UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, 2013

OR

oTRANSITION 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)

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

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

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

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

None

(Title of Class)

(Title of Class)

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

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

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  Noo

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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  Noo

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See 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 Act). Yes o  Nox

As of June 30, 2013, the aggregate market value of the registrant’s Limited Partnership Units held by nonaffiliates of the registrant was $30,233,210, based on the closing price of the NYSE MKT.  As of March 14, 2014, there were 11,095,274 Limited Partnership Units of the registrant issued and outstanding.

Documents Incorporated by Reference: Portions of the registrant’s proxy statement for the annual meeting of limited partners to be held in 2014 are incorporated by reference into Part III of this Form 10-K.

NTS REALTY HOLDINGS LIMITED PARTNERSHIP

FORM 10-K

TABLE OF CONTENTS

PART I
ITEM 1	BUSINESS	3
ITEM 1A	RISK FACTORS	8
ITEM 1B	UNRESOLVED STAFF COMMENTS	17
ITEM 2	PROPERTIES	17
ITEM 3	LEGAL PROCEEDINGS	24
ITEM 4	MINE SAFETY DISCLOSURES	26
PART II
ITEM 5	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	27
ITEM 6	SELECTED FINANCIAL DATA	28
ITEM 7	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	29
ITEM 7A	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	40
ITEM 8	CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	41
ITEM 9	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	65
ITEM 9A	CONTROLS AND PROCEDURES	65
ITEM 9B	OTHER INFORMATION	65
PART III
ITEM 10	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	66
ITEM 11	EXECUTIVE COMPENSATION	69
ITEM 12	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	72
ITEM 13	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	73
ITEM 14	PRINCIPAL ACCOUNTANT FEES AND SERVICES	75
PART IV
ITEM 15	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	76
SIGNATURES		83

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PART I

ITEM 1 — BUSINESS

General

NTS Realty Holdings Limited Partnership (“NTS Realty,” “we,” “us” or “our”) was organized as a Delaware limited partnership in 2003, but had no operations and a limited amount of assets until December 28, 2004.  On that date, a series of predecessor partnerships merged with us, while other entities affiliated with our general partners contributed assets and liabilities to us.  On December 29, 2004, our Limited Partnership Units (the “Units”) began to be listed for trading on the American Stock Exchange under the trading symbol “NLP.”  Our Units currently are listed on the NYSE MKT, which is the American Stock Exchange’s successor.  As used in this Form 10-K, 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 with both affiliated and unaffiliated third parties or interests in properties held as a tenant in common with unaffiliated third parties.

As of December 31, 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.  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.  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.

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

We do not have any employees.  NTS Development Company or its affiliate, NTS Management Company (“NTS Development”), affiliates of our general partners, oversee and manage the day-to-day operations of our properties pursuant to various management agreements.  Pursuant to these 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 an unaffiliated third party.  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 of 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 unaffiliated third parties in exchange for a larger potential disposition fee.  NTS Development is reimbursed its actual costs for services rendered to NTS Realty.

In 2005 and 2009 the independent directors engaged an independent nationally recognized real estate expert (the “Expert”) to assist them in their review of the various management agreements between us and NTS Development.  The Expert made suggestions as to the types and amounts of fees and reimbursements to be included in the management agreements and assisted in the drafting and amending of the management agreements.  The

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management agreements in effect at December 31, 2013 renew annually unless terminated pursuant to their terms.  The independent directors of NTS Realty Capital’s board of directors review the management agreements periodically.

Employee costs are allocated among NTS Realty, other affiliates of our managing general partner and for the benefit of third parties so that a full time employee can be shared by multiple entities.  Each employee’s services, which are dedicated to a particular entity’s operations, are allocated as a percentage of each employee’s costs to that entity.  We only reimburse 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 consolidated statements of operations as either operating expenses reimbursed to affiliates or professional and administrative expenses reimbursed to affiliates, as determined by the nature of the expense.

Business and Investment Objectives and Operating Strategies

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

·generate cash flow for distribution;

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

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

·preserve and protect the limited partners’ capital.

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

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

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

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

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

·attract and retain high quality tenants;

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

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

Competition

We compete with other entities to locate suitable properties for acquisition, purchasers for our properties and tenants for each of our properties.  Although our business is competitive, it is not seasonal to a material degree.  While the markets in which we compete are highly fragmented with no dominant competitors, we face substantial competition.  This competition is generally for the retention of existing tenants at lease expiration or for new tenants when vacancies occur.  There are numerous other similar types of properties located in close proximity to each of our properties.  We maintain the suitability and competitiveness of our properties primarily on the basis of effective rents, amenities and services provided to tenants.  The amount of leasable space available in any market could have a material adverse effect on our ability to rent space and on the rents charged.

Competitive Advantages

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

·substantial local market expertise where we own many of our properties;

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

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

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Distribution Policy

We pay distributions if and when authorized by NTS Realty Capital 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.  For these purposes, “net cash flow from operations” means taxable income or loss increased by:

·tax-exempt interest;

·depreciation;

·amortization;

·cost recovery allowances; and

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

·principal payments on indebtedness;

·property replacement or reserves actually established;

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

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

As noted above, “net cash flow from operations” 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 refinance proceeds in new or existing properties or to create reserves to fund future capital expenditures.  Because “net cash flow from operations” is calculated after reinvesting sales or refinancing proceeds or establishing reserves, we may not have any “net cash flow from operations” from which to pay distributions.

Investment and Financing Policies

We will consider the acquisition or construction of additional multifamily properties, retail properties and commercial properties from time to time, with our primary emphasis on multifamily properties.  These properties may be located anywhere within the continental United States.  However, we will continue to focus on the Midwest and Southeast portions of the United States.  We will evaluate all new real estate investment opportunities based on a range of factors including, but not limited to: (1) rental levels under existing leases; (2) financial strength of tenants; (3) levels of expense required to maintain operating services and routine building maintenance at competitive levels; and (4) levels of capital expenditure required to maintain the capital components of the property in good working order and in conformity with building codes, health, safety and environmental standards.  We also plan not to acquire any new properties at a capitalization rate less than five percent (5%).  Any properties we acquire in the future would be managed and financed in the same manner as the properties that we acquired in the 2004 merger, and we will continue to enforce our policy of borrowing no more than seventy-five percent (75%) of the sum of: (a) the appraised value of our fully-constructed properties and (b) the appraised value of our properties in the development stage as if those properties were completed and ninety-five percent (95%) leased.

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

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Other Policies

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

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

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

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

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

·acquire any properties in exchange for Units.

We are prohibited from:

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

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

·commingling our funds with funds not belonging to us.

Change in Policies

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

Working Capital Practices

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

Conflicts of Interest

Each of our general partners is controlled directly or indirectly by Mr. J.D. Nichols, Chairman of the Board of NTS Realty Capital, our managing general partner.  As of December 31, 2013, Mr. Nichols beneficially owned approximately 61.7% of our issued and outstanding Units.  Other entities controlled directly or indirectly by Mr. Nichols have made and may continue to make investments in properties similar to those that we acquired in the 2004 merger or contribution.  These affiliates may acquire additional properties in the future, which may be located adjacent to properties that we acquired in the merger or contribution.

Environmental Matters

We believe that our portfolio of properties complies in all material respects with all federal, state and local environmental laws, ordinances and regulations regarding hazardous or toxic substances.  Independent environmental consultants have conducted Phase I or similar environmental site assessments on a majority of the properties that we acquired in the 2004 merger and all properties and interests in properties acquired by us since the 2004 merger.  Site assessments are intended to discover and evaluate information regarding the environmental condition of the surveyed property and surrounding properties.  These assessments may not, however, have revealed all environmental conditions, liabilities or compliance concerns.

Going Private Transaction, Merger Agreement and Settlement Agreement

NTS Realty Capital’s board of directors formed a special committee of the board (the “Special Committee”) in September 2012 to consider a proposal we received on August 21, 2012 from Mr. J.D. Nichols, our founder and Chairman, and Mr. Brian Lavin, our President and Chief Executive Officer, to acquire all of our outstanding Units excluding, those Units beneficially owned by them, for $5.25 per Unit, in cash.  The Special Committee consisted of the three independent members of NTS Realty Capital’s board of directors - Mark D. Anderson, John P. Daly, and John S. Lenihan.  Each member of

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the Special Committee was determined to be independent of NTS Realty, NTS Realty Capital and Messrs. Nichols and Lavin.

The Special Committee engaged its own legal counsel and financial advisors, and was deliberate in its process, taking approximately four months to analyze and evaluate Messrs. Nichols’ and Lavin’s initial proposal and to negotiate with Messrs. Nichols and Lavin the terms of a proposed merger transaction.  Ultimately, these negotiations resulted in an Agreement and Plan of Merger dated December 27, 2012 (the “Original Merger Agreement”) by and among NTS Realty, NTS Realty Capital, NTS Merger Parent, LLC (“Parent”), a Delaware limited liability company controlled by Messrs. Nichols and Lavin, and NTS Merger Sub, LLC (“Merger Sub”), a Delaware limited liability company and wholly-owned subsidiary of Parent, that provided for the payment in cash of $7.50 per Unit, representing a 43% increase in the merger consideration over the initially proposed $5.25 per Unit.  The Original Merger Agreement, however, was terminated on October 18, 2013 and, therefore, the merger was not completed.

After announcement of the Original Merger Agreement, in January 2013, various class action lawsuits were filed against us, NTS Realty Capital, Parent, each of the members of NTS Realty Capital’s board of directors and NTS Realty Partners, LLC, including the class action captioned, Stephen J. Dannis, et al. v. J.D. Nichols, et al., Case No. 13-CI-00452 (the “Kentucky Action”), pending in Jefferson County Circuit Court of the Commonwealth of Kentucky (the “Court”) and the class action case pending in the Delaware Court of Chancery under the consolidated case caption of In re NTS Realty Holdings Limited Partnership Unitholders Litigation, Consol. C.A. No. 8302-VCP (the “Delaware Action” and with the Kentucky Action, the “Actions”).  Plaintiffs in the Actions alleged, among other things, that NTS Realty Capital’s board of directors breached fiduciary duties to our Unitholders in connection with the board’s approval of the Original Merger Agreement.

After approximately five months of negotiations among the plaintiffs and defendants in the Actions, on February 4, 2014, the parties agreed to a Stipulation and Agreement of Compromise, Settlement and Release (the “Settlement Agreement”).  On February 5, 2014, the Court granted its preliminary approval of the Settlement Agreement.  Subject to satisfaction of the conditions set forth in the Settlement Agreement, the Settlement Agreement provides for the full and complete compromise, settlement, release and dismissal of the Actions.

Under the Settlement Agreement, it is expected that:

·Merger Sub will merge with and into NTS Realty, with NTS Realty being the surviving entity, pursuant to  the terms of that certain Agreement and Plan of Merger which was entered into as of February 25, 2014 (the “Merger Agreement”) by and among NTS Realty, NTS Realty Capital, Parent and Merger Sub; and

·as consideration for the settlement and release of the claims asserted in the Actions, at the closing of the merger, each of our outstanding Units (other than those Units owned by Messrs. Nichols and Lavin and their affiliates) will be cancelled and converted automatically into the right to receive, in cash, consideration (such per Unit consideration referred to as the “Merger Consideration”) equal to: (i) $7.50 per Unit plus (ii) a pro rata share of a settlement fund of $7,401,487 (representing settlement consideration of $1.75 per Unit) less fees and expenses of plaintiffs’ counsel and an incentive award, if any, payable to the named plaintiffs in the case, as awarded by the Court.

Immediately prior to the effective time of the merger, the compensation deferred by each non-employee director of NTS Realty Capital and represented by “phantom units” pursuant to the Director Plan will be issued to such non-employee director as Units and will be converted automatically into and thereafter represent the right to receive the Merger Consideration.  In connection with the foregoing, an aggregate amount of $789,830 (representing 85,387 phantom units outstanding as of December 31, 2013 multiplied by the gross Merger Consideration of $9.25 per Unit) is expected to be paid to the non-employee directors of NTS Realty Capital.  At the effective time of the merger, the compensation deferred by each officer of NTS Realty Capital and represented by “phantom units” pursuant to the Officer Plan will remain deferred pursuant to the Officer Plan, will not be converted to Units at the effective time of the merger and will remain subject to the terms of the Officer Plan. See Part II, Item 8, Note 14 — Deferred Compensation Plans.

Consummation of the merger is subject to the satisfaction (or waiver) of certain conditions including among others:

·approval of the Merger Agreement by the holders of a majority of our outstanding Units; and

·the Court granting its final approval of the Settlement Agreement.

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With respect to approval of the Merger Agreement by holders of a majority of our outstanding Units, it is expected that Messrs. Nichols, Lavin and their affiliates, acting by written consent, will vote their Units in favor of the Merger Agreement.  Messrs. Nichols, Lavin and their affiliates collectively own approximately 6,865,853 Units, representing approximately 61.9% of our issued and outstanding Units and approximately 59.3% of our aggregate voting power.  Accordingly, no other vote of our Unitholders is expected due to this representing over a majority of our outstanding Units.

Pursuant to the terms of the Settlement Agreement, the Settlement Agreement will not be finally approved by the Court until, among other things, the Court has (1) the Court has finally certified the members of the class under the Actions; (2) the Court, after holding of a final fairness settlement hearing (scheduled to be held on April 24, 2014), has entered its Order and Final Judgment approving the material terms of the Settlement Agreement (including finding that the terms and conditions of the Settlement Agreement are fair, reasonable, adequate, and in the best interests of the class) and such order and judgment shall have become final and non-appealable; (3) the Court has approved various releases among the plaintiffs, the class members and the defendants (and their affiliates); (4) orders dismissing the Actions with prejudice have become final and are no longer subject to appeal; and (5) the merger has become effective.

If the merger is completed pursuant to the terms of the Merger Agreement, then all holders of Units (other than Messrs. Nichols and Lavin and their affiliates) will receive, in cash per Unit, the Merger Consideration.  As a result of the merger, NLP’s limited partners, other than Messrs. Nichols and Lavin and their affiliates, will no longer have an equity interest in us, our Units will cease to be listed on the NYSE MKT, and the registration of our Units under Section 12 of the Securities Exchange Act of 1934, as amended, will be terminated.  As such, the merger transaction is sometimes referred to as a “going private transaction.”

The Merger Agreement may be terminated for various reasons including if the merger is not consummated by September 30, 2014.  We expect that the conditions of the Merger Agreement and the Settlement Agreement will be satisfied during the first half of 2014; however, there can be no assurance that the Merger Agreement and the Settlement Agreement will be consummated on the terms described herein or at all.

Access to Company Information

We electronically file our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports with the Securities and Exchange Commission (the “SEC”).  The public may read and copy any of the reports that are filed with the SEC at the SEC’s Public Reference Room at 100 Fifth Street, NE, Washington, DC 20549.  The public may obtain information on the operation of the Public Reference Room by calling the SEC at (800)-SEC-0330.  The SEC maintains an Internet site at www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically.

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

ITEM 1A — RISK FACTORS

Factors That May Affect Our Future Results

Forward-looking statements

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

Any or all of the forward-looking statements included in this report and in any other reports or public statements made by us may turn out to be inaccurate.  This can occur as a result of incorrect assumptions or as a consequence of known or unknown risks and uncertainties.  Many factors mentioned in this report or in other reports or public statements made by us, such as government regulation and the competitive environment, will be important

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in determining our future performance.  Consequently, actual results may differ materially from those that might be anticipated from our forward-looking statements.

We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.  However, any further disclosures made on related subjects in our subsequent reports on Forms 10-K, 10-Q and 8-K should be consulted.  The following cautionary discussion of risks, uncertainties and possible inaccurate assumptions relevant to our business includes factors we believe could cause our actual results to differ materially from expected and historical results.  Other factors beyond those listed below, including factors unknown to us and factors known to us, which we have not determined to be material, could also adversely affect us.

There can be no assurance that we will complete the going private transaction under the Merger Agreement and the Settlement Agreement.  Failure to complete the merger could have an adverse effect on us.

On February 25, 2014, 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 Mr. J.D. Nichols, our founder and Chairman, and Mr. Brian Lavin, our President and Chief Executive Officer, and NTS Merger Sub, LLC (“Merger Sub”), a wholly-owned subsidiary of Parent.  Upon consummation of the transactions proposed by the Merger Agreement, Merger Sub would merge with and into NTS Realty and NTS Realty would continue as the surviving entity.

The merger contemplated by the Merger Agreement is being undertaken in accordance with the terms of that certain Stipulation and Agreement of Compromise, Settlement and Release dated as of February 4, 2014 (the “Settlement Agreement”) entered into in the matter Stephen J. Dannis, et al. v. J.D. Nichols, et al., Case No. 13-CI-00452 (the “Kentucky Action”), pending in Jefferson County Circuit Court of the Commonwealth of Kentucky (the “Court”).  The Settlement Agreement provides, subject to satisfaction of the conditions set forth therein, for the full and complete compromise, settlement, release and dismissal of the Kentucky Action as well as the class action lawsuit pending in the Delaware Court of Chancery under the consolidated case caption of In re NTS Realty Holdings Limited Partnership Unitholders Litigation, Consol. C.A. No. 8302-VCP (the “Delaware Action” and with the Kentucky Action, the “Actions”).

The Court granted its preliminary approval of the Settlement Agreement on February 5, 2014.  Completion of the merger, however, is conditioned upon satisfaction of conditions set forth in the Merger Agreement and the Settlement Agreement.  One such condition is that the Court hold a final fairness settlement hearing (the “Settlement Hearing”) and, after holding such hearing, grant its final approval of the Settlement Agreement.  The Settlement Hearing is scheduled to be held before the Court on April 24, 2014.  The purpose of the Settlement Hearing is to determine:

·whether the Court should finally certify the members of the class for purposes of the Settlement Agreement;

·whether the proposed settlement of the Actions on the terms and conditions provided for in the Settlement Agreement is fair, reasonable, adequate, and in the best interests of the class members and should be approved by the Court;

·whether the Order and Final Judgment provided in the Settlement Agreement should be entered;

·whether the Court should grant the application of the plaintiffs’ counsel for an award of attorneys’ fees and reimbursement of litigation expenses and an incentive award to the named plaintiffs in the Actions; and

·such other matters as the Court may deem appropriate.

Any member of the class may, if he or she chooses, enter an appearance in the Actions or object to the proposed Settlement Agreement and have his/her objection heard at the Settlement Hearing.  There can be no assurance that the Court will grant its final approval of the Settlement Agreement.  If the Settlement Agreement is not approved by the Court, the merger will not proceed as such approval is a condition of the merger agreement.  Furthermore, if the Court grants final approval of the Settlement Agreement (including the Merger), an appeal of such Court approval could be filed, and we cannot currently predict the effect or outcome of any such appeal.

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Additionally, the Merger Agreement provides that it may be terminated for various reasons including if the conditions for completing the merger are not satisfied on or before September 30, 2014.  There can be no assurance that the conditions to the completion of the merger, many of which are out of our control (including obtaining the Court’s final approval by a final, non-appealable judgment), will be satisfied by the September 30, 2014 deadline, if at all.

If the merger is not completed, the trading price of our Units could fall to the extent that the current market price of our Units reflects an assumption that the merger will be completed. Further, a failed transaction may result in negative publicity and/or a negative impression of us in the investment community and may affect our relationship with employees, vendors, creditors and other business partners.

Additionally, we are subject to the following risks related to the merger transactions:

·Certain costs relating to the merger, including legal, accounting and financial advisory fees, are payable by us whether or not the merger is completed.

·Our management’s and our employees’ attention may be diverted from our day-to-day operations, we may experience unusually high employee attrition and our business and customer relationships may be disrupted.

We are subject to litigation related to the Merger.

In connection with our entering into that certain Agreement and Plan of Merger dated December 27, 2012 (referred to as the “Original Merger Agreement”) by and among NTS Realty, NTS Realty Capital, Parent and Merger Sub that provided for merger consideration of $7.50 per Unit, certain class action lawsuits were filed against us challenging the merger transaction and alleging claims of breach of fiduciary duties.  These lawsuits include the following (collectively, the “Actions”): (i) Dannis, Stephen, et al. v. Nichols, J.D., et al., pending in the Jefferson County Circuit Court of the Commonwealth of Kentucky (the “Court”), Case No. 13-CI-00452 and (ii) In Re NTS Realty Holdings Limited Partnership Unitholders Litigation, pending in the Court of Chancery of the State of Delaware, Civil Action No. 8302-VCP.  The lawsuits name as defendants NTS Realty, NTS Realty Capital and the members of the board of directors of NTS Realty Capital, among other defendants.

On February 4, 2014, NTS Realty, together with all other parties to the Actions, entered into a Stipulation and Agreement of Compromise, Settlement and Release (the “Settlement Agreement”).  On February 5, 2014, the Court granted its preliminary approval of the Settlement Agreement.  Provided that the conditions set forth in the Settlement Agreement are satisfied, the Settlement Agreement provides for the full and complete compromise, settlement, release and dismissal of both of the Actions.  The Settlement Agreement contemplates that NTS Realty will merge with and into Merger Sub pursuant to the terms of the Merger Agreement.  Consummation of the merger transaction contemplated by the Settlement Agreement and the Merger Agreement, however, are subject to satisfaction of several conditions, many of the conditions are outside of our control.

For example, one condition to closing of the merger is that the Court, after holding a final fairness settlement hearing, grant its final approval of the Settlement Agreement.  Such settlement hearing is scheduled to be held before the Court on April 24, 2014.  The purpose of the hearing is to determine:

·whether the Court should finally certify the members of the class for purposes of the Settlement Agreement;

·whether the proposed settlement of the Actions on the terms and conditions provided for in the Settlement Agreement is fair, reasonable, adequate, and in the best interests of the class members and should be approved by the Court;

·whether the Order and Final Judgment provided in the Settlement Agreement should be entered;

·whether the Court should grant the application of the plaintiffs’ counsel for an award of attorneys’ fees and reimbursement of litigation expenses and an incentive award to the named plaintiffs in the Actions; and

·such other matters as the Court may deem appropriate.

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Any member of the class may, if he or she chooses, enter an appearance in the Actions or object to the proposed Settlement Agreement and have his/her objection heard at the Settlement Hearing.  There can be no assurance that the Court will grant its final approval of the Settlement Agreement.  If the Settlement Agreement is not approved by the Court, the merger will not proceed and the Actions will not be dismissed but rather will continue to be litigated.  Furthermore, if the Court grants final approval of the Settlement Agreement, an appeal of such Court approval could be filed, and we cannot currently predict the effect or outcome of any such appeal.

Additionally, it is possible that additional claims beyond those that have already been filed against us will be brought by others in an effort to enjoin the merger or to seek monetary relief from us.

While we believe that we will settle the Actions pursuant to the Settlement Agreement, we cannot predict the outcome of these Actions, or any others, nor can we predict the amount of time and expense that will be required to resolve any such matters.  An unfavorable resolution of any such litigation surrounding the merger could delay or prevent the consummation of the merger and the settlement of the Actions.  In addition, the cost to us of defending the litigation, even if resolved in our favor, could be substantial.  Such litigation could also divert the attention of our management and our resources in general from day-to-day operations.

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

As of December 31, 2013, Mr. J.D. Nichols beneficially owns approximately 61.7% of the outstanding NTS Realty Holdings Limited Partnership Units.  Mr. Nichols effectively has the power to elect all of the directors and control the management, operations and affairs of NTS Realty Holdings Limited Partnership.  His ownership may discourage someone from making a significant equity investment in NTS Realty Holdings Limited Partnership, even if we needed the investment to operate our business.  His holdings could be a significant factor in delaying or preventing a change of control transaction that other limited partners may deem to be in their best interests, such as a transaction in which the other limited partners would receive a premium for their Units over their current trading prices.

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

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

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

·economic recovery could falter or significant job losses may occur, either of which may decrease rental demand, causing market rental rates and property values to be negatively impacted;

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

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

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

Potential reforms to Fannie Mae and Freddie Mac could adversely affect our performance.

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

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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.

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

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

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

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

Changes in market conditions could adversely affect the market price of our Limited Partnership Units.

As with other publicly traded securities, the value of our Units depends on various market conditions that may change from time to time.  Among the market conditions that may affect the value of our Units are the following:

·the extent of investor interest in our securities;

·the general reputation of real estate and the attractiveness of our Units in comparison to other equity securities, including securities or other Units issued by other real estate-based companies;

·our underlying asset value;

·investor confidence in the stock and bond markets, generally;

·national economic conditions;

·changes in tax laws;

·our financial performance;

·changes in our credit ratings; and

·general stock and bond market conditions.

The market value of our Units is based primarily upon the market’s perception of our growth potential and our current and potential future earnings and cash distributions.  Consequently, our Units may trade at prices that are greater or less than our net asset value per Unit.  If our future earnings or cash distributions are less than expected, it is likely that the market price of our Units will diminish.

We face possible risks associated with the physical effects of climate change.

We cannot predict with certainty whether climate change is occurring and, if so, at what rate.  However, the physical effects of climate change could have a material adverse effect on our properties, operations and business.

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To the extent climate change causes changes in weather patterns, our markets could experience increases in storm intensity and wide variations in temperatures from average.  Over time, these conditions could result in declining demand for office space or apartments in our buildings or our inability to operate the buildings at all.  Climate change may also have indirect effects on our business by increasing the cost of (or making unavailable) property insurance on terms we find acceptable, increasing the cost of energy and increasing the cost of snow removal at our properties.  There can be no assurance that climate change will not have a material adverse effect on our properties, operations or business.

Competition for acquisitions may result in increased prices for properties.

We plan to continue to acquire properties as we are presented with attractive opportunities. We may face competition for acquisition opportunities with other investors, and this competition may adversely affect us by subjecting us to the following risks:

·we may be unable to acquire a desired property because of competition from other well-capitalized real estate investors, including publicly traded and private REITs, institutional investment funds and other real estate investors; and

·even if we are able to acquire a desired property, competition from other real estate investors may significantly increase the purchase price.

A proposed change in U.S. accounting standards for leases could reduce the overall demand to lease our properties.

The existing accounting standards for leases require lessees to classify their leases as either capital or operating leases.  Under a capital lease, both the leased asset and the contractual lease obligation are recorded on the tenant’s balance sheet if one of the following criteria are met: (i) the lease transfers ownership of the property to the lessee by the end of the lease term; (ii) the lease contains a bargain purchase option; (iii) the non-cancellable lease term is more than 75% of the useful life of the asset; or (iv) the present value of the minimum lease payments equals 90% or more of the leased property’s fair value.  If the terms of the lease do not meet these criteria, the lease is considered an operating lease, and no leased asset or contractual lease obligation is recorded by the tenant.

In order to address concerns raised by the SEC regarding the transparency of contractual lease obligations under the existing accounting standards for operating leases, the U.S. Financial Accounting Standards Board (“FASB”) and the International Accounting Standards Board (“IASB”) initiated a joint project to develop new guidelines for lease accounting.  The FASB and IASB (collectively, the “Boards”) issued an Exposure Draft on August 17, 2010 (the “Exposure Draft”), which proposes substantial changes to the current lease accounting standards, primarily by eliminating the concept of operating lease accounting.  As a result, a lease asset and obligation would be recorded on the tenant’s balance sheet for all lease arrangements.  In addition, the Exposure Draft would impact the method in which contractual lease payments will be recorded.  In order to mitigate the effect of the proposed lease accounting, tenants may seek to negotiate certain terms of new lease arrangements or modify terms in existing lease arrangements, such as shorter lease terms or fewer extension options, which would generally have less impact on tenants’ balance sheets.  Also, tenants may reassess their lease-versus-buy strategies.  This could result in a greater renewal risk or shorter lease terms, which may negatively impact our operations and ability to pay distributions.

The Exposure Draft does not include a proposed effective date.

Risks Related to Our Business and Properties

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

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

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

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

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

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

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

·inability to collect rent from tenants;

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

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

·costs of complying with changes in governmental regulations;

·the relative illiquidity of real estate investments;

·changing market demographics; and

·inability to acquire and finance properties on favorable terms.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Some of the properties in our portfolio contain or could have contained, or are adjacent to or near other properties that have contained or currently contain underground storage tanks used to store petroleum products or other hazardous or toxic substances.  These operations create a potential for the release of petroleum products or other hazardous or toxic substances.  For example, one of our properties currently has a service station located adjacent to it, and two of our properties are located on a former operating farm under which an underground tank was removed several years ago.

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

We may incur significant costs complying with other regulations.

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

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

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

·the potential that our joint venture partner or tenants in common may not perform;

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

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

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

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

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

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

We are dependent upon the economic climates of our markets—Atlanta, Ft. Lauderdale, Indianapolis, Lexington, Louisville, Memphis, Nashville, Orlando and Richmond.

Substantially all of our revenue is derived from properties located in: Atlanta, Ft. Lauderdale, Indianapolis, Lexington, Louisville, Memphis, Nashville, Orlando and Richmond.  A downturn in the economies of these markets, or the impact that a downturn in the overall national economy may have upon these economies, could result in reduced demand for office space or apartment rentals.  Because our portfolio consists primarily of apartments and commercial office space, a decrease in demand for these types of real estate in turn could adversely affect our results of operations.  Additionally, there are submarkets within our markets that are dependent upon a limited number of industries.  For example, most of our apartment communities are classified as luxury apartments and if a downturn affecting luxury rentals were to occur, as opposed to mid-level or efficiency apartments, our results of operations could be adversely affected.

Our expenditures may not decrease if our revenue decreases.

Many of the expenditures associated with owning and operating real estate, such as debt-service payments, property taxes, insurance, utilities, and employee wages and benefits, are relatively inflexible and do not necessarily decrease in tandem with a reduction in revenue.  Our expenditures also will be affected by inflationary increases, and certain costs, such as wages, benefits and insurance, may exceed the rate of inflation in any given period.  In the event of a significant decrease in demand, we may not be able to reduce the level of certain costs timely or at all.  Management also may be unable to offset any such increased expenditures with higher rental rates.  Any of our efforts to reduce operating costs or failure to make scheduled capital expenditures also could adversely affect the future growth of our business and the value of our properties.

From time to time we have made, and in the future we may seek to make, one or more material acquisitions, which may involve the expenditure of significant funds.

We regularly review potential transactions in order to maximize limited partner value and believe that currently there are available a number of acquisition opportunities that would be complementary to our business, given the current trends in the apartment industry.  In connection with our review of such transactions, we regularly engage in discussions with potential acquisition candidates, some of which are material.  Any future acquisitions could require the issuance of Limited Partnership Units, the incurrence of debt, assumption of contingent liabilities or incurrence of significant expenditures, any of which could materially adversely impact our business, financial condition or results of operations. In addition, the financing required for such acquisitions may not be available on commercially favorable terms or at all.

Covenants related to our indebtedness limit our operational flexibility and breaches of these covenants could materially adversely affect our business, results of operations and financial condition.

Our unsecured and secured debt and other indebtedness that we may incur in the future, require or will require us to comply with a number of customary financial and other covenants, including maintaining certain levels of debt service coverage, leverage ratio and tangible net worth requirements.  Our continued ability to incur indebtedness and operate in general is subject to compliance with these financial and other covenants, which limit our operational flexibility.  For example, mortgages on our properties contain customary covenants such as those that limit or restrict our ability, without the consent of the lender, to further encumber or sell the applicable properties, or to replace the applicable tenant or operator.  Breaches of certain covenants may result in defaults under the mortgages on our properties and cross-defaults under certain of our other indebtedness, even if we satisfy our payment obligations to the respective obligee.  Additionally, defaults under the leases or operating agreements related to mortgaged properties, including defaults associated with the bankruptcy of the applicable tenant or

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tenants, may result in a default under the underlying mortgage and cross-defaults under certain of our other indebtedness.  Covenants that limit our operational flexibility as well as defaults under our debt instruments could materially adversely affect our business, results of operations and financial condition.

Tax Risks

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

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

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

Investment in Units by tax-exempt entities, including employee benefit plans and individual retirement accounts, regulated investment companies or mutual funds and non-U.S. persons raises issues unique to them.  For example, a significant amount of our income allocated to organizations exempt from federal income tax, including individual retirement accounts and other retirement plans, will be unrelated business taxable income and will be taxable to such holders.  Very little of our income will be qualifying income to a regulated investment company.  Distributions to non-U.S. persons will be reduced by withholding tax at the highest marginal tax rate applicable to individuals, and non-U.S. holders will be required to file United States federal income tax returns and pay tax on their share of our taxable income.

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

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

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

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

ITEM 1B — UNRESOLVED STAFF COMMENTS

None.

ITEM 2 — PROPERTIES

General

We own 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.  Set forth below is a description of each property:

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Wholly-Owned Properties

Commercial Properties

·NTS Center, which was constructed in 1977, is an office complex with approximately 126,700 net rentable square feet in Louisville, Kentucky.  As of December 31, 2013, there were 7 tenants leasing office space aggregating approximately 112,900 square feet.  The tenants are professional service entities, principally in secondary education, legal services, communications and information services.  One of these tenants individually leases more than 10% of the net rentable area at NTS Center.  NTS Center was 89% occupied as of December 31, 2013.

·Clarke American, which was constructed in 2000, is a business center with approximately 50,000 net rentable square feet in Louisville, Kentucky.  As of December 31, 2013, one tenant was leasing all 50,000 square feet.  The tenant is a professional service entity in the check printing industry.  Clarke American was 100% occupied as of December 31, 2013.

·Lakeshore Business Center Phase I, which was constructed in 1986, is a business center with approximately 100,200 net rentable square feet in Fort Lauderdale, Florida.  As of December 31, 2013, there were 16 tenants leasing space aggregating approximately 67,400 square feet.  The tenants are professional service entities, principally in engineering, insurance and financial services and telecommunication.  Two of these tenants individually lease more than 10% of the net rentable area at Lakeshore Business Center Phase I.  Lakeshore Business Center Phase I was 67% occupied as of December 31, 2013.

·Lakeshore Business Center Phase II, which was constructed in 1989, is a business center with approximately 95,900 net rentable square feet in Fort Lauderdale, Florida.  As of December 31, 2013, there were 16 tenants leasing space aggregating approximately 70,200 square feet.  The tenants are governmental and professional service entities, principally in medical equipment sales, financial services and technology.  One of these tenants individually leases more than 10% of the net rentable area at Lakeshore Business Center Phase II.  Lakeshore Business Center Phase II was 73% occupied as of December 31, 2013.

·Lakeshore Business Center Phase III, which was constructed in 2000, is a business center with approximately 38,800 net rentable square feet in Fort Lauderdale, Florida.  As of December 31, 2013, there were 3 tenants leasing space aggregating approximately 34,700 square feet.  The tenants are professional service entities, principally in real estate development, engineering and home healthcare.  Two of these tenants individually lease more than 10% of the net rentable area at Lakeshore Business Center Phase III.  Lakeshore Business Center Phase III was 89% occupied as of December 31, 2013.

·Peachtree Corporate Center, which was constructed in 1979, is a business park with approximately 198,900 net rentable square feet in Atlanta, Georgia.  As of December 31, 2013, there were 40 tenants leasing space aggregating approximately 158,100 square feet, including approximately 10,900 square feet which was leased but unoccupied.  The tenants are professional service entities, principally in sales-related services.  None of these tenants individually leases more than 10% of the net rentable area at Peachtree Corporate Center.  Peachtree Corporate Center was 74% occupied as of December 31, 2013.

Multifamily Properties

·Park Place Apartments, which was constructed in three phases, is a 464-unit luxury apartment complex located on a 44.8-acre tract in Lexington, Kentucky.  Phases I and II were constructed between 1987 and 1989, and Phase III was constructed in 2000.  Park Place was 97% occupied as of December 31, 2013.

·The Willows of Plainview Apartments, which was constructed in three phases between 1985 and 1988, is a 310-unit luxury apartment complex located on two tracts of land totaling 19.1-acres in Louisville, Kentucky.  The Willows of Plainview was 97% occupied as of December 31, 2013.

·Willow Lake Apartments, which was constructed in 1985, is a 207-unit luxury apartment complex located on an 18.0-acre tract in Indianapolis, Indiana.  Willow Lake was 92% occupied as of December 31, 2013.

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·The Lakes Apartments, which was purchased in 2005 and constructed in 1997, is a 232-unit luxury apartment complex located on a 19.7-acre tract in Indianapolis, Indiana.  The Lakes was 94% occupied as of December 31, 2013.

·The Grove at Richland Apartments, which was purchased in 2006 and constructed in 1998, is a 292-unit luxury apartment complex located on a 10.5-acre tract in Nashville, Tennessee.  The Grove at Richland was 97% occupied as of December 31, 2013.

·The Grove at Whitworth Apartments, which was purchased in 2006 and constructed in 1994, is a 301-unit luxury apartment complex located on a 12.1-acre tract in Nashville, Tennessee.  The Grove at Whitworth was 98% occupied as of December 31, 2013.

·The Grove at Swift Creek Apartments, which was purchased in 2006 and constructed in 2000, is a 240-unit luxury apartment complex located on a 32.9-acre tract in Richmond, Virginia.  The Grove at Swift Creek was 92% occupied as of December 31, 2013.

·Castle Creek Apartments, which was purchased in 2006 and constructed in 1999, is a 276-unit luxury apartment complex located on a 16.0-acre tract in Indianapolis, Indiana.  Castle Creek was 94% occupied as of December 31, 2013.

·Lake Clearwater Apartments, which was purchased in 2006 and constructed in 1999, is a 216-unit luxury apartment complex located on a 10.6-acre tract in Indianapolis, Indiana.  Lake Clearwater was 98% occupied as of December 31, 2013.

·Parks Edge Apartments (formerly Shelby Farms Apartments), which was purchased in 2008 and constructed in two phases, is a 450-unit luxury apartment complex located on a 30.2-acre tract in Memphis, Tennessee. Phase I was constructed in 1997 and Phase II was constructed in 2007.  Parks Edge was 95% occupied as of December 31, 2013.

Retail Properties

·Bed, Bath & Beyond, which was constructed in 1999, is an approximately 35,000 square foot facility in Louisville, Kentucky.  As of December 31, 2013, one tenant was leasing all 35,000 square feet.  The tenant is a retail service entity principally in the sale of domestic merchandise and home furnishings.  Bed, Bath & Beyond was 100% occupied as of December 31, 2013.

·Springs Station, which was constructed in 2001, is a retail facility with approximately 12,000 net rentable square feet in Louisville, Kentucky.  As of December 31, 2013, there were 7 tenants leasing space aggregating approximately 12,000 square feet, including approximately 2,300 square feet which was leased but unoccupied.  The tenants include retail and financial services entities.  Three of these tenants individually lease more than 10% of the net rentable area at Springs Station.  Springs Station was 81% occupied as of December 31, 2013.

Consolidated Joint Venture Properties

Multifamily Properties

·Golf Brook Apartments, which was purchased in 2009 and constructed between 1987 and 1988, is a 195-unit luxury apartment complex located on a 19.2-acre tract in Orlando, Florida.  Golf Brook was 98% occupied as of December 31, 2013.  We own a 51% interest in this property.

·Sabal Park Apartments, which was purchased in 2009 and constructed in 1986, is a 162-unit luxury apartment complex located on a 14.3-acre tract in Orlando, Florida.  Sabal Park was 96% occupied as of December 31, 2013.  We own a 51% interest in this property.

·Lakes Edge Apartments, which was purchased in 2010 and constructed in 2000, is a 362-unit luxury apartment complex located on a 31.6-acre tract in Orlando, Florida.  Lakes Edge was 96% occupied as of December 31, 2013.  We own a 73.5% interest in this property.

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Unconsolidated Investments in Tenants In Common Properties

Multifamily Properties

·The Overlook at St. Thomas Apartments, which was purchased in 2007 and constructed in 1991, is a 484-unit luxury apartment complex located on a 24.9-acre tract in Louisville, Kentucky.  The Overlook at St. Thomas was 97% occupied as of December 31, 2013.  We own a 60% tenant in common interest in this property.

·Creek’s Edge at Stony Point Apartments, which was purchased in 2007 and constructed in 2006, is a 202-unit luxury apartment complex located on a 26.3-acre tract in Richmond, Virginia.  Creek’s Edge at Stony Point was 93% occupied as of December 31, 2013.  We own a 51% tenant in common interest in this property.

Unconsolidated Joint Venture Property

Commercial Property

·600 North Hurstbourne, which was constructed by Campus One LLC and completed in 2012, is a  business center with approximately 125,100 net rentable square feet in Louisville, Kentucky. As of December 31, 2013, there were 7 tenants leasing space aggregating all 125,100 square feet, including approximately 8,500 square feet which was leased but unoccupied. The tenants are professional service entities, principally in real estate, financial services and the horse racing industry. Four of these tenants individually lease more than 10% of the net rentable area at 600 North Hurstbourne. 600 North Hurstbourne was 93% occupied as of December 31, 2013. We own a 49% interest in this property.

Properties Under Construction

Unconsolidated Joint Venture Property

Commercial Property

·Campus Two LLC, which was formed as of October 2012, is constructing an approximately 125,000 square foot office building in Louisville, Kentucky, known as 700 North Hurstbourne.  We anticipate construction to be completed in 2014.  We own a 49% interest in this property.

Corporate Headquarters

Our executive offices are located at 600 North Hurstbourne Parkway, Suite 300, Louisville, Kentucky 40222 and our phone number is (502) 426-4800.

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Occupancy Rates

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

	Years Ended December 31,
	2013			2012			2011
COMMERCIAL OCCUPANCY
NTS Center	89		%	86		%	82		%
Clarke American	100		%	100		%	100		%
Lakeshore Business Center Phase I	84		%	87		%	82		%
Lakeshore Business Center Phase II	73		%	70		%	74		%
Lakeshore Business Center Phase III (1)	81		%	87		%	100		%
Peachtree Corporate Center	71		%	69		%	75		%
COMMERCIAL PORTFOLIO OCCUPANCY	80		%	79		%	81		%
COMMERCIAL PORTFOLIO RENT PER OCCUPIED SQUARE FOOT,ANNUAL	$	11.55		$	11.74		$	11.79
MULTIFAMILY OCCUPANCY
Park Place Apartments	96		%	96		%	97		%
The Willows of Plainview Apartments	98		%	98		%	98		%
Willow Lake Apartments	95		%	95		%	98		%
The Lakes Apartments	96		%	96		%	98		%
The Grove at Richland Apartments	97		%	98		%	99		%
The Grove at Whitworth Apartments	98		%	98		%	99		%
The Grove at Swift Creek Apartments	95		%	90		%	92		%
Castle Creek Apartments	95		%	97		%	97		%
Lake Clearwater Apartments	96		%	98		%	96		%
Parks Edge Apartments	95		%	97		%	97		%
Golf Brook Apartments	96		%	94		%	95		%
Sabal Park Apartments	93		%	95		%	96		%
Lakes Edge Apartments	96		%	94		%	89		%
MULTIFAMILY PORTFOLIO OCCUPANCY	96		%	96		%	96		%
MULTIFAMILY PORTFOLIO RENT PER OCCUPIED UNIT, ANNUAL	$	12,853		$	12,384		$	11,686
RETAIL OCCUPANCY
Bed, Bath & Beyond	100		%	100		%	100		%
Springs Station (2)	77		%	59		%	69		%
RETAIL PORTFOLIO OCCUPANCY	94		%	90		%	92		%
RETAIL PORTFOLIO RENT PER OCCUPIED SQUARE FOOT,ANNUAL	$	12.67		$	12.55		$	12.65
COMMERCIAL AND RETAIL PORTFOLIO OCCUPANCY	81		%	80		%	82		%
COMMERCIAL AND RETAIL PORTFOLIO RENT PER OCCUPIEDSQUARE FOOT, ANNUAL	$	11.64		$	11.81		$	11.86
MULTIFAMILY UNCONSOLIDATED INVESTMENTS IN TENANTS IN COMMON OCCUPANCY
The Overlook at St. Thomas Apartments	98		%	97		%	97		%
Creek’s Edge at Stony Point Apartments	96		%	94		%	94		%
MULTIFAMILY UNCONSOLIDATED INVESTMENTS IN TENANTSIN COMMON PORTFOLIO OCCUPANCY	97		%	96		%	96		%
MULTIFAMILY UNCONSOLIDATED INVESTMENTS IN TENANTSIN COMMON PORTFOLIO RENT PER OCCUPIED UNIT, ANNUAL	$	13,444		$	12,637		$	12,082
COMMERCIAL UNCONSOLIDATED JOINT VENTURE OCCUPANCY
600 North Hurstbourne	87		%	54		%	N/A
COMMERCIAL UNCONSOLIDATED JOINT VENTURE PORTFOLIOOCCUPANCY	87		%	54		%	N/A
COMMERCIAL UNCONSOLIDATED JOINT VENTURE PORTFOLIORENT PER OCCUPIED UNIT, ANNUAL	$	22.58		$	20.73		N/A

(1)We believe the changes in average 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.  Lakeshore Business Center Phase III was 89% occupied and 89% leased as of December 31, 2013.

(2)Springs Station was 81% occupied and 100% leased as of December 31, 2013.

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Tenant Information

We are not dependent upon any tenant for 10% or more of our revenues.  The loss of any one tenant should not have a material adverse effect on our business or financial performance.  The following table sets forth our ten largest tenants based on annualized base rent as of December 31, 2013.

Tenant	Total LeasedSquare Feet	Annualized BaseRent (1)		Percentage ofAnnualized BaseRent		LeaseExpiration
Insight Communications (2)	76,652	$	924,374	1.68	%	08/31/21
Social Security Administration (3)	16,197	553,908		1.01	%	11/30/19
ECI Telecom (3)	29,287	443,405		0.80	%	03/31/18
Clarke Checks (2)	50,000	418,833		0.76	%	08/31/15
Bed, Bath & Beyond (2)	34,953	401,960		0.73	%	01/31/15
John J. Kirlin, Inc. (3)	20,135	297,022		0.54	%	08/10/14
McKendree University (2)	11,339	200,385		0.36	%	03/14/17
Kimley-Horn and Associates (3)	12,061	188,292		0.34	%	02/28/14
Reynolds, Smith and Hills, Inc. (3)	10,840	167,939		0.30	%	03/31/19
DeVry, Inc. (2)	9,294	160,926		0.29	%	07/31/18

(1)Annualized Base Rent means annual rental income.

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

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

Lease Expirations

The following table sets forth the number of expiring leases, the total area in square feet covered by such leases, the annual rent represented by such leases at December 31, 2013 and the percentage of gross annual rent represented by such leases for our commercial and retail properties.  We do not include the lease expirations for our multifamily properties as those lease contracts are typically for one year or less.

	Number of Expiring  Leases	ApproximateSquare Feet of  Expiring Leases	ApproximateAnnual Rent of  Expiring Leases		Percentage of Gross  Annual Rent of Expiring  Leases
Expiration Year
2014	28	119,700	$	1,260,000	20.0	%
2015	20	118,800	1,213,000		19.3	%
2016	19	68,000	591,000		9.4	%
2017	4	21,800	304,000		4.8	%
2018	11	83,300	1,140,000		18.1	%
2019	5	41,300	837,000		13.3	%
2020	-	-	-		-
2021	1	76,700	938,000		14.9	%
2022	1	1,900	10,000		0.2	%
Thereafter	-	-	-		-
Total	89	531,500	$	6,293,000	100	%

Indebtedness

The tables below reflect our outstanding indebtedness from mortgages and notes payable for our properties owned wholly, through a wholly-owned subsidiary, as both consolidated and unconsolidated joint venture investments, or as unconsolidated investments in tenants in common as of December 31, 2013.  Properties that are not encumbered by mortgages or notes are not listed below.  Some of our mortgages and notes bear interest in relation to the Libor Rate.  As of December 31, 2013, the Libor Rate was 0.17%.  The Libor Rate is a variable rate of interest that is adjusted from time to time based on interest rates set by London financial institutions.

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Wholly-Owned Properties and Consolidated Joint  Venture Properties	InterestRate		MaturityDate	Balance as ofDecember 31, 2013
Lakeshore Business Center Phases I, II and III (1)	Libor + 3.50	%	09/01/14	$	19,164,602
Clarke American (2)	8.45	%	11/01/15	768,881
The Lakes Apartments (3)	5.11	%	12/01/14	10,498,507
Parks Edge Apartments (4)	6.03	%	09/01/18	25,632,035
Castle Creek Apartments (5)	5.40	%	01/01/20	13,130,689
The Grove at Richland Apartments (6)	5.40	%	01/01/20	25,514,833
The Grove at Swift Creek Apartments (7)	5.40	%	01/01/20	15,918,421
The Grove at Whitworth Apartments (8)	5.40	%	01/01/20	26,152,704
Lake Clearwater Apartments (9)	5.40	%	01/01/20	10,763,479
Park Place Apartments (10)	5.40	%	01/01/20	28,940,435
Willow Lake Apartments (11)	5.40	%	01/01/20	10,342,957
The Willows of Plainview Apartments (12)	5.40	%	01/01/20	16,934,289
Golf Brook Apartments (13)	Libor + 3.33	%	07/01/16	13,954,358
Sabal Park Apartments (14)	Libor + 3.50	%	07/01/16	9,172,853
Lakes Edge Apartments (15)	5.09	%	05/01/18	24,493,068
NTS Realty I (16)	Libor + 2.50	%	09/30/14	4,425,117
				$	255,807,228

Unconsolidated Investments in Tenants In Common Properties
The Overlook at St. Thomas Apartments (17)	5.72	%	04/11/17	$	32,569,610
Creek’s Edge at Stony Point Apartments (18)	5.99	%	11/15/17	$	20,309,423

Unconsolidated Joint Venture Properties
600 North Hurstbourne (19)	4.35	%	09/1/28	$	17,181,941
700 North Hurstbourne (20)	Libor + 2.40	%	07/1/17	$	3,208,483

(1)This note is guaranteed individually and severally by Mr. Nichols and Mr. Brian F. Lavin.  A balloon payment of $18,918,880 is due upon maturity.

(2)This loan fully amortizes upon maturity.

(3)A balloon payment of $10,313,012 is due upon maturity.

(4)A balloon payment of $23,963,038 is due upon maturity.

(5)A balloon payment of $11,646,720 is due upon maturity.

(6)A balloon payment of $22,631,265 is due upon maturity.

(7)A balloon payment of $14,119,395 is due upon maturity.

(8)A balloon payment of $23,197,045 is due upon maturity.

(9)A balloon payment of $9,547,040 is due upon maturity.

(10)A balloon payment of $25,669,720 is due upon maturity.

(11)A balloon payment of $9,174,043 is due upon maturity.

(12)A balloon payment of $15,020,454 is due upon maturity.

(13)A balloon payment of $13,225,041 is due upon maturity.

(14)A balloon payment of $8,708,068 is due upon maturity.

(15)A balloon payment of $22,844,451 is due upon maturity.

(16)A balloon payment of $4,434,964 is due upon maturity.

(17)A balloon payment of $30,492,392 is due upon maturity.  We are proportionately liable for this mortgage, limited to our 60% interest as a tenant in common of this property.

(18)A balloon payment of $18,992,649 is due upon maturity.  We are jointly and severally liable for this mortgage.  We own a 51% interest as a tenant in common of this property.

(19)A balloon payment of $7,471,374 is due upon maturity.  We are proportionally liable for this note, limited to our 49% interest in this property.

(20)Principal payments may be made monthly and are due in full upon maturity.  We are proportionally liable for this note, limited to our 49% interest in this property.

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

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Property Tax

The following table sets forth for each property that we own wholly, as a tenant in common with an unaffiliated third party or through joint venture investments with both affiliated and unaffiliated third parties, the property tax rate and annual property taxes.

SCHEDULE OF ANNUAL PROPERTY TAX RATES AND TAXES-2013

State	Property	PropertyTax Rate(per $100)	Gross AmountAnnual PropertyTaxes (1)
FL	Lakeshore Business Center Phase I	2.02	$	203,012
FL	Lakeshore Business Center Phase II	2.02	204,874
FL	Lakeshore Business Center Phase III	2.02	90,846
FL	Golf Brook Apartments	1.60	289,939
FL	Sabal Park Apartments	1.60	194,401
FL	Lakes Edge Apartments	2.04	663,220
GA	Peachtree Corporate Center	3.54	124,500
IN	Willow Lake Apartments	2.41	357,879
IN	The Lakes Apartments	2.41	317,368
IN	Castle Creek Apartments	2.02	481,485
IN	Lake Clearwater Apartments	2.02	386,780
KY	Bed, Bath & Beyond	1.26	27,950
KY	Clarke American	1.21	39,063
KY	NTS Center	1.21	81,477
KY	The Willows of Plainview Apartments	1.21	164,144
KY	Park Place Apartments	1.16	329,157
KY	Springs Station	1.26	21,612
KY	The Overlook at St. Thomas Apartments	1.06	442,733
TN	Parks Edge Apartments	7.78	1,121,943
TN	The Grove at Richland Apartments	4.52	569,049
TN	The Grove at Whitworth Apartments	4.52	523,419
VA	The Grove at Swift Creek Apartments	0.95	222,534
VA	Creek’s Edge at Stony Point Apartments	1.20	315,120
			$	7,172,505

(1)Does not include any offset for property taxes reimbursed by tenants.  Property taxes in Jefferson County, Kentucky; Fayette County, Kentucky; City of Jeffersontown, Kentucky; and the City of St. Matthews, Kentucky, are discounted by approximately 2% if they are paid prior to the due date.  Property taxes in Broward County, Florida; and Seminole County, Florida, are discounted by approximately 4% if they are paid prior to the due date.  Payments made prior to the due date in other states generally provide no discount to the gross amount of property tax.

ITEM 3 — LEGAL PROCEEDINGS

On January 27, 2013, we received notice that a class action lawsuit captioned, Stephen Dannis, et al. v. J.D. Nichols, et al., Case No. 13-CI-00452 (the “Kentucky Action”), was filed on January 25, 2013 in Jefferson County Circuit Court of the Commonwealth of Kentucky (the “Court”) 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 of NTS Realty Capital breached fiduciary duties to our Unitholders in connection with the board’s approval of the Original Merger Agreement dated December 27, 2012 by and among NTS Realty, NTS Realty Capital, Parent and Merger Sub.

On February 12, 2013, we received notice that another class action lawsuit captioned, R. Jay Tejera v. NTS Realty Holdings LP et al., Civil Action No. 8302-VCP, 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 fiduciary duties to our Unitholders in connection with the board’s approval of the Original Merger Agreement. The complaint seeks, among other things, money damages.

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

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breached fiduciary duties to our Unitholders in connection with the board’s approval of the Original Merger Agreement. The complaint seeks, among other things, to enjoin the defendants from completing the merger as contemplated by the Original Merger Agreement.

On March 19, 2013, the Delaware Court consolidated the Tejera and Wells actions under the consolidated case caption of In re NTS Realty Holdings Limited Partnership Unitholders Litigation, Consol. C.A. No. 8302-VCP (the “Delaware Action,” and together with the Kentucky Action, the “Actions”) and appointed the law firms of Rigrodsky & Long, P.A. and Wohl & Fruchter LLP as Co-Lead Counsel for plaintiffs in the Delaware Action.

After counsel for plaintiff Tejera advised of his intention to join in prosecution of the Kentucky Action and plaintiffs, Tejera and Stephen and Sharon Dannis, tendered a proposed Second Amended Complaint on May 24, 2013, the parties submitted an agreed order on May 31, 2013, allowing plaintiffs to file a Second Amended Complaint, which order was entered June 7, 2013.  In contemplation of plaintiff Tejera joining in the prosecution of the Kentucky Action, all parties stipulated to dismissal of his claims in the Delaware Action, which stipulation was approved by the Delaware Court on June 12, 2013.  Plaintiffs, Tejera and Stephen and Sharon Dannis, thereupon served their Second Amended Class Action Complaint on June 13, 2013 and the defendants thereafter filed their motions to dismiss the Kentucky Action.

In early July 2013, the defendants proposed that the parties meet to discuss a possible resolution of the Actions, and the plaintiffs in the Kentucky and Delaware Actions agreed to do so following receipt of detailed financial information and other discovery and an opportunity to fully review and analyze such discovery.  The parties, from time to time, engaged in various settlement negotiations.

On February 4, 2014, NTS Realty, together with the other defendants in the Actions, entered into a Stipulation and Agreement of Compromise, Settlement and Release (the “Settlement Agreement”).  On February 5, 2014, the Court granted its preliminary approval of the Settlement Agreement.  Subject to satisfaction of the conditions set forth in the Settlement Agreement, the Settlement Agreement provides for the full and complete compromise, settlement, release and dismissal of the Actions.

Under the Settlement Agreement, it is expected that:

·Merger Sub will merge with and into NTS Realty, with NTS Realty being the surviving entity, pursuant to the terms of that certain Agreement and Plan of Merger executed on February 25, 2014 (the “Merger Agreement”) by and among NTS Realty, NTS Realty Capital, Parent and Merger Sub; and

·as consideration for the settlement and release of the claims asserted in the Actions, at the closing of the merger, each of our outstanding Units (other than those Units owned by Messrs. Nichols and Lavin and their affiliates) will be cancelled and converted automatically into the right to receive, in cash, consideration (such per Unit consideration referred to as the “Merger Consideration”) equal to: (i) $7.50 per Unit plus (ii) a pro rata share of a settlement fund of $7,401,487 (representing settlement consideration of $1.75 per Unit) less fees and expenses of plaintiffs’ counsel and an incentive award, if any, payable to the named plaintiffs in the case, as awarded by the Court.

The Merger Consideration is not, however, due or owing under the Settlement Agreement, until, among other things:

·the Court has finally certified the members of the class;

·the Court, after holding its final fairness settlement hearing (expected to be held by the Court on April 24, 2014) has entered its Order and Final Judgment approving the material terms of the Settlement Agreement (including the merger) and such judgment shall have become final and non-appealable;

·the Court has approved various releases among the plaintiffs, class members and defendants (and their affiliates);

·orders dismissing the Kentucky Action and the Delaware Action with prejudice have become final and are no longer subject to appeal; and

·the merger has become effective.

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The obligations of the parties to effect the merger pursuant to the Merger Agreement are subject to various conditions.  There can be no assurance that the merger or settlement will be consummated on the terms of the Merger Agreement or the Settlement Agreement, if at all.

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.

ITEM 4 — MINE SAFETY DISCLOSURES

None.

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PART II

ITEM 5 — MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Common Stock Market Prices and Distributions

Beginning December 29, 2004, our Units were listed for trading on the American Stock Exchange under the symbol NLP.  Beginning December 1, 2008, our Units ceased trading on the American Stock Exchange and now trade on the NYSE MKT under the symbol NLP.  The NYSE MKT is the successor to the American Stock Exchange.  The approximate number of record holders of our Units at December 31, 2013 was 2,837.

High and low Unit prices for the period January 1, 2013 through December 31, 2013 were $7.75 to $4.00, respectively.  Quarterly distributions are primarily based on current cash balances, cash flow generated by operations and cash reserves needed for future leasing costs, tenant finish costs and capital improvements.

High and low Unit prices for the period January 1, 2012 through December 31, 2012 were $7.29 to $3.00, respectively.  Quarterly distributions are primarily based on current cash balances, cash flow generated by operations and cash reserves needed for future leasing costs, tenant finish costs and capital improvements.

The following table sets forth the price range of our Limited Partnership Units on the NYSE MKT and distributions declared for each quarter during the years ended December 31, 2013 and 2012.

	Three Months Ended
	March 31		June 30		September 30		December 31
2013
High	$	7.48	$	7.35	$	7.41	$	7.75
Low	$	7.03	$	6.62	$	4.52	$	4.00
Distributions declared	$	554,764	$	554,764	$	554,764	$	554,763
2012
High	$	3.68	$	3.66	$	5.15	$	7.29
Low	$	3.10	$	3.01	$	3.00	$	4.85
Distributions declared	$	554,764	$	554,764	$	554,764	$	554,763

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

During the quarterly period ended June 30, 2011, we repurchased and retired 285,486 Limited Partnership Units of NTS Realty at a cost of approximately $1.4 million.

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ITEM 6 — SELECTED FINANCIAL DATA

The following table sets forth our selected financial data for 2013, 2012, 2011, 2010 and 2009.  We have derived the consolidated statement of operations and consolidated balance sheet data for the years ended December 31, 2013, 2012, 2011, 2010 and 2009 from our audited financial statements.

SUMMARY OF CONSOLIDATED STATEMENT OF OPERATIONS AND BALANCE SHEET DATA

	Years Ended December 31,
	2013			2012			2011			2010			2009
STATEMENT OF OPERATIONS DATA
REVENUE:
Rental income	$	57,263,675		$	55,437,445		$	52,823,586		$	45,997,593		$	42,730,803
Tenant reimbursements	1,814,296			1,828,857			1,811,459			1,901,333			1,787,103
Total revenue	59,077,971			57,266,302			54,635,045			47,898,926			44,517,906
EXPENSES:
Operating expenses and operating expensesreimbursed to affiliates	20,427,868			21,886,775			22,089,532			18,208,032			15,572,095
Management fees	3,043,878			2,855,911			2,725,479			2,365,301			2,205,739
Property taxes and insurance	8,124,677			7,557,006			6,735,437			6,043,391			6,494,311
Professional and administrative expenses andprofessional and administrative expensesreimbursed to affiliates	5,244,447			4,155,593			2,578,381			2,669,501			2,707,216
Depreciation and amortization	16,238,553			17,808,970			18,246,506			17,973,060			17,304,344
Total expenses	53,079,423			54,264,255			52,375,335			47,259,285			44,283,705
OPERATING INCOME	5,998,548			3,002,047			2,259,710			639,641			234,201
Interest and other income	1,635,770			100,238			784,798			240,438			293,462
Interest expense	(13,711,252		)	(13,999,712		)	(14,145,721		)	(12,893,896		)	(16,191,885		)
Loss on disposal of assets	(117,169		)	(230,784		)	(186,770		)	(233,287		)	(207,482		)
Loss from investments in joint ventures	(136,834		)	(173,430		)	(3,163		)	(1,407		)	-
Loss from investments in tenants in common	(205,479		)	(1,663,916		)	(1,846,169		)	(1,901,809		)	(2,137,128		)
LOSS FROM CONTINUINGOPERATIONS	(6,536,416		)	(12,965,557		)	(13,137,315		)	(14,150,320		)	(18,008,832		)
Discontinued operations, net	-			-			-			31,039			337,692
Gain on sale of discontinued operations	-			-			-			1,783,282			-
CONSOLIDATED NET LOSS	(6,536,416		)	(12,965,557		)	(13,137,315		)	(12,335,999		)	(17,671,140		)
Net loss attributable to noncontrolling interests	(627,513		)	(943,028		)	(1,100,956		)	(939,606		)	(491,553		)
NET LOSS	$	(5,908,903	)	$	(12,022,529	)	$	(12,036,359	)	$	(11,396,393	)	$	(17,179,587	)
Distributions declared	$	2,219,055		$	2,219,055		$	2,233,329		$	2,276,152		$	2,276,152
Distributions declared per limited partnershipunit	$	0.20		$	0.20		$	0.20		$	0.20		$	0.20
BALANCE SHEET DATA (end of year)
Land, buildings and amenities, net	$	270,830,835		$	285,383,595		$	300,235,083		$	313,513,669		$	296,699,646
Total assets	282,585,470			301,564,379			314,380,710			328,565,643			321,581,865
Mortgages and notes payable	255,807,228			264,772,316			263,584,959			267,870,876			246,088,305

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

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

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

Going Private Transaction, Merger Agreement and Settlement Agreement

NTS Realty Capital’s board of directors formed a special committee of the board (the “Special Committee”) in September 2012 to consider a proposal we received on August 21, 2012 from Mr. J.D. Nichols, our founder and Chairman, and Mr. Brian Lavin, our President and Chief Executive Officer, to acquire all of our outstanding Units excluding, those Units beneficially owned by them, for $5.25 per Unit, in cash.  The Special Committee consisted of the three independent members of NTS Realty Capital’s board of directors - Mark D. Anderson, John P. Daly, and John S. Lenihan.  Each member of the Special Committee was determined to be independent of NTS Realty, NTS Realty Capital and Messrs. Nichols and Lavin.

The Special Committee engaged its own legal counsel and financial advisors, and was deliberate in its process, taking approximately four months to analyze and evaluate Messrs. Nichols’ and Lavin’s initial proposal and to negotiate with Messrs. Nichols and Lavin the terms of a proposed merger transaction.  Ultimately, these negotiations resulted in an Agreement and Plan of Merger dated December 27, 2012 (the “Original Merger Agreement”) by and among NTS Realty, NTS Realty Capital, NTS Merger Parent, LLC (“Parent”), a Delaware limited liability company controlled by Messrs. Nichols and Lavin, and NTS Merger Sub, LLC (“Merger Sub”), a Delaware limited liability company and wholly-owned subsidiary of Parent, that provided for the payment in cash of $7.50 per Unit, representing a 43% increase in the merger consideration over the initially proposed $5.25 per Unit.  The Original Merger Agreement, however, was terminated on October 18, 2013 and, therefore, the merger was not completed.

After announcement of the Original Merger Agreement, in January 2013, various class action lawsuits were filed against us, NTS Realty Capital, Parent, each of the members of NTS Realty Capital’s board of directors and NTS Realty Partners, LLC, including the class action captioned, Stephen J. Dannis, et al. v. J.D. Nichols, et al., Case No. 13-CI-00452 (the “Kentucky Action”), pending in Jefferson County Circuit Court of the Commonwealth of Kentucky (the “Court”) and the class action case pending in the Delaware Court of Chancery under the consolidated case caption of In re NTS Realty Holdings Limited Partnership Unitholders Litigation, Consol. C.A. No. 8302-VCP (the “Delaware Action” and with the Kentucky Action, the “Actions”).  Plaintiffs in the Actions alleged, among other things, that NTS Realty Capital’s board of directors breached fiduciary duties to our Unitholders in connection with the board’s approval of the Original Merger Agreement.

After approximately five months of negotiations among the plaintiffs and defendants in the Actions, on February 4, 2014, the parties agreed to a Stipulation and Agreement of Compromise, Settlement and Release (the “Settlement Agreement”).  On February 5, 2014, the Court granted its preliminary approval of the Settlement Agreement.  Subject to satisfaction of the conditions set forth in the Settlement Agreement, the Settlement Agreement provides for the full and complete compromise, settlement, release and dismissal of the Actions.

Under the Settlement Agreement, it is expected that:

·Merger Sub will merge with and into NTS Realty, with NTS Realty being the surviving entity, pursuant to the terms of that certain Agreement and Plan of Merger which was entered into as of February 25, 2014 (the “Merger Agreement”) by and among NTS Realty, NTS Realty Capital, Parent and Merger Sub; and

·as consideration for the settlement and release of the claims asserted in the Actions, at the closing of the merger, each of our outstanding Units (other than those Units owned by Messrs. Nichols and Lavin and their affiliates) will be cancelled and converted automatically into the right to receive, in cash, consideration (such per Unit consideration referred to as the “Merger Consideration”) equal to: (i) $7.50 per Unit plus (ii) a pro rata share of a settlement fund of $7,401,487 (representing settlement consideration of $1.75 per Unit) less fees and expenses of plaintiffs’ counsel and an incentive award, if any, payable to the named plaintiffs in the case, as awarded by the Court.

Immediately prior to the effective time of the merger, the compensation deferred by each non-employee director of NTS Realty Capital and represented by “phantom units” pursuant to the Director Plan will be issued to

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such non-employee director as Units and will be converted automatically into and thereafter represent the right to receive the Merger Consideration.  In connection with the foregoing, an aggregate amount of $789,830 is expected to be paid to the non-employee directors of NTS Realty Capital.  At the effective time of the merger, the compensation deferred by each officer of NTS Realty Capital and represented by “phantom units” pursuant to the Officer Plan will remain deferred pursuant to the Officer Plan, will not be converted to Units at the effective time of the merger and will remain subject to the terms of the Officer Plan. See Part II, Item 8, Note 14 — Deferred Compensation Plans.

Consummation of the merger is subject to the satisfaction (or waiver) of certain conditions including among others:

·approval of the Merger Agreement by the holders of a majority of our outstanding Units; and

·the Court granting its final approval of the Settlement Agreement.

With respect to approval of the Merger Agreement by holders of a majority of our outstanding Units, it is expected that Messrs. Nichols, Lavin and their affiliates, acting by written consent, will vote their Units in favor of the Merger Agreement.  Messrs. Nichols, Lavin and their affiliates collectively own approximately 6,865,853 Units, representing approximately 61.9% of our issued and outstanding Units and approximately 59.3% of our aggregate voting power.  Accordingly, no other vote of our Unitholders is expected due to this representing over a majority of our outstanding Units.

Pursuant to the terms of the Settlement Agreement, the Settlement Agreement will not be finally approved by the Court until, among other things, the Court has (1) the Court has finally certified the members of the class under the Actions; (2) the Court, after holding of a final fairness settlement hearing (scheduled to be held on April 24, 2014), has entered its Order and Final Judgment approving the material terms of the Settlement Agreement (including finding that the terms and conditions of the Settlement Agreement are fair, reasonable, adequate, and in the best interests of the class) and such order and judgment shall have become final and non-appealable; (3) the Court has approved various releases among the plaintiffs, the class members and the defendants (and their affiliates); (4) orders dismissing the Actions with prejudice have become final and are no longer subject to appeal; and (5) the merger has become effective.

If the merger is completed pursuant to the terms of the Merger Agreement, then all holders of Units (other than Messrs. Nichols and Lavin and their affiliates) will receive, in cash per Unit, the Merger Consideration.  As a result of the merger, NLP’s limited partners, other than Messrs. Nichols and Lavin and their affiliates, will no longer have an equity interest in us, our Units will cease to be listed on the NYSE MKT, and the registration of our Units under Section 12 of the Securities Exchange Act of 1934, as amended, will be terminated.  As such, the merger transaction is sometimes referred to as a “going private transaction.”

The Merger Agreement may be terminated for various reasons including if the merger is not consummated by September 30, 2014.  We expect to satisfy the conditions of the Merger Agreement and the Settlement Agreement during the first half of 2014; however, there can be no assurance that the Merger Agreement and the Settlement Agreement will be consummated on the terms described herein or at all.

Critical Accounting Policies

General

A critical accounting policy is one that would materially affect our operations or financial condition, and requires management to make estimates or judgments in certain circumstances.  These judgments often result from the need to make estimates about the effect of matters that are inherently uncertain.  Critical accounting policies discussed in this section are not to be confused with accounting principles and methods disclosed in accordance with U.S. generally accepted accounting principles (‘‘GAAP’’).  GAAP requires information in financial statements about accounting principles, methods used and disclosures pertaining to significant estimates.  The following disclosures 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.

Impairment and Valuation

Financial Accounting Standards Board (‘‘FASB’’) Accounting Standards Codification (“ASC”) Topic 360 Property, Plant, and Equipment specifies circumstances in which certain long-lived assets must be reviewed for impairment.  If this review indicates that the carrying amount of an asset exceeds the sum of its expected future cash flows, the asset’s carrying value must be written down to fair value.  In determining the value of an investment property and whether the investment property is impaired, management considers several factors such as projected rental and vacancy rates, property operating expenses, capital expenditures, interest rates and recent appraisals when available.  The capitalization rate used to determine property valuation is based on, among 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

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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.

Acquisitions

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.

Recognition of Rental Income

Under GAAP, we are required to recognize rental income based on the effective monthly rent for each lease.  The effective monthly rent is equal to the average monthly rent during the term of the lease, not the stated rent for any particular month.  The process, known as ‘‘straight-lining’’ or ‘‘stepping’’ rent, generally has the effect of increasing rental revenues during the early phases of a lease and decreasing rental revenues in the latter phases of a lease.  Due to the impact of “straight-lining” on a historical consolidating basis, cash collected for rent exceeded rental income by approximately $37,000 and $6,000 for the years ended December 31, 2013 and 2012, respectively.  Rental income exceeded the cash collected for rent by approximately $0.1 million for the year ended December 31, 2011.  If rental income calculated on a straight-line basis exceeds the cash rent due under the lease, the difference is recorded as an increase in deferred rent receivable and included as a component of accounts receivable on the relevant balance sheet.  If the cash rent due under the lease exceeds rental income calculated on a straight-line basis, the difference is recorded as a decrease in deferred rent receivable and is recorded as a decrease of accounts receivable on the relevant balance sheet.  We defer recognition of contingent rental income, such as percentage or excess rent, until the specified target that triggers the contingent rental income is achieved.  We periodically review the collectability of outstanding receivables.  Allowances are generally taken for tenants with outstanding balances due for a period greater than sixty days and tenants with outstanding balances due for a period less than sixty days but that we believe are potentially uncollectible.

Recognition of Lease Termination Income

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

Cost Capitalization and Depreciation Policies

We review all expenditures and capitalize any item exceeding $5,000 deemed to be a capital improvement with an expected useful life greater than one year.  Land, buildings and amenities are stated at cost. Costs directly associated with the acquisition, development and construction of a project are capitalized.  Depreciation expense is computed using the straight-line method over the estimated useful lives of the assets, which are generally 5-30 years for land improvements, 7-30 years for buildings and improvements and 5-30 years for amenities. Tenant improvements are generally depreciated over the life of the initial or renewal term of the respective tenant lease.  Acquired above and below market leases are amortized on a straight-line basis over the life of the related leases as an adjustment to rental income.  Acquired in-place lease origination cost is amortized over the life of the lease as a component of amortization expense.

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.

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Our main uses of cash relate to capital expenditures, required payments of mortgages and notes payable, distributions and property taxes.

The components of the consolidated statements of cash flows for the years ended December 31, 2013, 2012 and 2011 are outlined below.

	Years Ended December 31,
	2013			2012			2011
Operating activities	$	11,185,000		$	7,054,000		$	12,305,000
Investing activities	(3,039,000		)	(5,704,000		)	(7,135,000		)
Financing activities	(7,897,000		)	(1,274,000		)	(4,185,000		)
Net increase in cash and equivalents	$	249,000		$	76,000		$	985,000

Cash Flow from Operating Activities

Net cash provided by operating activities increased to approximately $11.2 million compared to approximately $7.1 million for the years ended December 31, 2013 and 2012, respectively.  The increase of approximately $4.1 million was primarily due to increased cash provided by results of operations of approximately $3.2 million, decreased cash - restricted of approximately $2.9 million, decreased accounts receivable of approximately $0.4 million and decreased cash used to satisfy other liabilities of approximately $0.4 million. This change was partially offset by decreased cash provided by other assets of approximately $1.1 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 $1.8 million. The remaining increases and decreases in cash were individually immaterial.

Net cash provided by operating activities decreased to approximately $7.1 million compared to approximately $12.3 million for the years ended December 31, 2012 and 2011, respectively.  The decrease of approximately $5.2 million was primarily due to decreased cash provided by other assets of approximately $1.7 million, primarily consisting of a decrease in cash received of approximately $2.0 million for payments of notes receivable issued in 2008 and 2011, partially offset by a decrease in cash used to satisfy prepaid expenses and prepaid insurance of approximately $0.3 million. The decrease in net cash provided was also due to increased cash used to satisfy accounts payable and accounts payable due to affiliates of approximately $1.6 million, increased restricted cash of approximately $1.5 million and decreased cash provided by results of operations of approximately $0.4 million.  The remaining increases and decreases in cash were individually immaterial.

Cash Flow from Investing Activities

Net cash used in investing activities decreased to approximately $3.0 million compared to approximately $5.7 million for the years ended December 31, 2013 and 2012, respectively.  The decrease of approximately $2.7 million was primarily due to decreased cash used to invest in our joint ventures with an unaffiliated third party of approximately $1.9 million and decreased cash used for additions to land, buildings and amenities of approximately $1.4 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.

Net cash used in investing activities decreased to approximately $5.7 million compared to approximately $7.1 million for the years ended December 31, 2012 and 2011, respectively.  The decrease of approximately $1.4 million was primarily due decreased cash used for additions to land, buildings and amenities of approximately $1.7 million, partially offset by increased cash used to invest in our joint ventures with an unaffiliated third party of approximately $0.3 million.  The remaining increases and decreases in cash were individually immaterial.

Cash Flow from Financing Activities

Net cash used in financing activities increased to approximately $7.9 million compared to approximately $1.3 million for the years ended December 31, 2013 and 2012, respectively.  The increase of approximately $6.6 million was primarily due to increased cash used to repay our revolving note payable, net of receipts, of approximately $3.9 million in 2013, decreased cash provided by our revolving note payable of approximately $5.1 million in 2012 and increased cash used for principal payments on our mortgages payable of approximately $1.0 million.  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.

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Net cash used in financing activities decreased to approximately $1.3 million compared to approximately $4.2 million for the years ended December 31, 2012 and 2011, respectively.  The decrease of approximately $2.9 million was primarily due to decreased principal payments on our mortgages payable of approximately $23.7 million, increased cash provided by our revolving note payable, net of receipts, of approximately $6.4 million, decreased cash used to retire Limited Partnership Units of approximately $1.4 million and decreased cash used for loan costs of approximately $0.5 million.  The decrease in net cash used was partially offset by decreased proceeds from our mortgages payable of approximately $24.7 million, decreased cash provided by contributions from noncontrolling interest holders of approximately $4.2 million and increased cash used for distributions to noncontrolling interest holders of approximately $0.2 million.  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 consolidated balance sheet, were approximately $1.5 million as of December 31, 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 $34.1 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 and refinance our $10.5 million mortgage payable that matures in the next twelve months, but can offer no assurance that we will be successful in doing so, or that favorable terms can be obtained.  As of December 31, 2013, our availability to draw on our revolving note payable was approximately $5.6 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.

We made quarterly distributions of $0.05 per unit to our limited partners of record on April 12, 2013, July 12, 2013, October 11, 2013, and January 15, 2014, respectively.  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 of operating working capital.  Each time we have previously paid a distribution, the funds were drawn from our revolving note payable.

Pursuant to leasing agreements signed by December 31, 2013, we are obligated to incur expenditures of approximately $0.1 million on our wholly-owned properties funded by borrowings on our debt during the next twelve months, primarily for renovations and tenant origination costs necessary to continue leasing our properties.  We are obligated to incur expenditures of approximately $0.3 million on our unconsolidated joint venture properties pursuant to our 49% ownership interest funded by borrowings on our debt during the next twelve months, primarily for renovations and tenant origination costs necessary to continue leasing our properties.  We expect to fund these expenditures by cash on hand, cash generated by operations or borrowings on our debt during the next twelve months.  This discussion of future liquidity details our material commitments. We anticipate repaying, seeking renewal of or refinancing our revolving note payable coming due in the next twelve months.

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

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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 2014.  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 December 31, 2013, we have funded approximately $0.6 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.

The above discussion concerning our future liquidity assumes that the merger will not be completed.

In connection with the going private transaction, it is expected that the funds necessary to consummate the merger pursuant to the Merger Agreement will be approximately $41.7 million, consisting of the payment of aggregate Merger Consideration as well as certain transaction fees and expenses.  At or prior to the effective time of the merger, Parent and Merger Sub, or their affiliates, will deposit with Wells Fargo Shareowner Services, as paying agent, the funds necessary to pay the aggregate Merger Consideration.  The paying agent will hold such consideration in trust pending disbursement as provided in the Merger Agreement.

The obligations of Parent and Merger Sub to consummate the merger are not subject to any financing conditions or contingencies.  Parent and Merger Sub expect that the funds necessary to consummate the merger and related transactions will be funded from a variety of sources, including available cash and various debt financings.

It is expected that up to $4 million, in cash, will be available from Messrs. Nichols and Lavin (or their affiliates).  Additionally, it is expected that approximately $6 to $10 million will be available as a result of NTS Realty increasing the maximum availability under its existing line of credit from $10 million to $16 million on substantially the same terms as currently provided to NTS Realty under the existing line of credit.  The exact amount of funds that may be drawn on the line of credit to pay Merger Consideration will depend upon the amount of loans outstanding under the increased line of credit at the time the Merger Consideration is to be delivered to the paying agent.  NTS Realty has not received a written commitment from the bank to increase the availability under the line of credit.

Further, it is expected that certain NTS Realty properties will be refinanced or further leveraged by loans from various lenders.  It is expected that these loans will provide up to $36 million in available cash.  The loans will be collateralized by mortgages on the respective properties.  The anticipated term of such loans is expected to be no less than seven years, and it is expected that the loans will be provided at rates of interest ranging from 4.2% to 5.75% per annum with 30-year amortization schedules.  Additionally, in connection with these loans, it is anticipated that Mr. Nichols may be required to issue certain personal guarantees pursuant to which Mr. Nichols would guaranty losses (if any) incurred by the lender(s) as a result of NTS Realty’s failure to perform certain covenants expected to be contained in the loan agreements.  Under such guarantees, in the event of an occurrence of certain covenant breaches, Mr. Nichols could be liable for the full value of the loan.

At the time of filing this Form 10-K, there are no written commitments or definitive loan documents evidencing any of the above financings.  Accordingly, actual terms of any financings may differ from those described above.  In additional, Parent, Merger Sub or their affiliates may obtain financing from different sources in amounts and on terms that may vary from those described herein.

Property Transactions

Acquisitions

During the years ended December 31, 2013, 2012 and 2011, we did not acquire any properties.

Dispositions

During the years ended December 31, 2013, 2012 and 2011 we did not dispose of any properties.

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

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RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2013 AS COMPARED TO DECEMBER 31, 2012

AS COMPARED TO DECEMBER 31, 2011

This section includes our actual results of operations for the years ended December 31, 2013, 2012 and 2011.  As of December 31, 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.

Net loss for the three years ended December 31, 2013, 2012 and 2011 was approximately $5.9 million, $12.0 million and $12.0 million, respectively. The change in net loss for the year ended December 31, 2013 as compared to 2012 was primarily due to a $4.0 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 in 2013 for landscaping and tree damage and a $0.4 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 in 2013 for landscaping and tree damage and a $0.6 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 ongoing litigation of approximately $1.4 million. There were no other material offsetting changes in net loss for the years ended December 31, 2013 and 2012.  There was no change in net loss for the year ended December 31, 2012 as compared to 2011. There was a $2.3 million increase in operating income across the multifamily segment, a $0.2 million decrease in net loss from our investments in tenants in common and a $0.2 million decrease in interest expense. This was partially offset by a $1.6 million increase in professional and administrative expenses and professional and administrative expenses reimbursed to affiliates, a $0.7 million decrease in interest and other income, a $0.2 million increase in net loss from our investments in joint ventures and a $0.2 million decrease in net loss attributable to noncontrolling interests.  There were no other material offsetting changes in net loss for the years ended December 31, 2012 and 2011.

Rental Income and Tenant Reimbursements

Rental income and tenant reimbursements for the years ended December 31, 2013 and 2012 were approximately $59.1 million and $57.3 million, respectively.  The increase of $1.8 million, or 3%, was primarily the result of a $1.8 million increase in rental income across the multifamily segment primarily related to an increase in the average monthly unit rental to $1,071 from $1,032 for the years ended December 31, 2013 and 2012, respectively.  There were no other material offsetting changes in rental income and tenant reimbursements for the years ended December 31, 2013 and 2012.

Rental income and tenant reimbursements for the years ended December 31, 2012 and 2011 were approximately $57.3 million and $54.6 million, respectively.  The increase of $2.7 million, or 5%, was primarily the result of a $2.8 million increase in rental income across the multifamily segment primarily related to an increase in the average monthly unit rental to $1,032 from $974 for the years ended December 31, 2012 and 2011, respectively. The increase was partially offset by a $0.1 million decrease in rental income and tenant reimbursements across the commercial segment primarily related to a decrease in average occupancy to 79% from 81% for the years ended December 31, 2012 and 2011, respectively.   There were no other material offsetting changes in rental income and tenant reimbursements for the years ended December 31, 2012 and 2011.

Operating Expenses and Operating Expenses Reimbursed to Affiliates

Operating expenses for the years ended December 31, 2013 and 2012 were approximately $14.1 million and $15.7 million, respectively.  The decrease of $1.6 million, or 10%, was primarily the result of a $1.3 million decrease in operating expenses across the multifamily segment primarily related to less repairs and decreased maintenance expense and a $0.2 million decrease in operating expenses across the commercial segment primarily related to less repairs and decreased maintenance expense. There were no other material offsetting changes in operating expenses for the years ended December 31, 2013 and 2012.

Operating expenses for the years ended December 31, 2012 and 2011 were approximately $15.7 million and $16.1 million, respectively.  The decrease of $0.4 million, or 2%, was primarily the result of a $0.2 million decrease in operating expenses across the commercial segment primarily related to less parking lot repair expense and a $0.2 million decrease in operating expenses across the multifamily segment primarily related to less repairs and maintenance expense. There were no other material offsetting changes in operating expenses for the years ended December 31, 2012 and 2011.

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Operating expenses reimbursed to affiliates for the years ended December 31, 2013 and 2012 were approximately $6.3 million and $6.2 million, respectively.  The increase of $0.1 million, or 2%, was primarily the result of a $0.1 million increase in operating expenses reimbursed to affiliates across the multifamily segment. There were no other material offsetting changes in operating expenses reimbursed to affiliates for the years ended December 31, 2013 and 2012.

Operating expenses reimbursed to affiliates for the years ended December 31, 2012 and 2011 were approximately $6.2 million and $6.0 million, respectively.  The increase of $0.2 million, or 3%, was primarily the result of a $0.2 million increase in operating expenses reimbursed to affiliates across the multifamily segment. There were no other material offsetting changes in operating expenses reimbursed to affiliates for the years ended December 31, 2012 and 2011.

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 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:

	Years Ended December 31,
	2013		2012		2011
Property	$	4,339,000	$	4,145,000	$	3,997,000
Multifamily leasing	778,000		811,000		776,000
Administrative	1,087,000		1,125,000		1,045,000
Other	76,000		151,000		216,000
Total	$	6,280,000	$	6,232,000	$	6,034,000

Management Fees

Management fees for the years ended December 31, 2013 and 2012 were approximately $3.0 million and $2.9 million, respectively.  The increase of $0.1 million, or 3%, was primarily the result of an increase in management fees across the multifamily segment primarily due to increased rental income and other income from a non-recurring settlement received in 2013 for landscaping and tree damage.  There were no other material offsetting changes in management fees for the years ended December 31, 2013 and 2012.

Management fees for the years ended December 31, 2012 and 2011 were approximately $2.9 million and $2.7 million, respectively.  The increase of $0.2 million, or 7%, was primarily the result of an increase in management fees across the multifamily segment primarily related to increased rental income. There were no other material offsetting changes in management fees for the years ended December 31, 2012 and 2011.

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 Federal Home Loan Mortgages Corporation, or 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

36

lower management fee for the properties we own as a tenant in common with unaffiliated third parties in exchange for a larger potential disposition fee.  Disposition fees of up to 6% of the gross sales price may be paid to NTS Development for the sale of one of our properties owned as a tenant in common with an unaffiliated third party.  Management fees are calculated as a percentage of cash collections and are recorded on the accrual basis.  As a result, the fluctuations in revenue between years will differ from the fluctuations of management fee expense.

Property Taxes and Insurance

Property taxes and insurance for the years ended December 31, 2013 and 2012 were approximately $8.1 million and $7.6 million, respectively.  The increase of $0.5 million, or 7%, was primarily the result of increases of approximately $0.4 million and $0.1 million in property taxes and insurance across the multifamily and commercial segments, respectively.  There were no other material offsetting changes in property taxes and insurance for the years ended December 31, 2013 and 2012.

Property taxes and insurance for the years ended December 31, 2012 and 2011 were approximately $7.6 million and $6.7 million, respectively.  The increase of $0.9 million, or 13%, was primarily due to an increase of $0.8 million in property taxes across the multifamily segment.  There were no other material offsetting changes in property taxes and insurance for the years ended December 31, 2012 and 2011.

Professional and Administrative Expenses and Professional and Administrative Expenses Reimbursed to Affiliates

Professional and administrative expenses for the years ended December 31, 2013 and 2012 were approximately $3.3 million and $2.3 million, respectively.  The increase of $1.0 million, or 43%, was primarily the result of increased legal and professional fees primarily due to ongoing litigation, which was partially offset by decreased deferred compensation expense due to decreased unit prices in 2013.  There were no other material offsetting changes in professional and administrative expenses for the years ended December 31, 2013 and 2012.

Professional and administrative expenses for the years ended December 31, 2012 and 2011 were approximately $2.3 million and $0.9 million, respectively.  The increase of $1.4 million was primarily the result of increased legal and professional fees primarily due to the going private proposal and increased deferred compensation expense primarily due to increased unit prices.  There were no other material offsetting changes in professional and administrative expenses for the years ended December 31, 2012 and 2011.

Professional and administrative expenses reimbursed to affiliates for the years ended December 31, 2013 and 2012 were approximately $2.0 million and $1.9 million, respectively. The increase of $0.1 million, or 5%, was primarily due to increased personnel cost and compensation reimbursed to NTS Development Company.  There were no other material offsetting changes in professional and administrative expenses reimbursed to affiliates for the years ended December 31, 2013 and 2012.

Professional and administrative expenses reimbursed to affiliates for the years ended December 31, 2012 and 2011 were approximately $1.9 million and $1.6 million, respectively.  The increase of $0.3 million, or 19%, was primarily due to increased personnel cost and compensation reimbursed to NTS Development Company.  There were no material offsetting changes in professional and administrative expenses reimbursed to affiliates for the years ended December 31, 2012 and 2011.

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 consolidated statements of operations as professional and administrative expenses reimbursed to affiliates.  The services provided by others are classified as professional and administrative expenses.

Professional and administrative expenses reimbursed to affiliates are for the services performed by employees of NTS Development, an affiliate of our general partner.  These employee services include legal, financial and other services necessary to manage and operate our business.

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

	Years Ended December 31,
	2013		2012		2011
Finance	$	537,000	$	495,000	$	411,000
Accounting	759,000		763,000		724,000
Investor relations	347,000		327,000		266,000
Human resources	20,000		23,000		21,000
Overhead	290,000		262,000		216,000
Total	$	1,953,000	$	1,870,000	$	1,638,000

Depreciation and Amortization

Depreciation and amortization for the years ended December 31, 2013 and 2012 was approximately $16.2 million and $17.8 million, respectively.  The decrease of $1.6 million, or 9%, was primarily the result of decreases of approximately $1.5 million and $0.1 million in depreciation and amortization across the multifamily and commercial segments, respectively.  There were no other material offsetting changes in depreciation and amortization for the years ended December 31, 2013 and 2012.

Depreciation and amortization for the years ended December 31, 2012 and 2011 was approximately $17.8 million and $18.2 million, respectively.  The decrease of $0.4 million, or 2%, was primarily due to a decrease in depreciation and amortization of approximately $0.5 million spread across the multifamily segment partially offset by an increase in depreciation and amortization of approximately $0.1 million spread across the commercial segment.  There were no other material offsetting changes in depreciation and amortization for the years ended December 31, 2012 and 2011.

Interest and Other Income

Interest and other income for the years ended December 31, 2013 and 2012 was approximately $1.6 million and $0.1 million, respectively.  The increase of $1.5 million was primarily due to an approximately $1.6 million non-recurring settlement received in 2013 for landscaping and tree damage.  There were no other material offsetting changes in interest and other income for the years ended December 31, 2013 and 2012.

Interest and other income for the years ended December 31, 2012 and 2011 was approximately $0.1 million and $0.8 million, respectively.  The decrease of $0.7 million, or 88%, was primarily the result of a decrease in interest income earned on our notes receivable.  There were no other material offsetting changes in interest and other income for the years ended December 31, 2012 and 2011.

Interest Expense

Interest expense for the years ended December 31, 2013 and 2012 was approximately $13.7 million and $14.0 million, respectively.  The decrease of $0.3 million, or 2%, was primarily the result of a decrease in interest expense in our multifamily segment.  There were no other material offsetting changes in interest expense for the years ended December 31, 2013 and 2012.

Interest expense for the years ended December 31, 2012 and 2011 was approximately $14.0 million and $14.1 million, respectively.  The decrease of $0.1 million, or 1%, was primarily the result of a decrease in interest expense in our multifamily segment.  There were no other material offsetting changes in interest expense for the years ended December 31, 2012 and 2011.

Loss on Disposal of Assets

The loss on disposal of assets for the years ended December 31, 2013, 2012 and 2011 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 years ended December 31, 2013, 2012 and 2011 includes net operating losses attributable to our investments in joint ventures with an unaffiliated third party.  The properties

38

are 600 North Hurstbourne and 700 North Hurstbourne. We anticipate construction on 700 North Hurstbourne to be completed in 2014. There were no other material offsetting changes in loss from investments in joint ventures for the years ended December 31, 2013, 2012 and 2011.

Loss From Investments in Tenants in Common

Loss from investments in tenants in common for the years ended December 31, 2013, 2012 and 2011 includes net operating losses attributable to our investments in tenants in common with unaffiliated third parties.  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 the years ended December 31, 2013 and 2012 was approximately $0.2 million and $1.7 million, respectively.  The decrease of $1.5 million, or 88%, was primarily due to an approximately $0.8 million non-recurring settlement received in 2013 for landscaping and tree damage and an approximately $0.6 million increase in operating income.  There were no other material offsetting changes in loss from investments in tenants in common for the years ended December 31, 2013 and 2012.  Loss from investments in tenants in common for the years ended December 31, 2012 and 2011 was approximately $1.7 million and $1.8 million, respectively.  The decrease of $0.1 million, or 6%, was primarily due to an approximately $0.2 million increase in operating income.  There were no other material offsetting changes in loss from investments in tenants in common for the years ended December 31, 2012 and 2011.

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 consolidated balance sheets at December 31, 2013 and 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 consolidated balance sheet at December 31, 2012. During the year ended December 31, 2013, we made a capital contribution to Creek’s Edge at Stony Point Apartments and recorded the resulting asset balance on our consolidated balance sheet at December 31, 2013.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Impact of Inflation

Most of our commercial and retail tenant leases require payment of their share of a building’s operating expenses. Certain commercial and retail tenant leases are subject to a floor or cap on their share of controllable operation expenses.  These factors limit the impact of inflation on our operations.

Contractual Obligations and Commercial Commitments

The following table represents our obligations and commitments to make future payments as of December 31, 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		WithinOne Year		One-ThreeYears		Three-FiveYears		After FiveYears
Contractual Obligations
Mortgages and notes payable	$	318,126,702	$	51,022,013	$	52,387,481	$	73,179,791	$	141,537,417
Capital lease obligations	-		-		-		-		-
Operating leases (1)	-		-		-		-		-
Other long-term obligations (2)	-		-		-		-		-
Total contractual cash obligations	$	318,126,702	$	51,022,013	$	52,387,481	$	73,179,791	$	141,537,417

(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.

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ITEM 7A — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our primary market risk exposure with regard to financial instruments is expected to be our exposure to changes in interest rates.  We have financed substantially all of our debt with instruments which bear interest at a fixed rate, with the exception of approximately $46.7 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 December 31, 2013 was 3.4%.

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ITEM 8 — CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Independent Registered Public Accounting Firm

Board of Directors
NTS Realty Capital, Inc., Managing General Partner of

NTS Realty Holdings Limited Partnership

Louisville, KY

We have audited the accompanying consolidated balance sheets of NTS Realty Holdings Limited Partnership (Partnership) as of December 31, 2013 and 2012, and the related consolidated statements of operations, equity and cash flows for each of the years in the three-year period ended December 31, 2013.  The Partnership’s management is responsible for these financial statements.  Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Partnership is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing auditing procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership’s internal control over financial reporting.  Accordingly, we express no such opinion.  Our audits also included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management and evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Partnership as of December 31, 2013 and 2012, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2013, in conformity with accounting principles generally accepted in the United States of America.

/s/ BKD, LLP

Louisville, Kentucky

March 14, 2014

41

NTS REALTY HOLDINGS LIMITED PARTNERSHIP

Consolidated Balance Sheets as of December 31, 2013 and 2012

	2013		2012
ASSETS:
Cash and equivalents	$	1,490,010	$	1,240,818
Cash and equivalents — restricted	2,703,961		4,021,586
Accounts receivable, net of allowance for doubtful accounts of $153,736and $81,163 at December 31, 2013 and 2012, respectively	1,437,412		1,770,696
Land, buildings and amenities, net	270,830,835		285,383,595
Investments in and advances to joint ventures	2,110,320		4,977,948
Investments in and advances to tenants in common	165,255		-
Other assets	3,847,677		4,169,736
Total assets	$	282,585,470	$	301,564,379
LIABILITIES:
Mortgages and notes payable	$	255,807,228	$	264,772,316
Accounts payable and accrued expenses	3,480,253		4,931,794
Accounts payable and accrued expenses due to affiliates	357,312		336,688
Distributions payable	554,764		554,764
Security deposits	992,378		932,978
Other liabilities	4,868,424		4,399,016
Investments in and advances to tenants in common	1,856,682		1,806,948
Total liabilities	267,917,041		277,734,504
COMMITMENTS AND CONTINGENCIES (NOTE 10)
EQUITY:
Partners’ equity	9,965,884		18,093,842
Noncontrolling interests	4,702,545		5,736,033
Total equity	14,668,429		23,829,875
Total liabilities and equity	$	282,585,470	$	301,564,379

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

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NTS REALTY HOLDINGS LIMITED PARTNERSHIP

Consolidated Statements of Operations for the Years Ended December 31, 2013, 2012 and 2011

	2013			2012			2011
REVENUE:
Rental income	$	57,263,675		$	55,437,445		$	52,823,586
Tenant reimbursements	1,814,296			1,828,857			1,811,459
Total revenue	59,077,971			57,266,302			54,635,045
EXPENSES:
Operating expenses	14,147,459			15,654,982			16,055,315
Operating expenses reimbursed to affiliates	6,280,409			6,231,793			6,034,217
Management fees	3,043,878			2,855,911			2,725,479
Property taxes and insurance	8,124,677			7,557,006			6,735,437
Professional and administrative expenses	3,291,783			2,286,045			940,562
Professional and administrative expenses reimbursed to affiliates	1,952,664			1,869,548			1,637,819
Depreciation and amortization	16,238,553			17,808,970			18,246,506
Total expenses	53,079,423			54,264,255			52,375,335
OPERATING INCOME	5,998,548			3,002,047			2,259,710
Interest and other income	1,635,770			100,238			784,798
Interest expense	(13,711,252		)	(13,999,712		)	(14,145,721		)
Loss on disposal of assets	(117,169		)	(230,784		)	(186,770		)
Loss from investments in joint ventures	(136,834		)	(173,430		)	(3,163		)
Loss from investments in tenants in common	(205,479		)	(1,663,916		)	(1,846,169		)
CONSOLIDATED NET LOSS	(6,536,416		)	(12,965,557		)	(13,137,315		)
Net loss attributable to noncontrolling interests	(627,513		)	(943,028		)	(1,100,956		)
NET LOSS	$	(5,908,903	)	$	(12,022,529	)	$	(12,036,359	)
Loss allocated to limited partners	$	(6,115,497	)	$	(12,130,628	)	$	(12,299,867	)
Net loss attributable to noncontrolling interests allocated to limited partners	(587,104		)	(882,301		)	(1,030,542		)
NET LOSS ALLOCATED TO LIMITED PARTNERS	$	(5,528,393	)	$	(11,248,327	)	$	(11,269,325	)
Loss per limited partnership unit	$	(0.59	)	$	(1.17	)	$	(1.17	)
Net loss attributable to noncontrolling interests per limited partnership unit	(0.06		)	(0.09		)	(0.10		)
NET LOSS PER LIMITED PARTNERSHIP UNIT	$	(0.53	)	$	(1.08	)	$	(1.07	)
Weighted average number of limited partners’ interests	10,380,783			10,380,783			10,493,413

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

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NTS REALTY HOLDINGS LIMITED PARTNERSHIP

Consolidated Statements of Cash Flows for the Years Ended December 31, 2013, 2012 and 2011

	2013			2012			2011
OPERATING ACTIVITIES:
Consolidated net loss	$	(6,536,416	)	$	(12,965,557	)	$	(13,137,315	)
Adjustments to reconcile consolidated net loss to net cash providedby operating activities:
Loss on disposal of assets	117,169			230,784			186,770
Depreciation and amortization	16,943,888			18,533,229			19,131,922
Loss from investments in joint ventures	136,834			173,430			3,163
Loss from investments in tenants in common	205,479			1,663,916			1,846,169
Changes in assets and liabilities:
Cash and equivalents — restricted	1,317,625			(1,599,978		)	(149,010		)
Accounts receivable	333,284			(58,306		)	(153,403		)
Other assets	(431,247		)	635,004			2,376,553
Accounts payable and accrued expenses	(1,451,541		)	356,292			1,856,590
Accounts payable and accrued expenses due to affiliates	20,624			(36,246		)	72,122
Security deposits	59,400			(3,826		)	24,988
Other liabilities	469,408			125,559			246,708
Net cash provided by operating activities	11,184,507			7,054,301			12,305,257
INVESTING ACTIVITIES:
Additions to land, buildings and amenities	(1,727,320		)	(3,147,423		)	(4,829,961		)
Investments in joint ventures	(699,206		)	(2,556,499		)	(2,305,449		)
Investments in tenants in common	(612,000		)	-			-
Net cash used in investing activities	(3,038,526		)	(5,703,922		)	(7,135,410		)
FINANCING ACTIVITIES:
Contributions from noncontrolling interest holders	-			-			4,216,750
Distributions to noncontrolling interest holders	(405,975		)	(398,000		)	(245,000		)
Distributions from joint ventures	3,430,000			-			-
Distributions from tenants in common	291,000			180,000			240,000
Retirement of Limited Partnership Units	-			-			(1,356,059		)
Proceeds from mortgages payable	-			105,951			24,805,960
Revolving notes payable, net	(3,859,097		)	5,142,083			(1,300,017		)
Principal payments on mortgages payable	(4,505,991		)	(4,060,677		)	(3,291,860		)
Additional payments on mortgages payable	(600,000		)	-			(24,500,000		)
Additions to loan costs	(27,671		)	(25,000		)	(506,934		)
Cash distributions	(2,219,055		)	(2,219,055		)	(2,247,603		)
Net cash used in financing activities	(7,896,789		)	(1,274,698		)	(4,184,763		)
NET INCREASE IN CASH AND EQUIVALENTS	249,192			75,681			985,084
CASH AND EQUIVALENTS, beginning of year	1,240,818			1,165,137			180,053
CASH AND EQUIVALENTS, end of year	$	1,490,010		$	1,240,818		$	1,165,137
Interest paid	$	13,380,805		$	13,647,833		$	13,566,892

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

44

NTS REALTY HOLDINGS LIMITED PARTNERSHIP

Consolidated Statements of Equity (1) for the Years Ended December 31, 2013, 2012 and 2011

	GeneralPartnerInterests	LimitedPartners’Interests		GeneralPartner			LimitedPartners			Noncontrolling Interests			Total
EQUITY:
Balances on January 1, 2011	714,491	10,666,269		$	3,010,673		$	44,950,500		$	4,206,267		$	52,167,440
Net loss	-	-		(767,034		)	(11,269,325		)	(1,100,956		)	(13,137,315		)
Retirement of Limited Partnership Units	-	(285,486	)	-			(1,356,059		)	-			(1,356,059		)
Distributions declared	-	-		(142,898		)	(2,090,431		)	-			(2,233,329		)
Contributions/distributions, net fromnoncontrolling interests	-	-		-			-			3,971,750			3,971,750
Balances on December 31, 2011	714,491	10,380,783		$	2,100,741		$	30,234,685		$	7,077,061		$	39,412,487
Net loss	-	-		(774,202		)	(11,248,327		)	(943,028		)	(12,965,557		)
Distributions declared	-	-		(142,898		)	(2,076,157		)	-			(2,219,055		)
Contributions/distributions, net fromnoncontrolling interests	-	-		-			-			(398,000		)	(398,000		)
Balances on December 31, 2012	714,491	10,380,783		$	1,183,641		$	16,910,201		$	5,736,033		$	23,829,875
Net loss	-	-		(380,510		)	(5,528,393		)	(627,513		)	(6,536,416		)
Distributions declared	-	-		(142,898		)	(2,076,157		)	-			(2,219,055		)
Contributions/distributions, net fromnoncontrolling interests	-	-		-			-			(405,975		)	(405,975		)
Balances on December 31, 2013	714,491	10,380,783		$	660,233		$	9,305,651		$	4,702,545		$	14,668,429

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

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

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NTS REALTY HOLDINGS LIMITED PARTNERSHIP

Notes to Consolidated Financial Statements

Note 1 - Organization

NTS Realty Holdings Limited Partnership (“NTS Realty”), is a limited partnership, organized in the state of Delaware in 2003 and was formed by a merger on December 28, 2004.

We are in the business of developing, constructing, owning and operating multifamily properties, commercial and retail real estate.  As of December 31, 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.  We own multifamily properties containing 4,393 rental units, which includes 686 rental units at our properties held as a tenant in common with unaffiliated third parties.  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.

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 with both affiliated and unaffiliated third parties or interests in properties held as a tenant in common with unaffiliated third parties.

Note 2 - Significant Accounting Policies

A) Basis of Presentation

The 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.  We consolidate a variable interest entity, or 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.  Effective January 1, 2010, we adopted the provisions of Accounting Standards Update No. 2009-17 Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities (“ASU 2009-17”), which amends the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810, Consolidation (“FASB ASC Topic 810”).  The amendment to FASB ASC Topic 810 revises the consolidation guidance for VIEs, focusing on a qualitative evaluation of the conditions subjecting the entity to consolidation.  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 year ended December 31, 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 consolidated balance sheets as of December 31, 2013 and 2012.

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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 2014. The building will be managed by an affiliate of NTS Development Company. We are obligated to contribute $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 December 31, 2013, we had funded approximately $0.6 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 consolidated balance sheets as of December 31, 2013 and 2012.

B) 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 December 31, 2013 or 2012.

C) 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 December 31, 2013 and 2012 reflected liabilities of approximately $1.1 million and $0.9 million, respectively, the fair market value of 154,273 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 years ended December 31, 2013, 2012 and 2011 totaled approximately $188,600, $576,600 and $87,300, respectively.

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Mortgages and notes payable: As of December 31, 2013 and 2012, we determined the estimated fair values of our mortgages and notes payable using Level 2 measurement were approximately $267.1 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.

D) Recent Accounting Pronouncements

In May 2011, the FASB issued Accounting Standards Update No. 2011-04 Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (Topic 820) — Fair Value Measurement (“ASU 2011-04”), to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. generally accepted accounting principles (“GAAP”) and International Financial Reporting Standards.  ASU 2011-04 changes certain fair value measurement principles and enhances the disclosure requirements particularly for Level 3 fair value measurements.  ASU 2011-04 is effective for interim and annual reporting periods after December 31, 2011.  ASU 2011-04 concerns disclosure only and did not have a material impact on our financial position or results of operations.

E) Tax Status

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

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

	Year EndedDecember 31,
	2013			2012
Net loss	$	(5,908,903	)	$	(12,022,529	)
Items treated differently for tax purposes:
Depreciation and amortization	6,567,163			7,291,263
Prepaid rent and other capitalized costs	(26,171		)	254,180
Gain (loss) on sale/disposition of assets	44,858			100,350
Acquisition costs	(36,564		)	(36,564		)
Joint venture gain (loss)	78,543			(2,131,236		)
Change in accounting method	-			141,148
Other	276,248			(124,478		)
Taxable income (loss)	$	995,174		$	(6,527,866	)

F) 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.

G) Cash and Equivalents

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

H) Cash and Equivalents - Restricted

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

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I) Basis of Property and Depreciation

Land, buildings and amenities are stated at cost.  Costs directly associated with the acquisition, development and construction of a project are capitalized.  Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which are generally 5-30 years for land improvements, 7-30 years for buildings and improvements and 5-30 years for amenities.  Tenant improvements are generally depreciated over the life of the initial or renewal term of the respective tenant lease.  The aggregate cost of our wholly-owned properties for federal tax purposes is approximately $222.0 million at December 31, 2013.  The aggregate cost of our consolidated joint venture properties for federal tax purposes is approximately $70.3 million at December 31, 2013.  The aggregate cost of our unconsolidated investments in tenants in common properties for federal tax purposes is approximately $27.8 million at December 31, 2013.  The aggregate cost of our unconsolidated joint venture property, 600 North Hurstbourne, for federal tax purposes is approximately $17.6 million at December 31, 2013.

Depreciation expense for the years ended December 31, 2013, 2012 and 2011 was approximately as follows:

	Year Ended December 31,
	2013		2012		2011
NTS Realty	$	16,200,000	$	17,800,000	$	17,900,000

J) Business Combinations and 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.

K) Impairment of Long — Lived Assets

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 years ended December 31, 2013, 2012 and 2011, did not result in an impairment loss.

L) Accounts Payable and Accrued Expenses Due to Affiliates

Accounts payable and accrued expenses due to affiliates include amounts owed to NTS Development Company and/or its affiliate, NTS Management Company (collectively referred to as “NTS Development”), for

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reimbursement of salary and overhead expenses and fees for services rendered as provided for in our various management agreements.

M) Revenue Recognition

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

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

We recognize revenue in accordance with each tenant’s lease agreement.  Certain of our lease agreements are structured to include scheduled and specified rent increases over the lease term.  For financial reporting purposes, the income from these leases are recognized on a straight-line basis over the initial lease term.  Accrued income from these leases in accounts receivable was approximately $1.3 million for each of the years ended December 31, 2013, 2012 and 2011.  All commissions paid to commercial leasing agents and incentives paid to tenants are deferred and amortized on a straight-line basis over the applicable initial or renewal lease term.

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

N) Advertising

We expense advertising costs as incurred.  Advertising expense was immaterial to us during 2013, 2012 and 2011.

O) Distribution Policy

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, commencing in the first quarter of 2005, 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.

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Note 3 - Concentration of Credit Risk

We own and operate through wholly-owned subsidiaries, as a tenant in common with unaffiliated third parties or through joint venture investments with both affiliated and unaffiliated third parties, multifamily, commercial and retail properties in Louisville and Lexington, Kentucky; Fort Lauderdale and Orlando, Florida; Indianapolis, Indiana; Memphis and Nashville, Tennessee; Richmond, Virginia; and Atlanta, Georgia.

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

Note 4 - Land, Buildings and Amenities

The following schedule provides an analysis of our investment in land, buildings and amenities as of December 31:

	2013			2012
Land and improvements	$	84,699,720		$	84,251,232
Buildings and improvements	283,384,272			282,487,041
Amenities	30,446,906			30,323,958
Total land, buildings and amenities	398,530,898			397,062,231
Less accumulated depreciation	(127,700,063		)	(111,678,636		)
Total land, buildings and amenities, net	$	270,830,835		$	285,383,595

Note 5 - Investments in and Advances to Joint Ventures

We own a joint venture interest in and operate the following properties:

·600 North Hurstbourne: Approximately 125,000 square foot office building in Louisville, Kentucky. We own a 49% interest as a joint venture with an unaffiliated third party.

·700 North Hurstbourne: Office building under construction in Louisville, Kentucky.  We are obligated to contribute approximately $2.6 million for a 49% ownership interest as a joint venture with an unaffiliated third party.  At December 31, 2013, we had funded approximately $0.6  million of this commitment.

Presented below are the summarized balance sheets and statements of operations for the years ended December 31, 2013 and 2012 for these properties:

	2013		2012
Summarized Balance Sheets
Land, buildings and amenities, net	$	23,003,844	$	16,381,730
Other, net	4,635,395		3,364,752
Total assets	$	27,639,239	$	19,746,482
Mortgages payable and other liabilities	$	23,332,463	$	9,587,404
Equity	4,306,776		10,159,078
Total liabilities and equity	$	27,639,239	$	19,746,482

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	2013			2012
Summarized Statements of Operations
Revenue	$	2,485,574		$	1,411,887
Operating income (loss)	$	176,395		$	(157,812	)
Net loss	$	(279,252	)	$	(353,939	)
Net loss attributable to investments in joint ventures	$	(136,834	)	$	(173,430	)
Contributions
600 North Hurstbourne	$	371,950		$	5,052,245
700 North Hurstbourne	$	1,055,000		$	165,100
Distributions
600 North Hurstbourne	$	7,000,000		$	-
700 North Hurstbourne	$	-		$	-

We made contributions of approximately $0.7 million and $2.6 million to our joint venture properties for the years ended December 31, 2013 and 2012, respectively.

We received distributions of approximately $3.4 million from our joint venture properties for the year ended December 31, 2013.  We did not receive any distributions from our joint venture properties for the year ended December 31, 2012.

Note 6 - Investments in and Advances to Tenants in Common

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

·The Overlook at St. Thomas 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.

Presented below are the summarized balance sheets and statements of operations for the years ended December 31, 2013 and 2012 for these properties:

	2013			2012
Summarized Balance Sheets
Land, buildings and amenities, net	$	50,289,190		$	53,388,802
Other, net	2,214,871			1,036,366
Total assets	$	52,504,061		$	54,425,168
Mortgages payable and other liabilities	$	53,425,773		$	55,597,106
Equity	(921,712		)	(1,171,938		)
Total liabilities and equity	$	52,504,061		$	54,425,168

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	2013			2012
Summarized Statements of Operations
Revenue	$	10,182,674		$	9,489,901
Operating income	$	1,441,228		$	317,863
Net loss	$	(449,774	)	$	(2,990,154	)
Net loss attributable to investments in tenants in common	$	(205,479	)	$	(1,663,916	)
Contributions
The Overlook at St. Thomas Apartments	$	-		$	-
Creek’s Edge at Stony Point Apartments	$	1,200,000		$	-
Distributions
The Overlook at St. Thomas Apartments	$	400,000		$	300,000
Creek’s Edge at Stony Point Apartments	$	100,000		$	-

We made contributions of approximately $0.6 million to our tenants in common properties for the year ended December 31, 2013.  We did not make any contributions to our tenants in common properties for the year ended December 31, 2012.

We received distributions of approximately $0.3 million and $0.2 million from our tenants in common properties for the years ended December 31, 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 consolidated balance sheets at December 31, 2013 and 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 consolidated balance sheet at December 31, 2012. During the year ended December 31, 2013, we made a capital contribution to Creek’s Edge at Stony Point Apartments and recorded the resulting asset balance on our consolidated balance sheet at December 31, 2013.

Note 7 - Mortgages and Notes Payable

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

	2013		2012
Revolving note payable to a bank for $10.0 million, with interest payable in monthlyinstallments at a variable rate based on LIBOR one-month rate plus 2.50%, currently2.67%, due September 30, 2014	$	4,425,117	$	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	-		105,951
Mortgage payable to a bank in monthly installments of principal and interest, bearinginterest at a variable rate based on LIBOR one-month rate plus 3.50%, currently3.67%, due September 1, 2014, secured by certain land, buildings and amenitieswith carrying value of $15,555,073. The mortgage is guaranteed by Mr. Nichols andMr. Lavin	19,164,602		20,196,602
Mortgage payable to an insurance company in monthly installments of principal andinterest, bearing fixed interest at 8.45%, maturing November 1, 2015, secured bycertain land, buildings and amenities with a carrying value of $1,586,262	768,881		1,123,399
Mortgage payable to Federal Home Loan Mortgage Corporation in monthly installmentsof 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 $9,545,816	10,498,507		10,737,113
Mortgage payable to a bank in monthly installments of principal and interest, bearingfixed interest at 6.03%, maturing September 1, 2018, secured by certain land, buildingsand amenities with a carrying value of $28,084,178	25,632,035		25,954,857

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	2013		2012
Mortgage payable to Federal Home Loan Mortgage Corporation in monthly installmentsof principal and interest, bearing interest at a variable rate based on LIBOR one-monthrate plus 3.33%, currently 3.50%, maturing July 1, 2016, secured by certain land,buildings and amenities with a carrying value of $15,078,034	13,954,358		14,241,632
Mortgage payable to Federal Home Loan Mortgage Corporation in monthly installmentsof principal and interest, bearing interest at a variable rate based on LIBOR one-monthrate plus 3.50%, currently 3.67%, maturing July 1, 2016, secured by certain land,buildings and amenities with a carrying value of $9,869,762	9,172,853		9,356,127
Mortgage payable to Federal Home Loan Mortgage Corporation in monthly installmentsof 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 $17,177,775	13,130,689		13,341,798
Mortgage payable to Federal Home Loan Mortgage Corporation in monthly installmentsof 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 $31,213,938	25,514,833		25,925,048
Mortgage payable to Federal Home Loan Mortgage Corporation in monthly installmentsof 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 $16,325,527	15,918,421		16,174,350
Mortgage payable to Federal Home Loan Mortgage Corporation in monthly installmentsof 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 $30,076,096	26,152,704		26,573,174
Mortgage payable to Federal Home Loan Mortgage Corporation in monthly installmentsof 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 $14,825,920	10,763,479		10,936,529
Mortgage payable to Federal Home Loan Mortgage Corporation in monthly installmentsof 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 $19,555,935	28,940,435		29,405,726
Mortgage payable to Federal Home Loan Mortgage Corporation in monthly installmentsof 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 $8,570,222	10,342,957		10,509,246
Mortgage payable to Federal Home Loan Mortgage Corporation in monthly installmentsof principal and interest, bearing fixed interest at 5.40%, maturing January1, 2020, secured by certain land, buildings and amenities with a carrying value of$11,367,555	16,934,289		17,206,550
Mortgage payable to an insurance company with interest payable in monthlyinstallments until June 1, 2013, thereafter payable in monthly installments of principaland interest, bearing fixed interest at 5.09%, maturing May 1, 2018, secured by certainland, buildings and amenities with a carrying value of $31,133,019	24,493,068		24,700,000
Total mortgages and notes payable	$	255,807,228	$	264,772,316

Our $10.0 million revolving note payable to a bank is due September 30, 2014.  As of December 31, 2013, our availability to draw on our revolving note payable was approximately $5.6 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 December 31, 2013 was approximately $267.1 million, which was determined using Level 2 measurement.

Interest paid for the years ended December 31, 2013 and 2012, was approximately $13.4 million and $13.6 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 December 31, 2013.  We anticipate renewing or refinancing our mortgages and notes payable coming due within the next twelve months.

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Scheduled maturities of debt are as follows:

For the Years Ended December 31,	Amount
2014	$	38,184,730
2015	4,293,689
2016	25,695,495
2017	3,795,030
2018	50,144,754
Thereafter	133,693,530
	$	255,807,228

Mortgages payable for our unconsolidated joint venture properties as of December 31 consist of the following:

	2013		2012
Construction mortgage payable to a bank for $10.5 million with interest payable in monthlyinstallments, bearing interest at a variable rate based on LIBOR one-month rate plus 2.40%,currently 2.61%, maturing December 14, 2014, paid off in 2013	$	-	$	9,032,551
Mortgage payable to a life insurance company in monthly installments of principal andinterest, bearing fixed interest at 4.35%, maturing September 1, 2028, securedby certain buildings and amenities with a carrying value of $16,300,121 (1)	$	17,181,941	$	-
Construction mortgage payable to a bank for $16.5 million with interest payable inmonthly installments, bearing interest at a variable rate based on LIBOR one-monthrate plus 2.40%, currently 2.58%, maturing July 1, 2017, secured by certain buildingsand amenities under construction (2)	$	3,208,483	$	-

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

(2)   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 December 31, 2013 was approximately $19.6 million, which was determined using Level 2 measurement.

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

	2013		2012
Mortgage payable to a bank in monthly installments of principal and interest, bearing fixedinterest at 5.72%, maturing April 11, 2017, secured by certain land, buildings and amenitieswith a carrying value of $29,467,091 (3)	$	32,569,610	$	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 $20,822,100 (4) .	$	20,309,423	$	21,830,408

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

(4)   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 December 31, 2013 was approximately $58.4 million, which was determined using Level 2 measurement.  See also “Note 15 - Subsequent Events”.

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Note 8 - Rental Income

NTS Realty

The following is a schedule of minimum future rental income on noncancellable operating leases as of December 31, 2013:

For the Years Ended December 31,	Amount
2014	$	5,694,128
2015	4,454,134
2016	3,814,391
2017	3,149,269
2018	2,523,554
Thereafter	3,469,713
	$	23,105,189

Note 9 - 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 unaffiliated third parties 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 consolidated statements of operations as professional and administrative expenses reimbursed to affiliates.

We were charged the following amounts pursuant to our various agreements with NTS Development for the years ended December 31, 2013, 2012 and 2011.  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.

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	Years Ended December 31,
	2013		2012		2011
Property management fees	$	3,044,000	$	2,856,000	$	2,725,000
Operating expenses reimbursement — property	4,339,000		4,145,000		3,997,000
Operating expenses reimbursement — multifamily leasing	778,000		811,000		776,000
Operating expenses reimbursement — administrative	1,087,000		1,125,000		1,045,000
Operating expenses reimbursement — other	76,000		151,000		216,000
Total operating expenses reimbursed to affiliates	6,280,000		6,232,000		6,034,000
Professional and administrative expenses reimbursed to affiliates	1,953,000		1,870,000		1,638,000
Construction supervision and leasing fees	194,000		176,000		208,000
Total related party transactions	$	11,471,000	$	11,134,000	$	10,605,000
Total related party transactions with our investments intenants in common	$	1,458,000	$	1,458,000	$	1,295,000
Total related party transactions with our investments in jointventures (1)	$	713,000	$	599,000	$	585,000

(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 years ended December 31, 2013, 2012 and 2011, we were charged approximately $97,000, $68,000 and $77,000, respectively, for property maintenance fees from affiliates of NTS Development.

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 December 31, 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 $10,000, $134,000 and $306,000 from NTS Development Company for the years ended December 31, 2013, 2012 and 2011, respectively.

Our unconsolidated joint venture, Campus One, LLC, recognized rents of approximately $394,000 and $230,000 from NTS Development Company for the years ended December 31, 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.  See also “Note 15 - Subsequent Events”.

Note 10 - 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

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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 a class action lawsuit captioned, Stephen Dannis, et al. v. J.D. Nichols, et al., Case No. 13-CI-00452 (the “Kentucky Action”), was filed on January 25, 2013 in Jefferson County Circuit Court of the Commonwealth of Kentucky (the “Court”) against us, each of the members of the board of directors of NTS Realty Capital, NTS Realty Capital, NTS Realty Partners, LLC, NTS Merger Parent, LLC (“Parent”) and NTS Merger Sub, LLC (“Merger Sub”), a subsidiary of Parent, alleging, among other things, that the board of directors of NTS Realty Capital breached fiduciary duties to our Unitholders in connection with the board’s approval of that certain Original Merger Agreement dated as of December 27, 2012 by and among NTS Realty, NTS Realty Capital, Parent and Merger Sub.

On February 12, 2013, we received notice that another class action lawsuit captioned, R. Jay Tejera v. NTS Realty Holdings LP et al., Civil Action No. 8302-VCP, 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 fiduciary duties to our Unitholders in connection with the board’s approval of the Original Merger Agreement. The complaint seeks, among other things, money damages.

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 fiduciary duties to our Unitholders in connection with the board’s approval of the Original Merger Agreement. The complaint seeks, among other things, to enjoin the defendants from completing the merger as contemplated by the Original Merger Agreement.

On March 19, 2013, the Delaware Court consolidated the Tejera and Wells actions under the consolidated case caption of In re NTS Realty Holdings Limited Partnership Unitholders Litigation, Consol. C.A. No. 8302-VCP (the “Delaware Action,” and together with the Kentucky Action, the “Actions”), and appointed the law firms of Rigrodsky & Long, P.A. and Wohl & Fruchter LLP as Co-Lead Counsel for plaintiffs in the Delaware Action.

After counsel for plaintiff, Tejera, advised of his intention to join in prosecution of the Kentucky Action and plaintiffs, Tejera and Stephen and Sharon Dannis, tendered a proposed Second Amended Complaint on May 24, 2013, the parties submitted an agreed order on May 31, 2013, allowing plaintiffs to file a Second Amended Complaint, which order was entered June 7, 2013.  In contemplation of plaintiff, Tejera, joining in the prosecution of the Kentucky Action, all parties stipulated to dismissal of his claims in the Delaware Action, which stipulation was approved by the Delaware Court on June 12, 2013.  Plaintiffs, Tejera and Stephen and Sharon Dannis, thereupon served their Second Amended Class Action Complaint on June 13, 2013 and the defendants thereafter filed their motions to dismiss the Kentucky Action.

In early July 2013, the defendants proposed that the parties meet to discuss a possible resolution of the Actions, and the plaintiffs in the Kentucky and Delaware Actions agreed to do so following receipt of detailed financial information and other discovery and an opportunity to fully review and analyze such discovery.  The parties, from time to time, engaged in various settlement negotiations.  No definitive settlement was reached among the parties to the Actions prior to December 31, 2013.  See Part II, Item 8, Note 15 — Subsequent Events.

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.

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Note 11 - Segment Reporting

Our reportable operating segments include multifamily, commercial and retail real estate operations.  The following financial information of the operating segments has been prepared using a management approach, which is consistent with the basis and manner in which our management internally disaggregates financial information for the purpose of assisting in making internal operating decisions.  We evaluate performance based on stand-alone operating segment net income (loss).  The non-segment information necessary to reconcile to our total operating results is included in the column labeled “Partnership” in the following information.

	Year Ended December 31, 2013
	Multifamily			Commercial			Retail			Partnership			Total
Rental income	$	51,089,890		$	5,634,940		$	560,299		$	(21,454	)	$	57,263,675
Tenant reimbursements	-			1,714,664			99,632			-			1,814,296
Total revenue	51,089,890			7,349,604			659,931			(21,454		)	59,077,971
Operating expenses and operatingexpenses reimbursed to affiliates	17,711,033			2,611,427			105,408			-			20,427,868
Management fees	2,637,690			372,683			33,505			-			3,043,878
Property taxes and insurance	6,833,669			1,104,495			69,821			116,692			8,124,677
Professional and administrative expensesand professional and administrativeexpenses reimbursed to affiliates	-			-			-			5,244,447			5,244,447
Depreciation and amortization	14,298,629			1,785,910			154,014			-			16,238,553
Total expenses	41,481,021			5,874,515			362,748			5,361,139			53,079,423
Operating income (loss)	9,608,869			1,475,089			297,183			(5,382,593		)	5,998,548
Interest and other income	1,592,316			40,213			3,036			205			1,635,770
Interest expense	(12,773,879		)	(556,678		)	(211		)	(380,484		)	(13,711,252		)
Loss on disposal of assets	(113,899		)	(3,270		)	-			-			(117,169		)
Loss from investments in joint ventures	-			(136,834		)	-			-			(136,834		)
Loss from investments in tenants in common	(205,479		)	-			-			-			(205,479		)
Consolidated net (loss) income	(1,892,072		)	818,520			300,008			(5,762,872		)	(6,536,416		)
Net loss attributable to noncontrolling interests	(627,513		)	-			-			-			(627,513		)
Net (loss) income	$	(1,264,559	)	$	818,520		$	300,008		$	(5,762,872	)	$	(5,908,903	)
Land, buildings and amenities, net	$	243,306,495		$	24,285,876		$	3,238,464		$	-		$	270,830,835
Expenditures for land, buildingsand amenities	$	1,230,598		$	496,722		$	-		$	-		$	1,727,320
Segment liabilities fromcontinuing operations	$	240,109,663		$	1,596,546		$	46,999		$	26,163,833		$	267,917,041

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	Year Ended December 31, 2012
	Multifamily			Commercial			Retail			Partnership			Total
Rental income	$	49,266,340		$	5,665,979		$	528,223		$	(23,097	)	$	55,437,445
Tenant reimbursements	-			1,739,763			89,094			-			1,828,857
Total revenue	49,266,340			7,405,742			617,317			(23,097		)	57,266,302
Operating expenses and operatingexpenses reimbursed to affiliates	18,981,889			2,797,245			107,641			-			21,886,775
Management fees	2,447,581			373,885			34,445			-			2,855,911
Property taxes and insurance	6,406,736			968,968			64,610			116,692			7,557,006
Professional and administrative expensesand professional and administrativeexpenses reimbursed to affiliates	-			-			-			4,155,593			4,155,593
Depreciation and amortization	15,797,316			1,849,167			162,487			-			17,808,970
Total expenses	43,633,522			5,989,265			369,183			4,272,285			54,264,255
Operating income (loss)	5,632,818			1,416,477			248,134			(4,295,382		)	3,002,047
Interest and other income	88,286			1,115			-			10,837			100,238
Interest expense	(13,003,526		)	(606,029		)	(50		)	(390,107		)	(13,999,712		)
Loss on disposal of assets	(162,304		)	(68,480		)	-			-			(230,784		)
Loss from investments in joint ventures	-			(173,430		)	-			-			(173,430		)
Loss from investments in tenants in common	(1,663,916		)	-			-			-			(1,663,916		)
Consolidated net (loss) income	(9,108,642		)	569,653			248,084			(4,674,652		)	(12,965,557		)
Net loss attributable to noncontrolling interests	(943,028		)	-			-			-			(943,028		)
Net (loss) income	$	(8,165,614	)	$	569,653		$	248,084		$	(4,674,652	)	$	(12,022,529	)
Land, buildings and amenities, net	$	256,488,425		$	25,508,566		$	3,386,604		$	-		$	285,383,595
Expenditures for land, buildingsand amenities	$	2,232,072		$	915,351		$	-		$	-		$	3,147,423
Segment liabilities fromcontinuing operations	$	244,366,752		$	2,205,498		$	65,894		$	31,096,360		$	277,734,504

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	Year Ended December 31, 2011
	Multifamily			Commercial			Retail			Partnership			Total
Rental income	$	46,499,389		$	5,810,517		$	547,167		$	(33,487	)	$	52,823,586
Tenant reimbursements	-			1,716,929			94,530			-			1,811,459
Total revenue	46,499,389			7,527,446			641,697			(33,487		)	54,635,045
Operating expenses and operatingexpenses reimbursed to affiliates	18,945,200			2,985,313			159,019			-			22,089,532
Management fees	2,325,844			366,669			32,258			708			2,725,479
Property taxes and insurance	5,627,565			929,394			61,786			116,692			6,735,437
Professional and administrative expensesand professional and administrativeexpenses reimbursed to affiliates	-			-			-			2,578,381			2,578,381
Depreciation and amortization	16,287,413			1,789,057			170,036			-			18,246,506
Total expenses	43,186,022			6,070,433			423,099			2,695,781			52,375,335
Operating income (loss)	3,313,367			1,457,013			218,598			(2,729,268		)	2,259,710
Interest and other income	57,425			8,294			695			718,384			784,798
Interest expense	(13,113,076		)	(589,638		)	(16,039		)	(426,968		)	(14,145,721		)
Loss on disposal of assets	(144,442		)	(40,231		)	(2,097		)	-			(186,770		)
Loss from investment in joint venture	-			(3,163		)	-			-			(3,163		)
Loss from investments in tenants in common	(1,846,169		)	-			-			-			(1,846,169		)
Consolidated net (loss) income	(11,732,895		)	832,275			201,157			(2,437,852		)	(13,137,315		)
Net loss attributable to noncontrolling interests	(1,100,956		)	-			-			-			(1,100,956		)
Net (loss) income	$	(10,631,939	)	$	832,275		$	201,157		$	(2,437,852	)	$	(12,036,359	)
Land, buildings and amenities, net	$	270,215,974		$	26,475,891		$	3,543,218		$	-		$	300,235,083
Expenditures for land, buildingsand amenities	$	3,087,225		$	1,731,149		$	11,587		$	-		$	4,829,961
Segment liabilities fromcontinuing operations	$	246,860,606		$	2,743,593		$	28,370		$	25,335,654		$	274,968,223

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Note 12 - Selected Quarterly Financial Data (Unaudited)

	For the Quarters Ended
2013	March 31		June 30			September 30			December 31
Total revenues	$	14,466,428	$	14,701,257		$	14,972,726		$	14,937,560
Operating income	1,356,440		1,426,978			1,632,330			1,582,800
Loss allocated to limited partners	176,280		(2,099,200		)	(2,155,905		)	(2,036,672		)
Loss per limited partnership unit	0.02		(0.21		)	(0.20		)	(0.20		)

	For the Quarters Ended
2012	March 31			June 30			September 30			December 31
Total revenues	$	14,041,528		$	14,296,714		$	14,524,874		$	14,403,186
Operating income	1,059,273			1,081,815			709,217			151,742
Loss allocated to limited partners	(2,826,999		)	(2,921,760		)	(3,058,676		)	(3,323,193		)
Loss per limited partnership unit	(0.27		)	(0.28		)	(0.30		)	(0.32		)

Note 13 - Real Estate Transactions

Acquisitions

During the years ended December 31, 2013, 2012 and 2011, we did not acquire any properties.

Dispositions

During the years ended December 31, 2013, 2012 and 2011, we did not dispose of any properties.

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

Note 14 - Deferred Compensation Plans

Officer Plan

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

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

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

During the years ended December 31, 2013, 2012 and 2011, each Participant elected to defer receipt of the annual equity bonus.  The Participant’s accounts were credited with 14,112, 9,882 and 18,179 phantom units during the years ended December 31, 2013, 2012 and 2011, respectively, including dividend reinvestment.  As of December 31, 2013 and 2012, liabilities of approximately $506,300 and $392,200, the fair market value of 68,886 and 54,774 of our units, respectively, were included in our “Other Liabilities”.  The obligation is recorded as a liability because no units will be issued in connection with this plan.  The obligation amount may vary according to the market value of our units.

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Director Plan

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

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

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

During the years ended December 31, 2013, 2012 and 2011, each Participant elected to defer receipt of some or all of his annual retainer, except for one Participant who elected to be paid the annual equity bonus in cash.  The Participant’s accounts were credited with 8,139, 16,531 and 16,299 phantom units during the years ended December 31, 2013, 2012 and 2011, respectively, including dividend reinvestment.  As of December 31, 2013 and 2012, liabilities of approximately $627,600 and $553,100, the fair market value of 85,387 and 77,248 of our units, respectively, were included in our “Other Liabilities”.  The obligation is recorded as a liability because no units will be issued in connection with this plan.  The obligation amount may vary according to the market value of our units.

Compensation expense for 2013, 2012 and 2011 under the Officer and Director Plans totaled approximately $188,600, $576,600 and $87,300, respectively.

See also Note 15 - Subsequent Events.

Note 15 - Subsequent Events

Litigation

On February 4, 2014, NTS Realty, together with the other defendants in the Actions (described in Note 10 - Commitments and Contingencies), entered into a Stipulation and Agreement of Compromise, Settlement and Release (the “Settlement Agreement”).  On February 5, 2014, the Court granted its preliminary approval of the Settlement Agreement.  Subject to satisfaction of the conditions set forth in the Settlement Agreement, the Settlement Agreement provides for the full and complete compromise, settlement, release and dismissal of the Actions.  In accordance with the terms of the Settlement Agreement, on February 25, 2014, NTS Realty and NTS Realty Capital entered into that certain Agreement and Plan of Merger dated as of February 25, 2014 (the “Merger Agreement”) with NTS Merger Parent, LLC (“Parent”), a Delaware limited liability company controlled by Messrs. J.D. Nichols, our founder and Chairman, and Mr. Brian Lavin, our President and Chief Executive Officer, and NTS Merger Sub, LLC (“Merger Sub”), a Delaware limited liability company and wholly-owned subsidiary of Parent.  See “Going Private Transaction, Merger Agreement and Settlement Agreement” below.

Going Private Transaction, Merger Agreement and Settlement Agreement

On February 25, 2014, NTS Realty and NTS Realty Capital entered into that certain Agreement and Plan of Merger (the “Merger Agreement”) with Parent and Merger Sub.  The Merger Agreement was entered into in accordance with the terms of that certain Stipulation and Agreement of Compromise, Settlement and Release dated as of February 4, 2014 (the “Settlement Agreement”) entered into in the matter Stephen J. Dannis, et al. v. J.D. Nichols, et al., Case No. 13-CI-00452, pending in Jefferson County Circuit Court of the Commonwealth of Kentucky (the “Court”).  The Settlement Agreement provides, subject to satisfaction of the conditions set forth therein, for the full and complete compromise, settlement, release and dismissal of the Kentucky case as well as the class action lawsuit pending in the Delaware Court of Chancery under the consolidated case caption of In re NTS Realty Holdings Limited Partnership Unitholders Litigation, Consol. C.A. No. 8302-VCP (collectively, such actions are the “Actions”).

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Under the Settlement Agreement, it is expected that:

·Merger Sub will merge with and into NTS Realty, with NTS Realty being the surviving entity, pursuant to the terms of the Merger Agreement; and

·as consideration for the settlement and release of the claims asserted in the Actions, at the closing of the merger, each of our outstanding Units (other than those Units owned by Messrs. Nichols and Lavin and their affiliates) will be cancelled and converted automatically into the right to receive, in cash, consideration (such per Unit consideration referred to as the “Merger Consideration”) equal to: (i) $7.50 per Unit plus (ii) a pro rata share of a settlement fund of $7,401,487 (representing settlement consideration of $1.75 per Unit) less fees and expenses of plaintiffs’ counsel and an incentive award, if any, payable to the named plaintiffs in the case, as awarded by the Court.

Immediately prior to the effective time of the merger, the compensation deferred by each non-employee director of NTS Realty Capital and represented by “phantom units” pursuant to the Director Plan will be issued to such non-employee director as Units and will be converted automatically into and thereafter represent the right to receive the Merger Consideration.  In connection with the foregoing, an aggregate amount of $789,830 (representing 85,387 phantom units outstanding as of December 31, 2013 multiplied by the gross Merger Consideration of $9.25 per Unit) is expected to be paid to the non-employee directors of NTS Realty Capital. At the effective time of the merger, the compensation deferred by each officer of NTS Realty Capital and represented by “phantom units” pursuant to the Officer Plan will remain deferred pursuant to the Officer Plan, will not be converted to Units at the effective time of the merger and will remain subject to the terms of the Officer Plan.  See Part II, Item 8, Note 14 - Deferred Compensation Plans.

Consummation of the merger is subject to the satisfaction (or waiver) of certain conditions including among others:

·approval of the Merger Agreement by the holders of a majority of our outstanding Units; and

·the Court granting its final approval of the Settlement Agreement.

With respect to approval of the Merger Agreement by holders of a majority of our outstanding Units, it is expected that Messrs. Nichols, Lavin and their affiliates, acting by written consent, will vote their Units in favor of the Merger Agreement.  Messrs. Nichols, Lavin and their affiliates collectively own approximately 6,865,853 Units, representing approximately 61.9% of our issued and outstanding Units and approximately 59.3% of our aggregate voting power.  Accordingly, no other vote of our Unitholders is expected due to this representing over a majority of our outstanding Units.

Pursuant to the terms of the Settlement Agreement, the Settlement Agreement will not be finally approved by the Court until, among other things, the Court has (1) the Court has finally certified the members of the class under the Actions; (2) the Court, after holding of a final fairness settlement hearing (scheduled to be held on April 24, 2014), has entered its Order and Final Judgment approving the material terms of the Settlement Agreement (including finding that the terms and conditions of the Settlement Agreement are fair, reasonable, adequate, and in the best interests of the class) and such order and judgment shall have become final and non-appealable; (3) the Court has approved various releases among the plaintiffs, the class members and the defendants (and their affiliates); (4) orders dismissing the Actions with prejudice have become final and are no longer subject to appeal; and (5) the merger has become effective.

If the merger is completed pursuant to the terms of the Merger Agreement, then all holders of Units (other than Messrs. Nichols and Lavin and their affiliates) will receive, in cash per Unit, the Merger Consideration.  As a result of the merger, NLP’s limited partners, other than Messrs. Nichols and Lavin and their affiliates, will no longer have an equity interest in us, our Units will cease to be listed on the NYSE MKT, and the registration of our Units under Section 12 of the Securities Exchange Act of 1934, as amended, will be terminated.  As such, the merger transaction is sometimes referred to as a “going private transaction.”

The Merger Agreement may be terminated for various reasons including if the merger is not consummated by September 30, 2014.  NTS Realty expects to satisfy the conditions of the Merger Agreement and the Settlement Agreement during the first half of 2014; however, there can be no assurance that the Merger Agreement and the Settlement will be consummated on the terms described herein or at all.

Financing of the Merger Consideration

In connection with the going private transaction, it is expected that the funds necessary to consummate the merger pursuant to the Merger Agreement will be approximately $41.7 million, consisting of the payment of aggregate Merger Consideration as well as certain transaction fees and expenses.  At or prior to the effective time of the merger, Parent and Merger Sub, or their affiliates, will deposit with Wells Fargo Shareowner Services, as paying agent, the funds necessary to pay the aggregate Merger Consideration.  The paying agent will hold such consideration in trust pending disbursement as provided in the Merger Agreement.

The obligations of Parent and Merger Sub to consummate the merger are not subject to any financing conditions or contingencies.  Parent and Merger Sub expect that the funds necessary to consummate the merger and related transactions will be funded from a variety of sources, including available cash and various debt financings.

It is expected that up to $4 million, in cash, will be available from Messrs. Nichols and Lavin (or their affiliates).  Additionally, it is expected that approximately $6 to $10 million will be available as a result of NTS Realty increasing the maximum availability under its existing line of credit from $10 million to $16 million on substantially the same terms as currently provided to NTS Realty under the existing line of credit.  The exact amount of funds that may be drawn on the line of credit to pay Merger Consideration will depend upon the amount of loans outstanding under the increased line of credit at the time the Merger Consideration is to be deposited with the paying agent.  NTS Realty has not received a written commitment from the bank to increase the availability under the line of credit.

                Further, it is expected that certain NTS Realty properties will be refinanced or further leveraged by loans from various lenders.  It is expected that these loans will provide up to $36 million in available cash.  The loans will be collateralized by mortgages on the respective properties.  The anticipated term of such loans is expected to be no less than seven years, and it is expected that the loans will be provided at rates of interest ranging from 4.2% to 5.75% per annum with 30-year amortization schedules.  Additionally, in connection with these loans, it is anticipated that Mr. Nichols may be required to issue certain personal guarantees pursuant to which Mr. Nichols would guaranty losses (if any) incurred by the lender(s) as a result of NTS Realty’s failure to perform certain covenants expected to be contained in the loan agreements.  Under such guarantees, in the event of an occurrence of certain covenant breaches, Mr. Nichols could be liable for the full value of the loan.

At the time of filing this Form 10-K, there are no written commitments or definitive loan documents evidencing any of the above financings.  Accordingly, actual terms of any financings may differ from those described above.  In additional, Parent, Merger Sub or their affiliates may obtain financing from different sources in amounts and on terms that may vary from those described above.

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

None.

ITEM 9A - CONTROLS AND PROCEDURES

Disclosure Controls and Procedures - As of December 31, 2013, we, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e) and 15(d)-15(e).  Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of December 31, 2013.

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

Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2013.  In making this assessment, management used the criteria established in Internal Controls-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO.  Based on management’s assessment and the criteria established by COSO, management believes that we maintained effective internal control over financial reporting as of December 31, 2013.

Changes in Internal Control Over Financial Reporting - There has been no change in our internal control over financial reporting during the year ended December 31, 2013, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B - OTHER INFORMATION

No matters were submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the fourth quarter of the year ended December 31, 2013.

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PART III

ITEM 10 — DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Directors and Executive Officers

Our business is managed under the direction and oversight of our managing general partner’s board of directors (the “Board of Directors”).  Below is a list of the names, ages, positions held and term of office of each director and executive officer of NTS Realty Capital as well as a description of each person’s background and business experience and, for each director, the specific experience, qualifications, attributes and skills that led to the conclusion that such director should serve as a member of the Board of Directors:

Name	Age	Position with NTS Realty Capital	Director Since
J.D. Nichols	72	Chairman	2004
Brian F. Lavin	60	Director and President and Chief Executive	2004
Mark D. Anderson	58	Director	2004
John P. Daly, Sr.	55	Director	2004
John S. Lenihan	57	Director	2004
Gregory A. Wells	55	Chief Financial Officer and Executive Vice President	N/A

J. D. Nichols, 72.  J. D. Nichols is Chairman of NTS Corporation, its subsidiaries and affiliates, including the Board of Directors of NTS Realty Capital.  He graduated from the University of Louisville School of Law in 1964 and conducted his undergraduate studies at the University of Kentucky with a concentration in accounting, marketing, business administration, and finance.  Mr. Nichols began his career in construction and real estate development in 1965, and since then has overseen the development of more than 8,000 acres of land and 7,000,000 square feet of office, residential, commercial, and industrial construction, throughout the southeastern United States.

Mr. Nichols is active in many civic and charitable organizations including the University of Louisville, where he served as a member of the Board of Trustees, the Executive Committee of the Board of Trustees, the Board of Overseers, and the University of Louisville Foundation.  Reflecting his commitment to quality education in Kentucky, Mr. Nichols served as Chairman of the Kentucky Council on School Performance Standards, which was charged with the responsibility for development of the academic agenda incorporated into the Kentucky Education Reform Act (“KERA”); a program which has been recognized nationally for innovation in education reform.  Mr. Nichols also served on the Steering Committee of the Kentucky Education Technology System, which was created by KERA, and charged with development of a statewide computerized information system linking Kentucky’s public schools.  He is a past member and chairman of the Council for Education Technology, a past member of both the Prichard Committee for Academic Excellence and the Partnership for Kentucky Schools, and is a lifetime member of the President’s Society of Bellarmine College.

Mr. Nichols was inducted into the Junior Achievement Kentuckiana Business Hall of Fame in 1989, is a past director and member of the Executive Committee of Greater Louisville Inc., has served on the Governor’s Council on Economic Development, the Board of Directors of both Actors Theater of Louisville and Kentucky Opera, and several other community organizations.  Mr. Nichols was a longtime member of the board of the Louisville Regional Airport Authority, serving as both vice-chairman and chairman during his tenure. He was also one of the catalysts behind the major expansion of Louisville International Airport and United Parcel Service’s (UPS) decision to expand their hub and remain in Louisville. In addition, Mr. Nichols was instrumental in the development of Metropolitan College - a program that pays for college or post-high school technical training when combined with part-time jobs at UPS.

We believe Mr. Nichols has the depth and breadth of experience to implement our business strategy, with over 45 years of experience in real estate construction and development.  Further, as Chairman of the Board and a director of NTS Corporation, its subsidiaries and affiliates, he has an understanding of the requirements of serving on a public company board and the leadership experience necessary to serve as the Chairman of the Board of Directors.

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Brian F. Lavin, 60.  Mr. Lavin has served as the president and chief executive officer of each of NTS Realty Capital and NTS Realty Partners, LLC, as well as a director of NTS Realty Capital, since their formation in 2004.  Mr. Lavin also has served as the president of NTS Corporation and NTS Development Company since June 1997 and as president of NTS Mortgage Income Fund from 1999 until its liquidation in 2012.  Mr. Lavin was a director of NTS Mortgage Income Fund from 1999 to 2008.  He is a licensed real estate broker in Kentucky and certified property manager.  Mr. Lavin is a member of the Institute of Real Estate Management, council member of the Urban Land Institute and member of the National Multi-Housing Council.  He has served on the boards of directors of the Louisville Science Center, Louisville Ballet, Greater Louisville, Inc., National Multi-Housing Council, Louisville Apartment Association, Louisville Olmstead Parks Conservancy, Inc., and currently serves on the board of overseers for the University of Louisville.  Mr. Lavin has a bachelor’s degree in business administration from the University of Missouri.

With over 30 years of commercial real estate experience, we believe Mr. Lavin is well qualified to serve on the Board of Directors. This experience allows him to offer valuable insight and advice with respect to our investments and investment strategies.  In addition, with prior experience as an executive officer of a real estate development company, we believe Mr. Lavin is able to direct the attention of the Board of Directors to the critical issues we face.  Further, as a director of NTS Realty Capital, its subsidiaries and affiliates, he has an understanding of the requirements of serving on a public company board.

Mark D. Anderson, 58.  Mr. Anderson has served as an independent director on NTS Realty Capital’s Board of Directors and as the chairperson of the audit committee since December 2004.  Mr. Anderson is the managing member of Anderson Real Estate Capital, LLC, organized by Mr. Anderson in March 2010.  Mr. Anderson’s firm provides commercial real estate consulting services and construction and permanent market commercial real estate loans to clients established during his previous twelve years as a commercial real estate banker.  From June 2003 to October 2009, Mr. Anderson was senior vice president and region manager for Integra Bank, managing their Louisville, Lexington and Indianapolis commercial real estate lending operations.  Prior to joining Integra, Mr. Anderson was vice president and market manager of U.S. Bank’s commercial real estate division in Louisville.  Mr. Anderson has originated investment commercial real estate loans in numerous states and offices under his direction have originated mortgage loans totaling in excess of $1.0 billion.  Mr. Anderson’s prior experience also includes six years with Paragon Group, a national real estate development and management company headquartered in Dallas, Texas, as Midwest regional controller.  Mr. Anderson graduated from Illinois State University in 1978 with a B.S. in Accounting and passed the Uniform Certified Public Accountant examination in 1979.

We believe Mr. Anderson has the experience necessary to assist us in implementing our business strategy as a result of his leadership at Anderson Real Estate Capital, LLC, Integra Bank and U.S. Bank.  Mr. Anderson also has over 25 years of investment experience in the commercial real estate industry.

John P. Daly, Sr., 55.  Mr. Daly has served as an independent director on NTS Realty Capital’s Board of Directors since December 2004.  Mr. Daly is Vice President and Associate General Counsel of YUM! Brands, Inc. (“Yum”), the parent of KFC, Taco Bell and Pizza Hut.  He has held this position since 2011.  From 1997 to 2010, Mr. Daly served as Corporate Counsel and Assistant Secretary of Yum.  Prior to attending law school, he earned his CPA and worked as an accountant for Ernst Whinney.  Mr. Daly serves on the board of Maryhurst in Louisville, Kentucky and is active supporting Holy Angels Academy in Louisville and Midtown Center for Boys in Chicago.  Mr. Daly holds a B.B.A. Degree in Accounting and a J.D. from the University of Notre Dame.

We believe Mr. Daly is well qualified to serve on the Board of Directors as a result of his experience as Vice President, Associate General Counsel and Assistant Secretary of a Fortune 500 New York Stock Exchange-listed company.

John S. Lenihan, 57.  Mr. Lenihan has served as an independent director on NTS Realty Capital’s Board of Directors since December 2004.  He is the founder and managing partner of John Lenihan Properties (“JLP”).  Formed in 1982, JLP develops and manages industrial warehouse properties around the Louisville International Airport.  In addition, Mr. Lenihan is a licensed real estate agent, actively engaged in both residential and commercial brokerage services.  He is also founder of Lenihan / Sotheby’s International Realty.  Mr. Lenihan graduated from Centre College in 1979 and in 1980 graduated from Manufacturer Hanover Trust Credit Analysis at New York University.  He also attended the University of Louisville Graduate Business School from 1992-1993.

We believe Mr. Lenihan is well qualified to serve on the Board of Directors as a result of 30 years of experience in the commercial real estate industry, as well as his experience founding and leading JLP.

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Gregory A. Wells, 55.  Mr. Wells has served as the chief financial officer and executive vice president of NTS Realty Capital and as executive vice president of NTS Realty Partners, LLC since January 2005.  Mr. Wells served as chief financial officer and senior vice president of NTS Realty Capital and senior vice president of NTS Realty Partners, LLC from the time of their formation until December 2004.  He has also served as senior vice president for NTS Corporation, its subsidiaries and affiliates from July 1999 through December 2004.  Mr. Wells is currently chief financial officer and executive vice president for NTS Corporation and its subsidiaries and affiliates.  Mr. Wells served as the chief financial officer, secretary and treasurer of the NTS Mortgage Income Fund, Inc. from June 2007 until its liquidation in 2012.  Mr. Wells served as a director of the Hilliard Lyons Government Fund, Inc., served on its audit committee and was chair of the corporation’s nominating and governance committee from December 2005 to July 2010.  Mr. Wells is a certified public accountant, a member of the American Institute of Certified Public Accountants, the Virginia CPA Society, Kentucky Society of CPA’s, and Financial Executives International.  Mr. Wells holds a bachelor’s degree in business administration from George Mason University.  He currently serves on the Board of the Lincoln Heritage Boy Scout Council.  Mr. Wells previously served on the Board of Directors of The Family Place and chaired its building committee.  In 2009, Mr. Wells received a CFO of the Year Award from Business Journal Publications, Inc.  Mr. Wells was nominated to receive a 2011 CFO of the Year Award from Business Journal Publications, Inc.  Prior to joining NTS, Mr. Wells served as Senior Vice President and Chief Financial Officer of Hokanson Companies, Inc. an Indianapolis-based property management and development firm.  Prior to that Mr. Wells was the Chief Operating Officer of Executive Telecom System, Inc., a subsidiary of The Bureau of National Affairs, Inc.

Each executive officer of NTS Realty Capital is appointed annually by the Board of Directors and serves until the earlier of the time a successor is elected by the Board of Directors or his or her resignation or removal.  There are no family relationships between any director and executive officer of NTS Realty Capital.

Director Independence

As required by our governing documents and NYSE MKT requirements, a majority of the Board of Directors must be “independent.”  According to guidelines adopted by the Board of Directors, a director will not be considered independent if, within the last three years:

·we employed the director as an executive officer for more than one year or as an employee for any period;

·a member of the director’s immediate family was an executive officer;

·the director or an immediate family member received more than $120,000 per year in direct compensation from us (excluding amounts paid in the form of director and committee fees);

·the director or an immediate family member was a current partner of our external auditor or was a partner or employee of our predecessors’ external auditor during the past three years;

·one of our executive officers serves or served on the compensation committee of another company that employs the director as an executive officer or that employs an immediate family member of the director as an executive officer;

·the director was an executive officer or employee, or an immediate family member was an executive officer or employee, of a company that made payments to, or received payments from, us which exceeded the greater of 5% of the company’s gross revenues for that year or $200,000 in any of the most recent three fiscal years; or

·the director was affiliated, directly or indirectly, with NTS Development Company, or any of its affiliates, whether by ownership of, ownership interest in, employment by, any material business or professional relationship with, or as an officer or director of NTS Development Company or any of its affiliates.

In accordance with the above requirements, the Board of Directors has determined that the following directors are “independent” — Messrs. Anderson, Daly and Lenihan.

Committees of the Board of Directors

Audit Committee - The Board of Directors has formed a separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Exchange Act.  The audit committee, comprised of our three independent directors, Messrs. Anderson, Daly and Lenihan, assists the Board of Directors in fulfilling its oversight responsibility relating to: (1) the integrity of our financial statements; (2) our compliance with legal and regulatory requirements; (3) the qualifications and independence of the independent registered public accountants; (4) the performance of our internal audit function and independent registered public accountants; (5) the accounting

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and financial reporting processes and systems of internal accounting; and (6) the evaluation of our risk issues.  The Board of Directors has determined that Mr. Anderson qualifies as an “audit committee financial expert” as defined by the SEC and that each member of the committee is independent in accordance with the standards set forth in the Audit Committee’s Charter and the NYSE MKT’s corporate governance rules.

Special Committee - In addition to the audit committee, in 2013, the Board of Directors had a Special Committee.  The Special Committee was formed in September 2012 to consider a proposal we received on August 21, 2012 from Mr. J.D. Nichols, our founder and Chairman, and Mr. Brian Lavin, our President and Chief Executive Officer, to acquire all of our outstanding Units excluding, those Units beneficially owned by them, for $5.25 per Unit, in cash.  Messrs. Anderson (Chairman), Lenihan and Daly served on the Special Committee.  From September 2012 to December 2013, the Special Committee, among other things, analyzed, evaluated and negotiated the initial going private offer and potential alternative transactions as well as the Original Merger Agreement and the Settlement Agreement.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires each of NTS Realty Capital’s directors and officers as well as all individuals beneficially owning more than 10% of our Units to file initial statements of beneficial ownership (Form 3) and statements of changes in beneficial ownership (Forms 4 and 5) of our Units with the SEC.  (For the identity of individuals known to us to beneficially own more than 10% of our Units, see disclosures made under “Part III, Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” hereof).  These officers, directors and greater than 10% beneficial owners are required by SEC rules to furnish us with copies of all such forms they file.  Based solely on a review of the copies of such forms furnished to us during and with respect to the fiscal year ended December 31, 2013, or written representations that no additional forms were required, we believe that all of such officers and directors and persons that beneficially own more than 10% of our outstanding Units complied with these filing requirements in 2013.

Code of Conduct and Ethics

The Board of Directors has adopted a Code of Conduct and Ethics (the “Code of Conduct”) that applies to all of our directors and officers.  The Code of Conduct establishes policies and procedures that the board believes promote the highest standards of integrity, compliance with the law and personal accountability.  Our Code of Conduct is posted on our website at www.ntsdevelopment.com.  In addition, a printed copy of the Code of Conduct is available to any of our limited partners at no cost by writing us at 600 North Hurstbourne Parkway, Suite 300, Louisville, Kentucky 40222, Attention: Rita Martin, Manager of Investor Services.

ITEM 11 — EXECUTIVE COMPENSATION

Executive Compensation

Board of Directors Report on Compensation

The following report of the Board of Directors does not constitute “soliciting material” and should not be deemed “filed” with the SEC or incorporated by reference into any other filing we make under the Securities Act of 1933, as amended (the “Securities Act”) or the Exchange Act, except to the extent we specifically incorporate this report by reference therein.

NTS Realty’s Board of Directors has reviewed and discussed with management the Compensation Discussion and Analysis set forth below (“CD&A”). Based on the Board’s review of the CD&A and the Board’s discussions of the CD&A with management, the Board has approved that the CD&A be included herein.

The Board of Directors

Mark D. Anderson

John P. Daly

Brian F. Lavin

John S. Lenihan

J.D. Nichols

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Compensation Discussion and Analysis

As is commonly the case with publicly traded limited partnerships, we are managed by the directors and officers of our managing general partner, NTS Realty Capital.  In addition, NTS Development Company, or its affiliate, NTS Management Company, both affiliates of our managing general partner, manage our real properties pursuant to the terms of various management agreements with us.  All of our property management personnel are employees of NTS Development Company.  These officers and employees are compensated for their services by NTS Development Company, in part for their service to us, but do not receive any compensation directly from us.  We reimburse NTS Development Company for a portion of the compensation it pays to its officers and employees, except Messrs. Nichols and Lavin, based on the amount of time they spend on our behalf.  Pursuant to the terms of our partnership agreement, Messrs. Nichols and Lavin receive no compensation from either NTS Development Company or us for services rendered on our behalf.  During 2013, we reimbursed NTS Development Company an aggregate of approximately $244,789 with respect to the compensation it paid to Mr. Gregory Wells, NTS Realty Capital’s only executive officer other than Mr. Lavin.

If we determine to compensate directly the named executive officers of our managing general partner in the future, the Board of Directors will review all forms of compensation and approve any and all Unit option grants, warrants, Unit appreciation rights and other current or deferred compensation payable with respect to the current or future value of our Units.

Executive Officers

Each executive officer of NTS Realty Capital is appointed annually by the Board of Directors and serves until the earlier of the time a successor is appointed or his or her resignation or removal.  The executive officers may be terminated at any time.  For information concerning the background and business experience of Messrs. Lavin and Wells, see information included in “Part III, Item 10 — Directors, Executive Officers and Corporate Governance” herein.

Compensation Committee Interlocks and Insider Participation

None of our managing general partner’s officers, or the officers or employees of our affiliates, participated in the deliberations of the Board of Directors concerning executive officer compensation during the year ended December 31, 2013.  In addition, during the year ended December 31, 2013, none of our managing general partner’s executive officers served as a director or a member of the compensation committee of any other entity that has one or more executive officers serving as a member of our managing general partner’s board of directors.

Independent Director Compensation

During 2013, each of our independent directors received $36,000 in compensation, either in cash, Units or a combination of both.  Each independent director was allowed to decide how to receive his compensation and agreed to such terms for a period of one year.  The independent directors who chose to receive Units elected to defer receipt of those Units until a later date.  The chairperson of our audit committee, Mr. Anderson, received an additional $10,000 cash fee for service as Chair of the Audit Committee.  In addition, each independent director was reimbursed by us for any out-of-pocket expenses in connection with attending meetings of the board or audit committee.  Messrs. Lavin and Nichols, our managing general partner’s non-independent directors, are not entitled to any compensation for their service on the Board.

In September 2012, the Board of Directors formed a special committee of the board (the “Special Committee”) to consider a proposal we received on August 21, 2012 from Mr. J.D. Nichols, our founder and Chairman, and Mr. Brian Lavin, our President and Chief Executive Officer, to acquire all of our outstanding Units, excluding those Units beneficially owned by them, for $5.25 per Unit, in cash.  Messrs. Anderson (Chairman), Lenihan and Daly served on the Special Committee.  The Special Committee, among other things, analyzed, evaluated and negotiated the initial going private offer and potential alternative transactions as well as the Original Merger Agreement and the Settlement Agreement.  As compensation for serving on the Special Committee, from September 2012 to December 2013, each member of the Special Committee received compensation of $500 per meeting of the Special Committee.  Also commencing September 12, 2012 and ending in December 2013, Mr. Anderson received compensation of $6,500 per month for service as chairman of the Special Committee and Messrs. Lenihan and Daly each received compensation of $5,000 per month for service as members of the Special

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Committee. During 2013, Messrs. Anderson, Lenihan and Daly and were paid $80,000, $63,500 and $63,000, respectively, for their service on the Special Committee.

The following table further summarizes compensation paid to the independent directors during 2013:

	FeesEarned inCash($)	StockAwards($)(1)	OptionAwards($)	Non-EquityIncentive PlanCompensation($)	Change inPension ValueandNonqualifiedDeferredCompensationEarnings ($)	All OtherCompensation ($)	Total($)
Mark Anderson (2)	126,000	-	-	-	-	-	126,000
John Daly (2)	99,500	-	-	-	-	-	99,500
John Lenihan (2)	63,000	36,000	-	-	-	-	99,000

(1)

Pursuant to the NTS Realty Capital Directors Deferred Compensation Plan, Mr. Lenihan deferred receipt of some or all of our Units in 2013 until the earliest of: (1) the date of his death; (2) the date he becomes “disabled” (as that term is defined in Section 409A(a)(2)(C) of the Internal Revenue Code of 1986, as amended (the “Code”)); or (3) the date that is thirty (30) days, or six (6) months if required by Section 409A(a)(2)(B)(i) of the Code, after the date of his “separation of service” (as that term is defined in Section 409A(a)(s)(A)(i) of the Code). During 2013, Mr. Anderson and Mr. Daly chose to receive all of their director compensation in cash.

(2)

Amount of fees earned also includes fees paid pursuant to service on the Special Committee as discussed in this section, “Independent Director Compensation.”

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ITEM 12 — SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Principal Unit Holders

Limited Partnership Units Owned by Certain Beneficial Owners and Management

The following table shows, as of February 28, 2014 the amount of Units beneficially owned by: (1) persons that beneficially own more than 5.0% of our outstanding Units; (2) each of the directors and executive officers of NTS Realty Capital; and (3) the directors and executive officers of NTS Realty Capital as a group.

Name (1)	AmountBeneficiallyOwned		Deferred Units (2)	PercentageBeneficiallyOwned
Mark D. Anderson	-		12,510	*
John P. Daly	1,000		26,733	*
Brian F. Lavin	17,966	(3)	11,554	*
John S. Lenihan	-		46,687	*
J.D. Nichols	6,847,887	(4)	-	61.72	% (4)
Gregory A. Wells	1,000		11,554	*
NTS Realty Capital, Inc.	-		-	*
NTS Realty Partners, LLC	714,491	(5)	-	6.44	% (5)
All directors/executive officers	6,867,853	(6)	109,038	62.88	% (6)

*Less than one percent (1%)
(1)	The address for each of the persons and entities listed above is: 600 North Hurstbourne Parkway, Suite 300, Louisville, Kentucky 40222.
(2)	Pursuant to the NTS Realty Capital Directors Deferred Compensation Plan, Mr. Lenihan deferred receipt of some or all of our Units in 2013. Pursuant to the NTS Realty Capital Officers Deferred Compensation Plan, our managing general partner’s executive officers deferred the receipt of Units that the board of directors granted to them during 2007-2013 as additional compensation for their services. In general, receipt of these Units are deferred until the earliest of: (i) the date of the holder’s death; (ii) the date the holder becomes “disabled” (as such term is defined in Section 409A(a)(2)(C) of the Internal Revenue Code of 1986, as amended (the “Code”)); or (iii) the date that is thirty (30) days, or six (6) months if required by Section 409A(a)(2)(B)(i) of the Code, after the date of the holder’s “separation of service” (as such term is defined in Section 409A(a)(2)(A)(i) of the Code) from our managing general partner. At that time, our managing general partner’s board of directors may provide the holder with Units or the equivalent value in cash. During 2013, Mr. Anderson and Mr. Daly chose to receive all of their director compensation in cash.
(3)	These Units are owned directly by Brickwood, LLC, of which Mr. Lavin is the manager.
(4)	These Units are owned of record by Mr. Nichols and certain of his affiliates, including Zelma Nichols (his spouse), Kimberly Ann Nichols (his daughter), trusts for the benefit of his children and other descendants, ORIG, LLC (of which he is the manager), Ocean Ridge Investments, Ltd. (of which he is sole director of its general partner), BKK Financial, Inc. (the general partner of Ocean Ridge Investments, Ltd., owned by Mr. Nichols and Kimberly Nichols), and NTS Realty Partners, LLC (of which he is the manager).
(5)	The Units owned of record by NTS Realty Partners, LLC are non-voting Units.
(6)	If all of the deferred Units were issued (109,038 in total), the directors and executive officers would beneficially own 6,976,891 Units, which is 62.88% of the total Units outstanding.

Change in Control

There is no arrangement known to NTS Realty at this time, including any pledge of NTS Realty’s securities by any person, the operation of which may result in a change in control of NTS Realty.

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ITEM 13 — CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Certain Relationships and Related Transactions

We do not have any employees.  NTS Development Company or its affiliate, NTS Management Company (“NTS Development”), affiliates of our general partners, oversee and manage the day-to-day operations of our properties pursuant to various management agreements.  Pursuant to these agreements, NTS Development receives fees for a variety of services performed for our benefit. NTS Development receives fees under separate management agreements for each of our consolidated and unconsolidated joint venture properties and our properties owned as a tenant in common with an unaffiliated third party, as well as properties owned by our wholly-owned subsidiaries.  Property management fees are paid in an amount equal to 5% of the gross collected revenue from our wholly-owned properties, consolidated joint venture properties and properties owned by our wholly-owned subsidiaries.  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 an unaffiliated third party.  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.  Also pursuant to the management agreements, 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 of our properties owned as a tenant in common with an unaffiliated third party under their respective 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.

In 2005 and 2009 the independent directors engaged an independent nationally recognized real estate expert (the “Expert”) to assist them in their review of the various management agreements between us and NTS Development.  The Expert made suggestions as to the types and amounts of fees and reimbursements to be included in the management agreements and assisted in the drafting and amending of the management agreements.  The management agreements in effect at December 31, 2013 renew annually unless terminated pursuant to their terms.  The independent directors review the management agreements periodically.

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 December 31, 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 $10,000 from NTS Development Company for the year ended December 31, 2013.

On December 27, 2012, we entered into the Original Merger Agreement with NTS Realty Capital, 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.  The Original Merger Agreement contemplated that Merger Sub would have merged with and into us and we would have continued as the surviving entity.  If the merger contemplated by the Original Merger Agreement would have been consummated, after the Merger, all of our Units other than Units owned by the Purchasers, would have been cancelled and converted automatically into the right to receive a cash payment equal to $7.50 per Unit.  The Original Merger Agreement, however, was terminated by the Special Committee on October 18, 2013 and the merger was not completed.

On February 25, 2014, NTS Realty and NTS Realty Capital entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Parent and Merger Sub.  The merger contemplated by the Merger Agreement is being undertaken in accordance with the terms of that certain Stipulation and Agreement of Compromise, Settlement and Release dated as of February 4, 2014 (the “Settlement Agreement”) entered into in the matter Stephen J. Dannis, et al. v. J.D. Nichols, et al., Case No. 13-CI-00452 (the “Kentucky Action”), pending in Jefferson County Circuit Court of the Commonwealth of Kentucky (the “Court”).  The Settlement Agreement provides, subject to satisfaction of the conditions set forth therein, for the full and complete compromise, settlement, release and dismissal of the Kentucky Action as well as the class action lawsuit pending in the Delaware Court of Chancery under the

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consolidated case caption of In re NTS Realty Holdings Limited Partnership Unitholders Litigation, Consol. C.A. No. 8302-VCP (the “Delaware Action” and with the Kentucky Action, the “Actions”).

The Court granted its preliminary approval of the Settlement Agreement on February 5, 2014.  Completion of the merger, however, is conditioned upon satisfaction of conditions set forth in the Merger Agreement and the Settlement Agreement.  One such condition is that the Court hold a final fairness settlement hearing and, after holding such hearing, grant its final approval of the Settlement Agreement.  Additionally, the Merger Agreement provides that it may be terminated for various reasons including if the conditions for completing the merger are not satisfied on or before September 30, 2014.  There can be no assurance that the conditions to the completion of the merger, many of which are out of our control, will be satisfied by the September 30, 2014 deadline, if at all.

If the merger is completed, Merger Sub will merge with and into NTS Realty, with NTS Realty being the surviving entity and, at the closing of the merger, each of our outstanding Units (other than those Units owned by the Purchasers) will be cancelled and converted automatically into the right to receive, in cash, consideration equal to: (i) $7.50 per Unit plus (ii) a pro rata share of a settlement fund of $7,401,487 (representing settlement consideration of $1.75 per Unit) less fees and expenses of plaintiffs’ counsel and an incentive award, if any, payable to the named plaintiffs in the case, as awarded by the Court.  At or prior to the effective time of the merger, Parent and Merger Sub, or their affiliates, will pay the aggregate merger consideration (estimated to be $41 million) to Wells Fargo Shareowner Services, as paying agent of the merger consideration.

If the merger is completed under the terms of the Merger Agreement, after the merger, NTS Realty would be owned by the Purchasers and would become a privately-owned company.  Additionally, our Units would be de-listed from trading on the NYSE MKT and the registration of our Units under Section 12 of the Exchange Act would be terminated.

Policies and Procedures with Respect to Related Party Transactions

Our partnership agreement provides that each contract or transaction that we enter into with our managing general partner or its affiliates must be on terms no less favorable to us than those generally being provided to or available from third parties.  In general, no such contract or transaction may be effective until after the material terms of the contract or transaction are disclosed to, or are known by, our managing general partner’s board of directors and the board authorizes the contract or transaction by the affirmative vote of a majority of the board’s independent directors.

Director Independence

As required by our governing documents and NYSE MKT requirements, a majority of our Board of Directors are “independent.”  Our independent directors include Messrs. Anderson, Daly and Lenihan.  Our audit committee is comprised solely of our independent directors.  Additionally, the Special Committee was comprised solely of our independent directors.  For more information concerning our directors, Board of Director committees and director independence standards, see “Part III, Item 10 — Directors, Executive Officers and Corporate Governance” herein.

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ITEM 14 — PRINCIPAL ACCOUNTANT FEES AND SERVICES

Fees to Independent Registered Public Accountants

The following table presents fees for professional services rendered by BKD, LLP for audit of our financial statements for years ended December 31, 2013 and 2012, together with tax services performed by Ernst & Young LLP for the years ended December 31, 2013 and 2012, respectively.

	Fiscal Year Ended December 31,
Description	2013		2012
Audit Fees (1)	$	271,500	$	265,500
Audit Related Fees (2)	-		-
Tax Fees (3)	140,000		140,000
All Other Fees (4)	-		-
TOTAL	$	411,500	$	405,500

(1)	Audit fees include fees associated with the annual audit of our financial statements, as well as the review of quarterly reports on Form 10-Q. Audit fees also include fees associated with audit requirements related to various registration statement filings.
(2)	Audit related fees include fees paid for planning in connection with Section 404 of the Sarbanes-Oxley Act.
(3)	Tax fees include fees paid to Ernst & Young LLP for tax planning, tax return preparation and related tax assistance.
(4)	There were no other services or fees provided.

Approval of Services and Fees

Our audit committee has reviewed and approved all of the fees charged by BKD, LLP and Ernst & Young LLP, and actively monitors the relationship between audit and non-audit services provided by BKD, LLP.  The audit committee concluded that all services rendered by BKD, LLP and Ernst & Young LLP to us during the years ended December 31, 2013 and 2012, respectively, were consistent with maintaining BKD, LLP and Ernst & Young LLP’s independence.  Accordingly, the audit committee has approved all such services provided by BKD, LLP and Ernst & Young LLP.  As a matter of policy, we will not engage our primary independent registered public accountants for non-audit services other than “audit related services,” as defined by the SEC, certain tax services, and other permissible non-audit services as specifically approved by the chairperson of the audit committee and presented to the full committee at its next regular meeting.

Under the policy, the audit committee must pre-approve all services provided by the company’s independent registered public accountants and the fees charged for these services including an annual review of audit fees, audit related fees, tax fees and other fees with specific dollar value limits for each category of service.  During the year, the committee will periodically monitor the levels of fees charged by BKD, LLP and compare these fees to the amounts previously approved.  The audit committee also will consider on a case-by-case basis and, if appropriate, approve specific engagements that are not otherwise pre-approved.  Any proposed engagement that does not fit within the definition of a pre-approved service may be presented to the chairperson of the audit committee for approval.

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PART IV

ITEM 15 — EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

1 - Financial Statements

The financial statements along with the report from BKD, LLP dated March 14, 2014, appear in Part II, Item 8.  The following schedules should be read in conjunction with those financial statements.

2 - Financial Statement Schedules

Schedules	Page No.
Report of Independent Registered Public Accounting Firm on Financial Statement Schedules	79
Schedule II — Valuation and Qualifying Accounts	80
Schedule III — Real Estate and Accumulated Depreciation	81-82

All other schedules have been omitted because they are not applicable, are not required or because the required information is included in the financial statements or notes thereto.

3 - Exhibits

Exhibit No.
2.01	Agreement and Plan of Merger by and among NTS Realty Holdings Limited Partnership, NTSProperties 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)
2.03	Agreement and Plan of Merger by and among NTS Realty Holdings Limited Partnership, NTS Realty Capital, Inc., NTS Merger Parent, LLC and NTS Merger Sub, LLC dated December 27, 2012 (and terminated October 18, 2013)	(18)
2.04	Agreement and Plan of Merger by and among NTS Realty Holdings Limited Partnership, NTS Realty Capital, Inc., NTS Merger Parent, LLC and NTS Merger Sub, LLC, dated February 24, 2014	(20)
3.01	Certificate of Limited Partnership of NTS Realty Holdings Limited Partnership	(1)
3.02	Amended and Restated Agreement of Limited Partnership of NTS Realty Holdings Limited Partnership,dated as of December 29, 2005	(7)
3.03	Certificate of Incorporation of NTS Realty Capital, Inc.	(8)
3.04	By-Laws of NTS Realty Capital, Inc.	(2)
10.01	Amended and Restated Management Agreement between NTS Realty Holdings Limited Partnership andNTS Development Company, dated as of December 29, 2005	(6)
10.02	Form of Lease Agreement between NTS Realty Holdings Limited Partnership and SHPS, Inc.	(4)
10.03	Purchase and Sale Agreement between NTS Realty Holdings Limited Partnership and Investors Capital Mortgage Group, Inc., dated September 30, 2005 (Golf Brook Apartments)	(5)
10.04	Purchase and Sale Agreement between NTS Realty Holdings Limited Partnership and Investors Capital Mortgage Group, Inc., dated September 30, 2005 (Sabal Park Apartments)	(5)
10.05	Agreement for Purchase and Sale between Schaedle Worthington Hyde Properties, L.P. and NTS Realty Holdings Limited Partnership, dated November 1, 2005 (The Grove at Richland Apartments and The Grove at Whitworth Apartments)	(5)
10.06	Agreement for Purchase and Sale between Schaedle Worthington Hyde Properties, L.P. and NTS Realty Holdings Limited Partnership, dated November 1, 2005 (The Grove at Swift Creek Apartments)	(5)
10.07	Purchase and Sale Agreement between AMLI at Castle Creek, L.P. and AMLI Residential Properties, L.P. andNTS Realty Holdings Limited Partnership, dated February 7, 2006 (Castle Creek Apartments and Lake Clearwater Apartments)	(5)
10.08	Unconditional and Continuing Guaranty by NTS Realty Holdings Limited Partnership in favor ofNational City Bank, dated March 23, 2006	(5)

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Exhibit No.
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)
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)
10.21	Voting and Support Agreement dated as of December 27, 2012 by and among J. D. Nichols, Brian Lavin, NTS Realty Capital, Inc., NTS Realty Partners, LLC, ORIG, LLC, Ocean Ridge Investments, Ltd., BKK Financial, Inc., The J. D. Nichols Irrevocable Trust for my Daughters, The J.D. Nichols Irrevocable Trust for my Grandchildren, Kimberly Ann Nichols, Zelma Nichols, Brickwood, LLC and NTS Realty Holdings Limited Partnership	(18)
10.22	Stipulation and Agreement of Compromise, Settlement and Release among NTS Realty Holdings Limited Partnership, NTS Realty Capital, Inc., NTS Parent, LLC, J.D. Nichols, Brian F. Lavin, Mark Anderson, John Daly, Sr., John Lenihan, Plaintiffs in the Delaware action dated February 4, 2014	(19)
14.01	Code of Conduct and Ethics of NTS Realty Holdings Limited Partnership, adopted as of December 28, 2004	(4)
21.01	Subsidiaries of NTS Realty Holdings Limited Partnership	(21)
31.1	Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the SecuritiesExchange Act, as amended	(21)
31.2	Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the SecuritiesExchange Act, as amended	(21)
32.1	Certification of Chief Executive Officer Pursuant to U.S.C. 1350, as adopted pursuant to Section 906 of theSarbanes-Oxley Act of 2002	(21)
32.2	Certification of Chief Financial Officer Pursuant to U.S.C. 1350, as adopted pursuant to Section 906 of theSarbanes-Oxley Act of 2002	(21)
99.01	Form of Lock-Up Agreement by and between NTS Realty Holdings Limited Partnership and each of the executive officers of NTS Realty Capital, Inc.	(1)
99.02	Registration Statement on Form S-4/A (Amendment No. 5), as filed by the Registrant with the Securities andExchange Commission on October 27, 2004	(3)
101	The following financial information from our Annual Report on Form 10-K for the years ended December 31, 2013, 2012 and 2011, filed with the Securities and Exchange Commission on March 14, 2014, is formatted in Extensible Business Reporting Language (“XBRL”): (i) Consolidated Balance Sheets, (ii) Consolidated Statement of Equity, (iii)  Consolidated Statements of Operations, (iv) Consolidated Statements of Cash Flows, (v) Notes to Consolidated Financial Statements (tagged as blocks of text).	(21) (22)

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(1)	Incorporated by reference to the Registrant’s Registration Statement on Form S-4, as filed with the Securities and Exchange Commission on February 4, 2004
(2)	Incorporated by reference to the Registrant’s Registration Statement on Form S-4/A (Amendment No. 1), as filed with the Securities and Exchange Commission on June 18, 2004
(3)	Incorporated by reference to the Registrant’s Registration Statement on Form S-4/A (Amendment No. 5), as filed with the Securities and Exchange Commission on October 27, 2004
(4)	Incorporated by reference to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2004, as filed with the Securities and Exchange Commission on March 31, 2005
(5)	Incorporated by reference to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2005, as filed with the Securities and Exchange Commission on April 3, 2006
(6)	Incorporated by reference to the Registrant’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission on April 17, 2006
(7)	Incorporated by reference to the Registrant’s Information Statement on Form DEF 14C, as filed with the Securities and Exchange Commission on May 9, 2006
(8)	Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006, as filed with the Securities and Exchange Commission on May 15, 2006
(9)	Incorporated by reference to the Registrant’s Current Report on Form 8-K/A, as filed with the Securities and Exchange Commission on October 23, 2006
(10)	Incorporated by reference to the Registrant’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission on February 14, 2007
(11)	Incorporated by reference to the Registrant’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission on March 16, 2007
(12)	Incorporated by reference to the Registrant’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission on August 17, 2007
(13)	Incorporated by reference to the Registrant’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission on May 1, 2008
(14)	Incorporated by reference to the Registrant’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission on June 27, 2008
(15)	Incorporated by reference to the Registrant’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission on June 16, 2009
(16)	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 June 30, 2011, as filed with the Securities and Exchange Commission on August 8, 2011
(18)	Incorporated by reference to the Registrant’s Current Report on Form 8-K as filed by the Securities and Exchange Commission on December 27, 2012
(19)	Incorporated by reference to the Registrant’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission on February 7, 2014
(20)	Incorporated by reference to the Registrant’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission on February 25, 2014
(21)	Filed herewith
(22)	The XBRL related information in Exhibit 101 to this Annual Report on Form 10-K 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.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON

FINANCIAL STATEMENT SCHEDULES

Board of Directors
NTS Realty Capital, Inc., Managing General Partner of

NTS Realty Holdings Limited Partnership

Louisville, Kentucky

In connection with our audit of the consolidated financial statements of NTS Realty Holdings Limited Partnership (Partnership) for each of the years in the three-year period ended December 31, 2013, we have also audited the following financial statement schedules.  These financial statement schedules are the responsibility of the Partnership’s management.  Our responsibility is to express an opinion on these financial statement schedules based on our audits of the basic financial statements.  The schedules are presented for purposes of complying with the Securities and Exchange Commission’s rules and regulations and are not a required part of the consolidated financial statements.

In our opinion, the financial statement schedules referred to above, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein.

/s/ BKD, LLP

Louisville, Kentucky

March 14, 2014

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NTS REALTY HOLDINGS LIMITED PARTNERSHIP

SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS

FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011

			Additions
Description	Balance at Beginning of Period		Charges to Costs and Expenses		Charges to Other Accounts		Deductions (1)		Balance at End of Period
Allowance for doubtful accounts, deductedfrom accounts receivable in the balancesheet:
2013	$	81,163	$	394,940	$	-	$	322,367	$	153,736
2012	$	214,585	$	342,019	$	-	$	475,441	$	81,163
2011	$	397,627	$	493,575	$	-	$	676,617	$	214,585

(1)Deductions, representing uncollectible accounts written off, less recoveries of accounts written off.

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NTS REALTY HOLDINGS LIMITED PARTNERSHIP

SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION

AS OF DECEMBER 31, 2013

			Initial Cost				Cost CapitalizedSubsequent to Acquisition				Total Amounts at End of Period						Accumulated
Property Description	Encumbrances		Land		Buildings and Improvements		Land		Buildings and Improvements		Land		Buildings and Improvements		Total (1)		Depreciation (2)		YearConstructed
Commercial
Clarke American Checks(3)	$	768,881	$	521,736	$	2,165,877	$	-	$	7,698	$	521,736	$	2,173,575	$	2,695,311	$	1,109,049	2000
Lakeshore Business CenterPhase I (4)	-		2,128,882		3,661,323		30,441		3,497,556		2,159,323		7,158,879		9,318,202		3,318,734		1986
Lakeshore Business CenterPhase II (4)	-		3,171,812		3,772,955		42,248		2,212,975		3,214,060		5,985,930		9,199,990		2,675,109		1989
Lakeshore Business CenterPhase III (4)	-		1,264,136		3,252,297		10,143		215,012		1,274,279		3,467,309		4,741,588		1,710,866		2000
NTS Center (5)	-		1,074,010		2,977,364		18,318		1,699,635		1,092,328		4,676,999		5,769,327		2,355,500		1977
Peachtree Corporate Center(5)	-		1,417,444		3,459,185		17,719		1,539,729		1,435,163		4,998,914		6,434,077		2,703,362		1979
Multifamily
Castle Creek Apartments(6)	13,130,689		3,262,814		23,538,500		63,780		474,530		3,326,594		24,013,030		27,339,624		10,161,848		1999
Golf Brook Apartments (6)	13,954,358		5,256,894		14,058,671		164,242		1,093,257		5,421,136		15,151,928		20,573,064		5,495,031		1987
Lake ClearwaterApartments (6)	10,763,479		2,778,541		20,064,789		108,515		455,374		2,887,056		20,520,163		23,407,219		8,581,299		1999
Lakes Edge Apartments (7)	24,493,068		8,063,103		28,696,577		182,029		763,779		8,245,132		29,460,356		37,705,488		6,572,469		2000
Park Place Apartments (6)	28,940,435		5,181,522		21,082,464		287,092		1,576,343		5,468,614		22,658,807		28,127,421		8,571,486		1987
Sabal Park Apartments (6)	9,172,853		3,974,383		8,885,511		71,094		544,321		4,045,477		9,429,832		13,475,309		3,605,547		1986
Parks Edge Apartments (7)	25,632,035		5,625,335		34,989,698		349,715		498,532		5,975,050		35,488,230		41,463,280		13,379,101		1997
The Grove at RichlandApartments (6)	25,514,833		11,372,241		34,321,460		97,855		605,052		11,470,096		34,926,512		46,396,608		15,182,670		1998
The Grove at Swift CreekApartments (6)	15,918,421		5,524,124		21,626,475		48,075		481,238		5,572,199		22,107,713		27,679,912		11,354,385		2000
The Grove at WhitworthApartments (6)	26,152,704		11,973,900		32,220,180		272,733		530,862		12,246,633		32,751,042		44,997,675		14,921,579		1994
The Lakes Apartments (6)	10,498,507		2,636,790		13,187,093		111,626		425,729		2,748,416		13,612,822		16,361,238		6,815,422		1992
The Lofts at the Willows ofPlainview	-		-		-		482,718		-		482,718		-		482,718		-		N/A
The Willows of PlainviewApartments (6)	16,934,289		3,015,448		10,947,276		194,562		1,389,727		3,210,010		12,337,003		15,547,013		4,179,459		1985
Willow Lake Apartments(6)	10,342,957		2,555,062		8,368,028		186,313		1,064,208		2,741,375		9,432,236		12,173,611		3,603,389		1985
Retail
Bed, Bath & Beyond (5)	-		734,860		2,290,252		-		-		734,860		2,290,252		3,025,112		841,010		1999
Springs Station (5)	-		427,465		978,892		-		210,754		427,465		1,189,646		1,617,111		562,748		2001
Non-Segment
NTS Realty HoldingsLimited Partnership (4)(5)	23,589,719		-		-		-		-		-		-		-		-		N/A
	$	255,807,228	$	81,960,502	$	294,544,867	$	2,739,218	$	19,286,311	$	84,699,720	$	313,831,178	$	398,530,898	$	127,700,063

(1)	Aggregate cost of real estate for tax purposes is approximately $292,380,831.
(2)	Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which are generally 5-30 years for land improvements, 7-30 years for buildings and improvements and 5-30 years for amenities. Tenant improvements are generally depreciated over the life of the respective tenant lease.
(3)	Mortgage held by an insurance company secured by certain land and a building.
(4)	$19,164,602 mortgage held by Lakeshore Business Center Phases I, II, and III.
(5)	$4,425,117 mortgage held by a bank secured by NTS Center, Peachtree Corporate Center, Bed Bath & Beyond and Springs Station.
(6)	Mortgage held by Federal Home Loan Mortgage Corporation secured by certain land, buildings and amenities.
(7)	Mortgage held by a bank secured by certain land, buildings and amenities.

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NTS REALTY HOLDINGS LIMITED PARTNERSHIP

SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION

FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011

	Real Estate			Accumulated Depreciation
Balances on January 1, 2011	390,247,436			76,733,767
Additions during period:
Improvements	4,829,961			-
Depreciation (1)	-			17,921,778
Deductions during period:
Retirements	(471,039		)	(284,270		)
Balances on December 31, 2011	394,606,358			94,371,275
Additions during period:
Improvements	3,147,423			-
Depreciation (1)	-			17,768,126
Deductions during period:
Retirements	(691,550		)	(460,765		)
Balances on December 31, 2012	397,062,231			111,678,636
Additions during period:
Improvements	1,727,320			-
Depreciation (1)	-			16,162,912
Deductions during period:
Retirements	(258,653		)	(141,485		)
Balances on December 31, 2013	$	398,530,898		$	127,700,063

(1)The additions charged to accumulated depreciation on this schedule will differ from the depreciation and amortization on the consolidated statements of cash flows due to the amortization of loan costs and capitalized leasing costs.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	NTS REALTY HOLDINGS LIMITED PARTNERSHIP
	By:	NTS REALTY CAPITAL, INC.
		Its:	Managing General Partner
		By:	/s/ Brian F. Lavin
			Brian F. Lavin
			Its:		President and Chief Executive Officer
					(Principal Executive Officer)
			Date:		March 14, 2014
		By:	/s/ Gregory A. Wells
			Gregory A. Wells
			Its:		Chief Financial Officer
					(Principal Financial Officer and Principal Accounting Officer)
			Date:		March 14, 2014
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
	By:	/s/ J.D. Nichols
		J.D. Nichols
		Its:		Chairman of the Board
		Date:		March 14, 2014
	By:	/s/ Brian F. Lavin
		Brian F. Lavin
		Its:		President, Chief Executive Officer and Director
				(Principal Executive Officer)
		Date:		March 14, 2014
	By:	/s/ Mark D. Anderson
		Mark D. Anderson
		Its:		Director
		Date:		March 14, 2014
	By:	/s/ John Daly
		John Daly
		Its:		Director
		Date:		March 14, 2014
	By:	/s/ John S. Lenihan
		John S. Lenihan
		Its:		Director
		Date:		March 14, 2014

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