	(Unaudited)
	Three Months Ended September 30, 2013
	Multifamily			Commercial			Retail			Partnership			Total
Total revenues	$	12,958,303		$	1,852,326		$	167,379		$	(5,282	)	$	14,972,726
Operating expenses and operating expenses reimbursed to affiliates	4,947,870			610,528			26,474			-			5,584,872
Depreciation and amortization	3,439,185			441,470			37,839			-			3,918,494
Interest expense	(3,209,834		)	(138,644		)	(51		)	(95,132		)	(3,443,661		)
Net (loss) income	(1,350,831		)	267,466			74,209			(1,133,141		)	(2,142,297		)

	(Unaudited)
	Three Months Ended September 30, 2012
	Multifamily			Commercial			Retail			Partnership			Total
Total revenues	$	12,522,069		$	1,854,449		$	154,130		$	(5,774	)	$	14,524,874
Operating expenses and operating expenses reimbursed to affiliates	5,040,296			709,055			27,236			-			5,776,587
Depreciation and amortization	3,956,138			467,376			40,629			-			4,464,143
Interest expense	(3,262,541		)	(151,798		)	(13		)	(98,718		)	(3,513,070		)
Net (loss) income	(2,134,564		)	192,715			61,081			(1,180,869		)	(3,061,637		)

	(Unaudited)
	Nine Months Ended September 30, 2013
	Multifamily			Commercial			Retail			Partnership			Total
Total revenues	$	38,188,299		$	5,476,142		$	492,143		$	(16,173	)	$	44,140,411
Operating expenses and operating expenses reimbursed to affiliates	13,504,555			1,914,778			80,679			-			15,500,012
Depreciation and amortization	10,856,894			1,358,412			119,005			-			12,334,311
Total interest expense	(9,582,229		)	(427,414		)	(169		)	(286,890		)	(10,296,702		)
Net (loss) income	(793,505		)	678,342			220,145			(3,971,871		)	(3,866,889		)

	(Unaudited)
	Nine Months Ended September 30, 2012
	Multifamily			Commercial			Retail			Partnership			Total
Total revenues	$	36,826,858		$	5,590,759		$	462,822		$	(17,323	)	$	42,863,116
Operating expenses and operating expenses reimbursed to affiliates	14,528,417			2,125,580			81,714			-			16,735,711
Depreciation and amortization	11,857,381			1,380,628			121,888			-			13,359,897
Total interest expense	(9,749,584		)	(454,799		)	(37		)	(293,890		)	(10,498,310		)
Net (loss) income	(6,547,273		)	449,709			187,893			(2,745,198		)	(8,654,869		)

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Occupancy levels at our properties by segment as of September 30, 2013 and 2012 were as follows:

	2013		2012
Multifamily	96	%	97	%
Multifamily Unconsolidated Investments in Tenants in Common	98	%	96	%
Commercial	81	%	79	%
Commercial Unconsolidated Investment in Joint Venture	93	%	77	%
Retail	95	%	90	%

The average occupancy levels at our properties by segment for the three and nine months ended September 30, 2013 and 2012 were as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Multifamily	97	%	97	%	96	%	96	%
Multifamily Unconsolidated Investments in Tenants in Common	97	%	96	%	97	%	97	%
Commercial	80	%	79	%	80	%	80	%
Commercial Unconsolidated Investment in Joint Venture	92	%	77	%	84	%	46	%
Retail	95	%	90	%	94	%	90	%

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

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

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

The following discussion relating to changes in our results of operations includes only material line items within our unaudited condensed consolidated statements of operations or line items for which there was a material change between the three and nine months ended September 30, 2013 and 2012.

Rental Income and Tenant Reimbursements

Rental income and tenant reimbursements for the three months ended September 30, 2013 and 2012 were approximately $15.0 million and $14.5 million, respectively. Rental income and tenant reimbursements for the nine months ended September 30, 2013 and 2012 were approximately $44.1 million and $42.9 million, respectively. The increase of $0.5 million, or 3%, for the three months ended September 30, 2013 and 2012 was primarily the result of a $0.4 million increase in rental income across the multifamily segment primarily related to an increase in the average monthly unit rental to $1,074 from $1,039 for the three months ended September 30, 2013 and 2012, respectively. The increase of $1.2 million, or 3%, for the nine months ended September 30, 2013 and 2012 was primarily the result of a $1.4 million increase in rental income across the multifamily segment primarily related to an increase in the average monthly unit rental to $1,066 from $1,024 for the nine months ended September 30, 2013 and 2012, respectively. This was partially offset by a $0.1 million decrease in rental income and tenant reimbursements across the commercial segment. There were no other material offsetting changes in rental income and tenant reimbursements for the three and nine months ended September 30, 2013 and 2012.

Operating Expenses and Operating Expenses Reimbursed to Affiliates

Operating expenses for the three months ended September 30, 2013 and 2012 were approximately $4.0 million and $4.1 million, respectively. Operating expenses for the nine months ended September 30, 2013 and 2012 were approximately $10.8 million and $12.0 million, respectively. The decrease of $0.1 million, or 2%, for the three months ended September 30, 2013 and 2012 was primarily the result of a $0.1 million decrease in operating expenses across the multifamily segment primarily related to less repairs and maintenance expense. The decrease of

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$1.2 million, or 10%, for the nine months ended September 30, 2013 and 2012 was primarily the result of a $1.1 million decrease in operating expenses across the multifamily segment primarily related to less repairs and maintenance expense and a $0.2 million decrease in operating expenses across the commercial segment primarily related to less repairs and maintenance expense. There were no other material offsetting changes in operating expenses for the three and nine months ended September 30, 2013 and 2012.

Operating expenses reimbursed to affiliates for each of the three months ended September 30, 2013 and 2012 were approximately $1.6 million. Operating expenses reimbursed to affiliates for each of the nine months ended September 30, 2013 and 2012 were approximately $4.7 million. There were no material offsetting changes in operating expenses reimbursed to affiliates for the three and nine months ended September 30, 2013 and 2012.

We do not have any employees. Pursuant to our various management agreements, NTS Development employs the individuals who provide services necessary to operate our properties and conduct our business. NTS Development 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 for actual costs of employee services incurred for our benefit. Many business enterprises employ individuals serving on their behalf and record their associated employment costs as salaries, employment taxes and benefits in their respective statements of operations. The cost of services provided to us by NTS Development’s employees are classified in our unaudited condensed consolidated statements of operations as operating expenses reimbursed to affiliates. The services provided by others are classified as operating expenses.

Operating expenses reimbursed to affiliates are for services performed by employees of NTS Development, 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 affiliates consisted approximately of the following:

	(Unaudited)				(Unaudited)
	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Property	$	1,100,000	$	1,066,000	$	3,231,000	$	3,088,000
Multifamily leasing	220,000		208,000		587,000		618,000
Administrative	266,000		318,000		817,000		868,000
Other	19,000		36,000		63,000		115,000

Total	$	1,605,000	$	1,628,000	$	4,698,000	$	4,689,000

Management Fees

Management fees for three months ended September 30, 2013 and 2012 were approximately $0.8 million and $0.7 million, respectively. Management fees for the nine months ended September 30, 2013 and 2012 were approximately $2.3 million and $2.1 million, respectively. The increase of $0.1 million, or 14%, for the three months ended September 30, 2013 and 2012 was primarily the result of an increase in management fees across the multifamily segment primarily related to increased rental income. The increase of $0.2 million, or 10%, for the nine months ended September 30, 2013 and 2012 was primarily the result of an increase in management fees across the multifamily segment primarily due to increased other income from a non-recurring settlement received for landscaping and tree damage. There were no other material offsetting changes in management fees for the three and nine months ended September 30, 2013 and 2012.

Pursuant to our various management agreements, NTS Development Company and/or its affiliate, NTS Management Company, (collectively referred to as “NTS Development”), receives property management fees equal to 5% of the gross collected revenue from our properties. This includes our wholly-owned properties, our consolidated and unconsolidated joint venture properties and properties owned by our eight wholly-owned subsidiaries financed through FHLMC. NTS Development receives property management fees from our unconsolidated properties owned as a tenant in common with unaffiliated third parties equal to 3.5% of their gross collected revenue under separate management agreements. We are 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 has agreed to accept a lower management fee for the properties

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Professional and administrative expenses reimbursed to affiliates consisted approximately of the following:

	(Unaudited)				(Unaudited)
	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Finance	$	121,000	$	158,000	$	374,000	$	378,000
Accounting	186,000		201,000		577,000		580,000
Investor relations	86,000		100,000		248,000		250,000
Human resources	5,000		7,000		15,000		17,000
Overhead	76,000		73,000		228,000		185,000

Total	$	474,000	$	539,000	$	1,442,000	$	1,410,000

Depreciation and Amortization

Depreciation and amortization for the three months ended September 30, 2013 and 2012 was approximately $3.9 million and $4.5 million, respectively. Depreciation and amortization for the nine months ended September 30, 2013 and 2012 was approximately $12.3 million and $13.4 million, respectively. The decrease of $0.6 million, or 13%, for the three months ended September 30, 2013 and 2012 was primarily due to a decrease in depreciation and amortization of approximately $0.5 million spread across the multifamily segment. The decrease of $1.1 million, or 8%, for the nine months ended September 30, 2013 and 2012 was primarily due to a decrease in depreciation and amortization of approximately $1.0 million spread across the multifamily segment. There were no other material offsetting changes in depreciation and amortization for the three and nine months ended September 30, 2013 and 2012.

Interest and Other Income

Interest and other income for the three months ended September 30, 2013 and 2012 was approximately $11,000 and $14,000, respectively. Interest and other income for the nine months ended September 30, 2013 and 2012 was approximately $1.6 million and $0.1 million, respectively. The increase for the nine months ended September 30, 2013 and 2012 was primarily due to an approximately $1.6 million non-recurring settlement received for landscaping and tree damage. There were no other material offsetting changes in interest and other income for the three and nine months ended September 30, 2013 and 2012.

Interest Expense

Interest expense for the three months ended September 30, 2013 and 2012 was approximately $3.4 million and $3.5 million, respectively. Interest expense for the nine months ended September 30, 2013 and 2012 was approximately $10.3 million and $10.5 million, respectively. The decreases of $0.1 million, or 3%, and $0.2 million, or 2%, for the three and nine months ended September 30, 2013 and 2012, respectively, were primarily the result of a decrease in interest expense across the multifamily segment. There were no other material offsetting changes in interest expense for the three and nine months ended September 30, 2013 and 2012.

Loss on Disposal of Assets

The loss on disposal of assets for the three and nine months ended September 30, 2013 and 2012 can be attributed to assets that were not fully depreciated at the time of replacement primarily across the multifamily and commercial segments.

Loss from Investments in Joint Ventures

Loss from investments in joint ventures for the three and nine months ended September 30, 2013 and 2012 includes net operating losses attributable to our investments in joint ventures with an unaffiliated third party. The properties are 600 North Hurstbourne and 700 North Hurstbourne. We anticipate construction on 700 North Hurstbourne to be completed in late 2014 to early 2015. There were no other material offsetting changes in loss from investments in joint ventures for the three and nine months ended September 30, 2013 and 2012.

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(Loss) Income from Investments in Tenants in Common

(Loss) income from investments in tenants in common for the three and nine months ended September 30, 2013 and 2012 includes net operating (losses) income attributable to our investments in tenants in common with an unaffiliated third party. The properties are The Overlook at St. Thomas Apartments and Creek’s Edge at Stony Point Apartments. Loss from investments in tenants in common for each of the three months ended September 30, 2013 and 2012 was approximately $0.4 million. Income from investments in tenants in common for the nine months ended September 30, 2013 was approximately $0.1 million, and loss from investments in tenants in common for the nine months ended September 30, 2012 was approximately $1.4 million. The change in net income for the nine months ended September 30, 2013 as compared to the net loss for the nine months ended September 30, 2012 was primarily due to a $0.8 million non-recurring settlement received for landscaping and tree damage and a $0.7 million increase in operating income. There were no other material offsetting changes in (loss) income from investments in tenants in common for the three and nine months ended September 30, 2013 and 2012.

Liquidity and Capital Resources

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

The components of the condensed consolidated statements of cash flows for the nine months ended September 30, 2013 and 2012 are outlined below:

	(Unaudited)
	Nine Months Ended September 30,
	2013			2012
Operating activities	$	8,571,000		$	6,533,000
Investing activities	(2,628,000		)	(4,966,000		)
Financing activities	(5,023,000		)	(1,214,000		)

Net increase in cash and equivalents	$	920,000		$	353,000

Cash Flow from Operating Activities

Net cash provided by operating activities was approximately $8.6 million and $6.5 million for the nine months ended September 30, 2013 and 2012, respectively. The change of approximately $2.1 million was primarily due to increased cash provided by results of operations of approximately $2.3 million, decreased cash - restricted of approximately $1.0 million and decreased accounts receivable of approximately $0.3 million, which was partially offset by decreased cash provided by other assets of approximately $1.2 million primarily for a payment received on a note receivable in 2012 without a similar payment in 2013 and increased cash used to satisfy accounts payable and accounts payable due to affiliates of approximately $0.6 million. The remaining increases and decreases in cash were individually immaterial.

Cash Flow from Investing Activities

Net cash used in investing activities was approximately $2.6 million and $5.0 million for the nine months ended September 30, 2013 and 2012, respectively. The change of approximately $2.4 million was primarily due to decreased cash used to invest in our joint ventures with an unaffiliated third party of approximately $2.0 million and

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decreased cash used for additions to land, buildings and amenities of approximately $0.9 million. This change was partially offset by increased cash contributed to our tenants in common investments of approximately $0.6 million. The remaining increases and decreases in cash were individually immaterial.

Cash Flow from Financing Activities

Net cash used in financing activities was approximately $5.0 million and $1.2 million for the nine months ended September 30, 2013 and 2012, respectively. The change of approximately $3.8 million was primarily due to increased cash used to repay our revolving note payable, net of receipts, of approximately $3.4 million in 2013 and cash provided by our revolving note payable, net of receipts, of approximately $3.6 million in 2012. This was partially offset by a distribution received from our unaffiliated third party joint ventures of approximately $3.4 million in 2013 without a similar distribution in 2012. The remaining increases and decreases in cash were individually immaterial.

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 materially 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 unaudited condensed consolidated balance sheet, were approximately $2.2 million as of September 30, 2013.

We expect to meet our short-term liquidity requirements for normal operating expenses from cash generated by operations. In addition, we anticipate generating proceeds from borrowing activities, property sales and/or equity offerings to provide funds for payment of certain debts and obligations. We expect to incur capital costs related to leasing space and making improvements to properties and expect to meet these obligations with the use of funds held in escrow by lenders, proceeds from property sales and/or borrowing activities.

We have approximately $24.8 million of consolidated and unconsolidated secured debt maturing during the next 12 months. We intend to seek a renewal of our expiring $10.0 million revolving note payable to a bank that matures in the next twelve months, but can offer no assurance that we will be successful in doing so, or that favorable terms of renewal can be obtained. As of September 30, 2013, our availability to draw on our revolving note payable was approximately $5.1 million. The result of higher interest rates would have a negative impact on our results of operations and ability to pay distributions. Further, as part of any refinancing, we may be required to pledge additional assets as collateral and may not be able to achieve the same loan to value ratios on our secured indebtedness. If we are unable to refinance this debt for any reason, we must either pay the remaining balance or borrow additional money to pay off the maturing loan. We may not, however, be able to obtain a new loan, or the terms of the new loan, such as the interest rate or payment schedule, may not be as favorable as the terms of the maturing loan. Additionally, due to the amount of available cash on hand, expected cash generated by operating activities and funds available to us from existing sources of borrowings, there can be no assurance as to our ability to obtain funds necessary to repay the amounts due during the next 12 months. Thus, we may be forced to sell a property at an unfavorable price to pay off the maturing loan or agree to less favorable loan terms.

On March 13, 2013, we announced that the board of directors of our managing general partner approved a quarterly distribution of $0.05 per unit on our limited partnership units. The distribution was paid on April 12, 2013, to limited partners of record at the close of business on March 28, 2013.

On June 11, 2013, we announced that the board of directors of our managing general partner approved a quarterly distribution of $0.05 per unit on our limited partnership units. The distribution was paid on July 12, 2013, to limited partners of record at the close of business on June 28, 2013.

On September 10, 2013, we announced that the board of directors of our managing general partner approved a quarterly distribution of $0.05 per unit on our limited partnership units. The distribution was paid on October 11, 2013, to limited partners of record at the close of business on September 30, 2013.

We pay distributions, if and when authorized by our managing general partner, using proceeds from advances drawn on our revolving note payable to a bank. We have a revolving note payable that is used as a source

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Contractual Obligations and Commercial Commitments

The following table represents our obligations and commitments to make future payments as of September 30, 2013, 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	$	323,750,734	$	42,246,321	$	63,277,572	$	74,056,490	$	144,170,351
Capital lease obligations	-		-		-		-		-
Operating leases (1)	-		-		-		-		-
Other long-term obligations (2)	-		-		-		-		-

Total contractual cash obligations	$	323,750,734	$	42,246,321	$	63,277,572	$	74,056,490	$	144,170,351

(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.

Website Information

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 Quarterly Report on Form 10-Q.

Item 3 — 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 have refinanced substantially all of our debt with instruments which bear interest at a fixed rate, with the exception of approximately $48.0 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 $0.5 million annually. The average variable interest rate at September 30, 2013 was 3.4%.

Item 4 — Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) and Rule 15d-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), our management, including our Chief Executive Officer and Chief Financial Officer, evaluated as of September 30, 2013, the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e) and Rule 15d-15(e). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures, as of September 30, 2013, were effective for the purpose of ensuring that information required to be disclosed by us in this report is recorded, processed, summarized and reported within the time periods specified by the rules and forms of the Exchange Act and is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

Changes in Internal Control over Financial Reporting

There have been no changes in internal control over financial reporting that occurred during the quarter ended September 30, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 1 — Legal Proceedings

On February 15, 2013, we received notice that Gerald A. Wells v. NTS Realty Holdings LP et al., Civil Action No. 8322-VCP, a third putative unitholder class action lawsuit, was filed on February 15, 2013 in the Court of Chancery of the State of Delaware against us, each of the members of the board of directors of NTS Realty Capital, Parent, Merger Sub and NTS Realty Capital, alleging, among other things, that the board of directors breached their fiduciary duties to our unitholders in connection with the board’s approval of the Merger between Merger Sub and NTS Realty. The complaint seeks, among other things, to enjoin the defendants from completing the Merger as contemplated by the terminated Merger Agreement. We believe these allegations are without merit and we intend to vigorously defend against them.

On March 19, 2013, the Delaware Court of Chancery consolidated the Tejera and Wells complaints under the Tejera case number and the consolidated case caption of In Re NTS Realty Holdings Limited Partnership Unitholders Litigation. Then, on June 12, 2013, the Delaware Chancery Court granted a Stipulation and Order of Voluntary Dismissal as to Plaintiff R. Jay Tejera, dismissing the claims of Plaintiff R. Jay Tejera, without prejudice, from In Re NTS Realty Holdings Limited Partnership Unitholders Litigation. On June 13, 2013, we received notice that Plaintiff R. Jay Tejera joined with Plaintiffs Stephen and Sharon Dannis in filing a second amended complaint in the litigation pending in the Jefferson County Circuit Court of the Commonwealth of Kentucky. In the second amended complaint, the Dannises and Tejera purport to state claims for breach of fiduciary duty against us, each member of the board of directors, NTS Realty Capital and Parent. This second amended complaint, like the amended complaint, seeks money damages. We believe these allegations are without merit and we intend to vigorously defend against them.

Counsel for R. Jay Tejera and Stephen and Sharon Dannis has also threatened to initiate unspecified claims against us, each of the members of the board of directors of NTS Realty Capital, NTS Realty Capital, Parent and Merger Sub in the event the transaction contemplated by the Merger Agreement is not consummated and additional consideration for the limited partnership units in excess of the price specified in the Merger Agreement is not paid. No further action on that threat has occurred as of this date.

We do not believe there is any other litigation threatened against us other than routine litigation and other legal proceedings arising out of the ordinary course of business.

Table of Contents

Item 6 — Exhibits

Exhibit No.
2.01	Agreement and Plan of Merger by and among NTS Realty Holdings Limited Partnership, NTS-Properties III, NTS-Properties IV, NTS-Properties V, a Maryland limited partnership, NTS-Properties VI, a Maryland limited partnership and NTS-Properties VII, Ltd., dated February 3, 2004	(3)

2.02	Contribution Agreement by and between NTS Realty Holdings Limited Partnership and ORIG, LLC, dated February 3, 2004	(3)

3.01	Certificate of Limited Partnership of NTS Realty Holdings Limited Partnership	(1)

3.02	Amended and Restated Agreement of Limited Partnership of NTS Realty Holdings Limited Partnership, dated as of December 29, 2005	(7)

3.03	Certificate of Incorporation of NTS Realty Capital, Inc.	(8)

3.04	By-Laws of NTS Realty Capital, Inc.	(2)

10.01	Amended and Restated Management Agreement between NTS Realty Holdings Limited Partnership 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 Apartments and The Grove at Whitworth Apartments)	(5)

10.06	Agreement for Purchase and Sale between Schaedle Worthington Hyde Properties, L.P. and NTS Realty Holdings Limited Partnership, dated November 1, 2005 (The Grove at Swift Creek Apartments)	(5)

10.07	Purchase and Sale Agreement between AMLI at Castle Creek, L.P. and AMLI Residential Properties, L.P. and NTS Realty Holdings Limited Partnership, dated February 7, 2006 (Castle Creek Apartments and Lake Clearwater Apartments)	(5)

10.08	Unconditional and Continuing Guaranty by NTS Realty Holdings Limited Partnership in favor 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 Apartments)	(11)

10.13	Purchase and Sale Agreement between NTS Realty Holdings Limited Partnership together with Creek’s Edge Investors, LLC and CG Stony Point, LLC, dated June 20, 2007 (Creek’s Edge at Stony Point Apartments)	(12)

10.14	Purchase and Sale Agreement between NTS Realty Holdings Limited Partnership and Ascent Properties, LLC, dated August 1, 2007 (The Office Portfolio)	(13)

10.15	Purchase and Sale Agreement between NTS Realty Holdings Limited Partnership and Colonial Realty Limited Partnership and Colonial Properties Services, Inc., dated June 11, 2008 (Shelby Farms Apartments)	(14)

10.16	Purchase and Sale Agreement between NTS Realty Holdings Limited Partnership and 302 Sabal Park Place Longwood, LLC and 385 Golf Brook Circle Longwood, LLC dated April 10, 2009 (Sabal Park Apartments and Golf Brook Apartments)	(15)

Table of Contents

Exhibit No.
10.17	Purchase and Sale Agreement between NTS Realty Holdings Limited Partnership and Corac, LLC, dated December 23, 2010 (Lakes Edge Apartments)	(16)

10.18	Mortgage, Security Agreement and Fixture Filing, dated as of April 20, 2011, by Lakes Edge Apartments, LLC to Metlife Bank, N.A., a national banking association	(17)

10.19	Promissory Note, made as of April 20, 2011, by Lakes Edge Apartments, LLC to Metlife Bank, N.A., a national banking association	(17)

10.20	Guaranty Agreement, dated as of April 20, 2011, by NTS Realty Holdings Limited Partnership for the benefit of Metlife Bank, N.A., a national banking association	(17)

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	(18)

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	(18)

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	(18)

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	(18)

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)

101	The following financial information from our Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2013, filed with the Securities and Exchange Commission on November 8, 2013, is formatted in Extensible Business Reporting Language (“XBRL”): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statement of Equity, (iii) Condensed Consolidated Statements of Operations, (iv) Condensed Consolidated Statements of Cash Flows, (v) Notes to Condensed Consolidated Financial Statements (tagged as blocks of text).	(18)(19)

(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 September 30, 2005
(5)		Incorporated by reference to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2005, as filed with the Securities and Exchange Commission on April 3, 2006
(6)		Incorporated by reference to the Registrant’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission on April 17, 2006
(7)		Incorporated by reference to the Registrant’s Information Statement on Form DEF 14C, as filed with the Securities and Exchange Commission on May 9, 2006
(8)		Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006, as filed with the Securities and Exchange Commission on May 15, 2006
(9)		Incorporated by reference to the Registrant’s Current Report on Form 8-K/A, as filed with the Securities and Exchange Commission on October 23, 2006
(10)		Incorporated by reference to the Registrant’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission on February 14, 2007
(11)		Incorporated by reference to the Registrant’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission on March 16, 2007
(14)		Incorporated by reference to the Registrant’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission on June 27, 2008
(15)		Incorporated by reference to the Registrant’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission on June 16, 2009
(16)		Incorporated by reference to the Registrant’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission on December 23, 2010
(17)		Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, as filed with the Securities and Exchange Commission on August 8, 2011

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
			(Principal Executive Officer)
		Date:	November 8, 2013

	By:	/s/ Gregory A. Wells
		Gregory A. Wells
		Its:	Chief Financial Officer
			(Principal Financial Officer and Principal Accounting Officer)
		Date:	November 8, 2013

PART I – FINANCIAL INFORMATION	4

Item 1 – Financial Statements	4
Condensed Consolidated Balance Sheets as of September 30, 2013 (Unaudited) and December 31, 2012	4
Condensed Consolidated Statement of Equity as of September 30, 2013 (Unaudited)	4
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2013 and 2012 (Unaudited)	5
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2013 and 2012 (Unaudited)	6
Notes to Condensed Consolidated Financial Statements (Unaudited)	7
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3 – Quantitative and Qualitative Disclosures About Market Risk	33
Item 4 – Controls and Procedures	33

PART II – OTHER INFORMATION	34

Item 1 – Legal Proceedings	34
Item 1A – Risk Factors	35
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	35
Item 3 – Defaults Upon Senior Securities	35
Item 4 – Mine Safety Disclosures	35
Item 5 – Other Information	35
Item 6 – Exhibits	36
Signatures	39

(18)		Filed herewith
(19)		The XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed “filed” for the purpose of Section 18 of the Securities and Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.