|**UNITED STATES**                                                                                                                                                           
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|**SECURITIES AND EXCHANGE COMMISSION**                                                                                                                                      
|**WASHINGTON, D.C.  20549**                                                                                                                                                 
|                                                                                                                                                                            
|**FORM 10-Q**                                                                                                                                                               
|                                                                                                                                                                            
|(Mark One)                                                                                                                                                                  
|x   QUARTERLY REPORT PURSUANT TO SECTION 13 OF 15(D) OF THE                                                                                                                 
|SECURITIES EXCHANGE ACT OF 1934                                                                                                                                             
|For the quarterly period ended March 31, 2006                                                                                                                               
|OR                                                                                                                                                                          
|TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF                                                                                                                        
|THE SECURITIES EXCHANGE ACT OF 1934                                                                                                                                         
|For the transition period from ________ to _________                                                                                                                        
|                                                                                                                                                                            
|Commission file number  001-13487                                                                                                                                           
|                                                                                                                                                                            
|                                                                                                                                                                            
|**NATIONAL HEALTH REALTY, INC.**                                                                                                                                            
|(Exact name of registrant as specified in its charter)                                                                                                                      
|                                                                                                                                                                            
|                                                                                                                                                                            
|Maryland                                                                                                                                                                    
|(State or other jurisdiction of incorporation                                                                                                                               
|or organization)                                                                                                                                                            
|                                                                                                                                                                            
|100 Vine Street                                                                                                                                                             
|Murfreesboro, TN                                                                                                                                                            
|37130                                                                                                                                                                       
|(Address of principal executive offices)                                                                                                                                    
|(Zip Code)                                                                                                                                                                  
|                                                                                                                                                                            
|(615) 890-2020                                                                                                                                                              
|Registrant's telephone number, including area code                                                                                                                          
|                                                                                                                                                                            
|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.  Yesx    No                                                                                                                                                        
|                                                                                                                                                                            
|Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act.)
|Large accelerated filer                                                                                                                                                     
|                                                                                                                                                                            
|Indicate by check mark whether the registrant is a shell company (as is defined in Rule 12b-2 of the Exchange                                                               
|Act). Yes     No  x                                                                                                                                                         
|                                                                                                                                                                            
|9,939,463 shares of common stock were outstanding as of April 25, 2006                                                                                                      
|                                                                                                                                                                            

PART I.  FINANCIAL INFORMATION

|**Item 1.  Financial Statements.**                  |               |             
|--------------------------------------------------- | ------------- | ------------
|                                                    |               |             
|NATIONAL HEALTH REALTY, INC. AND SUBSIDIARIES      
|                                                    |               |             
|INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS      
|*(in thousands, except share amounts)*             
|                                                    |               |             
|                                                    | March 31,     | December 31,
|                                                    | 2006          | 2005        
|                                                    | *(unaudited)* |             
|ASSETS                                              |               |             
|Real estate properties:                             |               |             
|Land                                                | $ 19,464      | $  19,464   
|Buildings and improvements                          | 147,768       | 147,768     
|                                                    | 167,232       | 167,232     
|Less accumulated depreciation                       | (53,601)      | (52,178)    
|Real estate properties, net                         | 113,631       | 115,054     
|                                                    |               |             
|Mortgage and other notes receivable                 | 13,009        | 13,207      
|Interest and rent receivable                        | 38            | 247         
|Cash and cash equivalents                           | 8,240         | 8,169       
|Marketable securities                               | 5,715         | 5,841       
|Other assets                                        | 233           | 237         
|Total Assets                                        | $140,866      | $142,755    
|                                                    |               |             
|LIABILITIES                                         |               |             
|Debt                                                | $  10,025     | $  10,450   
|Accounts payable and other accrued expenses         | 1,522         | 1,513       
|Accrued interest                                    | 49            | 52          
|Dividends payable                                   | 3,305         | 4,299       
|Distributions payable to minority interest partners | 404           | 526         
|Minority interest in consolidated subsidiaries      | 13,500        | 13,525      
|Total Liabilities                                   | 28,805        | 30,365      
|                                                    |               |             
|Commitments, contingencies and guarantees           |               |             
|                                                    |               |             
|STOCKHOLDERS' EQUITY                                |               |             
|Cumulative convertible preferred stock,             |               |             
|$.01 par value; 5,000,000 shares                    |               |             
|authorized; none issued and outstanding             | --            | --          
|Common stock, $.01 par value;                       |               |             
|75,000,000 shares authorized; 9,939,463             |               |             
|shares, issued and outstanding                      | 99            | 99          
|Capital in excess of par value of common stock      | 138,468       | 138,468     
|Cumulative net income                               | 80,021        | 76,918      
|Cumulative dividends                                | (108,759)     | (105,453)   
|Unrealized gains on marketable securities           | 2,232         | 2,358       
|Total Stockholders' Equity                          | 112,061       | 112,390     
|Total Liabilities and Stockholders' Equity          | $140,866      | $142,755    

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

*The interim condensed balance sheet at December 31, 2005 is derived from the audited financial statements at that date.*

|NATIONAL HEALTH REALTY, INC. AND SUBSIDIARIES        
|-----------------------------------------------------
|                                                     
|INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME  
|*(unaudited)*                                        
|                                                     
|                                                     
|                                                     
|                                                     
|                                                     
|share amounts)                                       
|REVENUES:                                            
|Rental income                                        
|Mortgage interest income                             
|                                                     
|EXPENSES:                                            
|Interest                                             
|Depreciation of real estate                          
|General and administrative                           
|                                                     
|                                                     
|INCOME BEFORE MINORITY INTEREST IN CONSOLIDATED      
|SUBSIDIARIES AND NON-OPERATING INCOME                
|                                                     
|NON-OPERATING INCOME (investment and interest income)
|                                                     
|MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES       
|                                                     
|NET INCOME                                           
|                                                     
|NET INCOME PER COMMON SHARE:                         
|Basic                                                
|Diluted                                              
|                                                     
|WEIGHTED AVERAGE COMMON                              
|SHARES OUTSTANDING:                                  
|Basic                                                
|Diluted                                              
|                                                     

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



|NATIONAL HEALTH REALTY, INC. AND SUBSIDIARIES                                    
|---------------------------------------------------------------------------------
|                                                                                 
|INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS                          
|*(unaudited)*                                                                    
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|CASH FLOWS FROM OPERATING ACTIVITIES:                                            
|Net income                                                                       
|Adjustments to reconcile net income to net cash provided by operating activities:
|Equity in losses of unconsolidated investment                                    
|Depreciation of real estate                                                      
|Minority interest in consolidated subsidiaries                                   
|Decrease in interest and rent receivable                                         
|Increase in other assets                                                         
|Increase (decrease) in accounts payable and accrued liabilities                  
|NET CASH PROVIDED BY OPERATING ACTIVITIES                                        
|                                                                                 
|CASH FLOWS FROM INVESTING ACTIVITIES:                                            
|Collection of mortgage notes receivable                                          
|NET CASH PROVIDED BY INVESTING ACTIVITIES                                        
|                                                                                 
|CASH FLOWS FROM FINANCING ACTIVITIES:                                            
|Payments on long-term debt                                                       
|Dividends paid to stockholders                                                   
|Distributions paid to minority interest partners                                 
|Issuance of common shares                                                        
|NET CASH USED IN FINANCING ACTIVITIES                                            
|                                                                                 
|INCREASE IN CASH AND CASH EQUIVALENTS                                            
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                   
|CASH AND CASH EQUIVALENTS, END OF PERIOD                                         
|                                                                                 
|Supplemental Information:                                                        
|Cash payments for interest expense                                               
|In February 2006, our term note in the amount of $10,450 was                     
|assigned to National Health Investors, Inc.                                      

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



|NATIONAL HEALTH REALTY, INC. AND SUBSIDIARIES                    
|-----------------------------------------------------------------
|INTERIM CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
|FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND 2005               
|*(dollars in thousands)*                                         
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|BALANCE AT 12/31/04                                              
|Net income                                                       
|Unrealized losses on marketable                                  
|securities                                                       
|Total comprehensive income                                       
|Shares sold                                                      
|Dividends to common share-                                       
|holders ($.3325 per share)                                       
|                                                                 
|BALANCE AT 3/31/05 *(Unaudited)*                                 
|                                                                 
|BALANCE AT 12/31/05                                              
|Net income                                                       
|Unrealized losses on market-                                     
|able securities                                                  
|Total comprehensive income                                       
|Dividends to common share-                                       
|holders ($.3325 per share)                                       
|                                                                 
|BALANCE AT 3/31/06 *(Unaudited)*                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                 

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

**NOTE 1.  SIGNIFICANT ACCOUNTING POLICIES**

The unaudited financial statements to which these notes are attached include, in our opinion, all normal,
recurring adjustments which are necessary to fairly present the financial position, results of operations and cash flows
of National Health Realty, Inc. ("NHR" or "the Company") and its majority owned subsidiaries.  We assume that users
of these interim financial statements have read or have access to the audited December 31, 2005, financial statements
and Management's Discussion and Analysis of Financial Condition and Results of Operations and that the adequacy of
additional disclosure needed for a fair presentation, except in regard to material contingencies, may be determined in
that context.  See our web page at www.nationalhealthrealty.com.  Accordingly, footnotes and other disclosures which
would substantially duplicate the disclosure contained in our most recent annual report to stockholders have been
omitted.  This quarter's interim financial information is not necessarily indicative of the results that may be expected
for a full year for a variety of reasons including, but not limited to, changes in interest rates, rents, operations and the
timing of debt and equity financings.

**NOTE 2.  EARNINGS PER SHARE**

Basic earnings per share is based on the weighted average number of common shares outstanding during the
reporting period.

Diluted earnings per share assumes the exercise of stock options using the treasury stock method.

The following table summarizes the earnings and the average number of common shares and common
equivalent shares used in the calculation of basic and diluted earnings per share.

|                                                    | Three Months Ended
|--------------------------------------------------- | ------------------
|                                                    | March 31          
|                                                    | 2006              
|BASIC:                                              |                   
|Weighted average common shares                      | 9,939,463         
|                                                    |                   
|Net income available to common stockholders         | $3,103,000        
|                                                    |                   
|Net income per common share                         | $           .31   
|                                                    |                   
|DILUTED:                                            |                   
|Weighted average common shares                      | 9,939,463         
|Stock options                                       | 7,075             
|Adjusted weighted-average common shares outstanding | 9,946,538         
|                                                    |                   
|Net income available to common stockholders         | $3,103,000        
|                                                    |                   
|Net income per common share                         | $           .31   

**NOTE 3.  COMMITMENTS, CONTINGENCIES AND GUARANTEES**

At such time as our lease with NHC is terminated for any reason, we are contractually committed to purchase
from NHC at fair market value building additions constructed by them at centers owned by us.  Our lease with NHC
currently expires on December 31, 2017, with an option to extend the lease for an additional ten years at fair market
value.

The fair market value of the building additions at the time of the lease termination shall be calculated as the
lesser of (1) the appraised value of the addition or (2) the construction cost incurred by NHC plus 50% of any appraised
value increase over cost.  In addition, NHC agrees, at NHR's request, to finance NHR's purchase of the addition with
a floating rate, interest only note at the prime rate of interest for a period of up to two years.  Additions at five centers
costing approximately $26,225,000 are currently planned.  At March 31, 2006, expansion construction is completed at
one center (cost $4,000,000) and is underway at the remaining four centers (expected total cost of $21,725,000,
$5,152,000 incurred).  The cost of this potential commitment, if any, cannot be determined at this time.

At December 31, 1997, in order to protect our REIT status, certain NHC unitholders received limited
partnership units of NHR/OP, L.P. rather than shares of common stock of NHR.  As a result of certain unitholders'
involuntary acceptance of NHR/OP, L.P. partnership units to benefit all other unitholders, we have indemnified those
certain unitholders for any tax consequence resulting from any involuntary conversion of NHR/OP, L.P. partnership
units into shares of NHR common stock.  The indemnification expires at such time as the NHR/OP, L.P. unitholders
are in a position to voluntarily convert their partnership units into NHR common stock on a tax free basis without
violating applicable REIT requirements.

We believe that we have operated our business so as to qualify as a REIT under Sections 856 through 860 of
the Internal Code of 1986, as amended (the "Code") and we intend to continue to operate in such a manner, but no
assurance can be given that we will be able to qualify at all times.  If we qualify as a REIT, we will generally not be
subject to federal corporate income taxes on our net income that is currently distributed to stockholders.  This treatment
substantially eliminates the "double taxation" (at the corporate and stockholder levels) that typically applies to corporate
dividends.  Our failure to continue to qualify under the applicable REIT qualification rules and regulations would cause
us to owe state and federal income taxes and would have a material adverse impact on our financial position, results of
operations and cash flows.

**NOTE 4. MORTGAGE AND OTHER NOTES RECEIVABLE**

The following is a summary of the terms and amounts of mortgage and other notes receivable:

|Final        |                                             | Interest Rate | Principal Amount
|------------ | ------------------------------------------- | ------------- | ----------------
|Payment Date | Payment Terms                               | at 3/31/06    | *(In Thousands)*
|             |                                             |               |                 
|2016         | Monthly payments of $43,318, which          |               |                 
|             | includes interest at the prime rate plus 2% | 9.75%         | $ 4,523         
|             |                                             |               |                 
|2014         | Monthly payments of $38,250, which          |               |                 
|             | includes interest at 8.5%                   | 8.50%         | 4,170           
|             |                                             |               |                 
|2016         | Monthly payments of $7,845, which includes  |               |                 
|             | interest at the prime rate plus 2%          | 9.75%         | 504             
|             |                                             |               |                 
|2014         | Monthly payments of $5,396, which includes  |               |                 
|             | interest at 9.0%                            | 9.00%         | 13              
|             |                                             |               |                 
|2007         | Monthly payments of $72,800, which          |               |                 
|             | includes interest at 10.5%, plus balance    |               |                 
|             | due March 31, 2007                          | 10.50%        | 2,067           
|             |                                             |               |                 
|2007         | Monthly payments of $10,400, which          |               |                 
|             | includes interest at 10.5%, plus balance    |               |                 
|             | due March 31, 2007                          | 10.50%        | 432             
|             |                                             |               |                 
|2007         | Monthly payments of $46,800, which          |               |                 
|             | includes interest at 10.5%, plus balance    |               |                 
|             | due March 31, 2007                          | 10.50%        | 1,300           
|             |                                             |               |                 
|             | Weighted Average Interest and Total         | 9.57%         | $13,009         

**NOTE 5.  INVESTMENT IN MARKETABLE SECURITIES**

On September 17, 2002, we purchased 225,000 shares of National Health Investors, Inc. ("NHI") common
stock for approximately $3,483,000.  At March 31, 2006, the fair value of the shares is $5,715,000.  This investment
in marketable securities is classified as an investment in securities available for sale. Unrealized gains and losses on
available for sale securities are recorded in stockholders' equity in accordance with SFAS No. 115.

**NOTE 6.  STOCK OPTION PLAN**

Our stockholders have approved the 1997 Stock Option and Appreciation Rights Plan and the 2005 Stock
Option, Restricted Stock and Stock Appreciation Rights Plan under which options to purchase shares of our common
stock are available for grant to our consultants, advisors, directors and employees at a price no less than the market value
of the stock on the date the option is granted.  The vesting period and term of the options are six years.  The following
table summarizes option activity:

|                                   |           | Weighted      
|---------------------------------- | --------- | --------------
|                                   | Number    | Average       
|                                   | of Shares | Exercise Price
|Outstanding December 31, 2003      | 412,000   | $  8.75       
|Options granted                    | 20,000    | 16.50         
|Options exercised                  | (108,520) | 8.52          
|Options forfeited                  | (20,000)  | 11.42         
|Outstanding December 31, 2004      | 303,480   | 9.17          
|Options granted                    | 30,000    | 19.25         
|Options exercised                  | (244,480) | 6.11          
|Options forfeited                  | (29,000)  | 8.38          
|Outstanding December 31, 2005      | 60,000    | 17.29         
|Outstanding March 31, 2006         | 60,000    | 17.29         
|                                   |           |               
|Options exercisable March 31, 2006 | 60,000    | $17.29        

At March 31, 2006, options to purchase 60,000 shares of common stock are outstanding and exercisable.
Exercise prices on the options range from $10.74 to $19.25 per share.  The weighted average remaining contractual life
of options outstanding at March 31, 2006 is 3.08 years.  At March 31, 2006, options to purchase 1,032,927 additional
shares of common stock may be issued under the stock option plans.   We have reserved 1,066,802 shares of common
stock for issuance under the stock option plan.

The weighted average fair value per share of options granted was $-0- per share and $1.99 per share for 2006
and 2005, respectively.  For purposes of pro forma disclosures of net income and earnings per share as required by
SFAS 123, as amended, the estimated fair value of the options is amortized to expense over the options' vesting period.
The fair value of each grant is estimated on the date of grant using the Black-Scholes option-pricing model with the
following assumptions used for grants in 2005:

|Grant Date              | 5/03/05
|----------------------- | -------
|Dividend yield          | 7.79%  
|Expected volatility     | 24.4%  
|Expected lives          | 5 years
|Risk-free interest rate | 3.81%  

In December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment," which revises SFAS No. 123
and supersedes APB Opinion No. 25.  This statement focuses primarily on accounting for transactions in which a
company obtains employee services in share-based payment transactions, including employee stock purchase plans under
certain conditions, but does not change the accounting guidance for share-based payment transactions with parties other
than employees.  This statement requires all share-based payment to employees to be recognized in the income statement
based on their fair values.  Pro forma disclosure is no longer an alternative.  This statement became effective for the
Company beginning January 1, 2006.

SFAS No. 123R permits public companies to adopt its requirements using one of two methods:

*	A "modified prospective" method in which compensation cost is recognized beginning with the
effective date (a) based on the requirements of SFAS 123R for all share-based payments granted after
the effective date and (b) based on the requirements of SFAS No. 123 for all awards granted to
employees prior to the effective date of SFAS No. 123R that remain unvested on the effective date.

*	A "modified retrospective" method which includes the requirements of the modified prospective
method described above, but also permits entities to restate, based on the amounts previously
recognized under SFAS No. 123 for purposes of pro forma disclosures, either (a) all prior periods
presented or (b) prior interim periods of the year of adoption.

The company had adopted SFAS No. 123R using the modified prospective method.

Had compensation cost for our stock option plans been determined based on the fair value at the grant date of
awards for the three months ended March 31, 2005, consistent with the provisions of SFAS 123, our net income and
earnings per share would have been as follows:

|                                                   | **Three 
|-------------------------------------------------- | --------
|**                                                 | Months  
|                                                   | Ended   
|                                                   | 3/31/05 
|*(dollars in thousands, except per share amounts)*
|Net income - as reported                           | $2,783  
|Net income - pro forma                             | 2,780   
|                                                   |         
|Net earnings per share - as reported               |         
|Basic                                              | $    .29
|Diluted                                            | $    .28
|                                                   |         
|Net earnings per share - pro forma                 |         
|Basic                                              | $    .29
|Diluted                                            | $    .28

**NOTE 7. TERM NOTE PAYABLE**

In May 2004, we entered into a $17,000,000 bank term loan agreement.  The proceeds of the loan were used
to repay a note payable to NHC in the approximate amount of $14,922,000 (interest rate of LIBOR +2.25% with a floor
of 4%) and a senior secured note payable to NHC in the approximate amount of $1,723,000 (interest rate of 8.4%).  The
term note payable required monthly interest payments at the interest rate of 30 day LIBOR plus 1.50%.  Quarterly
principal payments in the amount of $425,000 were required until maturity (May 14, 2007) at which time the entire
outstanding principal balance shall be due.

On February 3, 2006, our bank term loan was assigned to National Health Investors, Inc. and certain terms of
the loan were amended.  The assigned loan as amended requires monthly interest payments to NHI at the interest rate
of 30 days LIBOR plus 1.00%.  The unpaid principal ($10,025,000 at March 31, 2006) is due to NHI at maturity
(January 2, 2008).

**NOTE 8.  NEW ACCOUNTING PRONOUNCEMENTS**

In May 2003 the FASB issued Statement of Financial Accounting Standards No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity."  SFAS 150 establishes standards for
classifying and measuring as liabilities certain financial instruments that embody obligations of the issuer and have
characteristics of both liabilities and equity.  SFAS 150 was generally effective for NHR beginning July 1, 2003.  As
originally issued, SFAS 150 would have required NHR to measure the minority interests in NHR/OP, L.P. on the
consolidated balance sheet at estimated fair value at the balance sheet date, with a charge or credit to income
(specifically, interest expense) for the change in carrying value during the period.  In November 2003, the FASB
deferred for an indefinite period the application of the classification and measurement guidance in SFAS 150 to
noncontrolling interests in limited-life subsidiaries (such as NHR/OP, L.P.).  Measurement of the minority interests in
NHR/OP, L.P. at estimated fair value at each balance sheet date, if and when required, would result in significant
volatility in NHR's financial position and results of operations.

In December 2004, the FASB issued SFAS No. 123(R), *Share-Based Payment.*SFAS No. 123(R) replaces
SFAS No. 123, *Accounting for Stock-Based Compensation*, and supersedes APB Opinion No. 25, *Accounting for Stock
Issued to Employees*.  SFAS No. 123(R) requires compensation costs related to share-based payment transactions to be
recognized in the financial statements over the period that an employee provides service in exchange for the award.  The
provisions of SFAS No. 123(R) have been adopted by us effective January 1, 2006.  Adoption of this pronouncement
has not had a significant impact on the Company's financial statements.

In May 2005, the FASB issued FASB Statement No. 154, *Accounting for Changes and Error Corrections*.  This
new standard replaces APB Opinion No. 20, *Accounting Changes* and FASB Statement No. 3, *Reporting Accounting
Changes in Interim Financial Statements*.  Statement 154 requires that a voluntary change in accounting principle be
applied retrospectively with all prior period financial statements presented on the new accounting principle, unless it
is impracticable to do so.  Statement 154 also provides that (1) a change in method of depreciating or amortizing a long-lived nonfinancial asset be accounted for as a change in estimate (prospectively) that was effected by a change in
accounting principle, and (2) correction of errors in previously issued financial statements should be termed a
"restatement".  We have adopted the new standard effective for accounting changes and correction of errors made in
fiscal years beginning January 1, 2006.  Adoption of this pronouncement has not had a significant impact on the
Company's financial statements.

**Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.**

OVERVIEW

National Health Realty, Inc. (NHR or the Company) is a real estate investment trust (REIT) that began
operations on January 1, 1998.  Currently our assets, through our subsidiary NHR/OP, L.P. (the Operating Partnership),
include the real estate of 23 health care facilities, including 16 licensed skilled nursing facilities, six assisted living
facilities and one independent living center (the Health Care Facilities).  We also own seven first and second mortgage
promissory notes with principal balances totaling $13,009,000 (the Notes) at March 31, 2006 and secured by the real
property of health care facilities.  Our revenues are derived primarily from rent and interest income from these real estate
properties and mortgages receivable.  Our primary lessee is National HealthCare Corporation (NHC) which leases 14
of our 23 properties and guarantees the lease payments on the remaining nine properties.

*Areas of Focus*

Management is currently focusing upon our capacities as landlord and note holder.  Our objectives are to (1)
provide current income for distribution to stockholders, (2) to provide the opportunity for additional returns to investors
by participating in any increase in the operating revenues of our leased properties; (3) to provide the opportunity to
realize capital growth resulting from appreciation, if any, in the value of our portfolio properties; and (4) to preserve
and protect stockholder's capital.  We can offer no assurance that these objectives will be realized.

NHR's quarterly common stock dividend of 33.25 cents per share is expected to remain unchanged for the near
future except for any adjustments required to reduce federal income taxes and/or to assure that we qualify to be taxed
as a REIT under the Internal Revenue Code.

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with accounting principles generally accepted  in the
United States 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 and cause our
reported net income to vary significantly from period to period.

Our significant accounting policies and the associated estimates and the issues that impact these estimates are
as follows:

*Revenue Recognition - Mortgage Interest and Rental Income*

We collect interest and rent from our customers.  Generally our policy is to recognize revenues on an accrual
basis as earned.  However, we may in the future determine that, based on insufficient historical collections and the lack
of expected future collections, revenue for interest or rent is not realizable.  For any such nonperforming investments,
our policy is to recognize interest or rental income only in the period when payments are received.  If conclusions as
to the realizibility of revenue change, our revenues could vary significantly from period to period.

*Valuations of and Impairments to Our Investment*s

Decisions about valuations and impairments of our investments require significant judgements and estimates
on the part of management.  We monitor the liquidity and credit worthiness of our tenants and borrowers on an ongoing
basis.  For real estate properties, the need to recognize an impairment is evaluated on a property by property basis in
accordance with Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal
of Long-Lived Assets" (SFAS 144).  Recognition of an impairment is based upon estimated undiscounted future cash
flows from a property compared to the carrying value of the property.  For notes receivable, impairment recognition
is based upon an evaluation of the estimated collectibility of loan payments on a specific loan basis in accordance with
Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan - An
Amendment of FASB Statements No. 5 and 15".  While we believe that the carrying amounts of our properties and notes
receivable are realizable, it is possible that future events could require us to make significant adjustments or revisions
to these estimates.

*REIT Status and Taxes*

We believe that we have operated our business so as to qualify as a REIT under Sections 856 through 860 of
the Internal Revenue Code of 1986, as amended (the "Code") and we intend to continue to operate in such a manner,
but no assurance can be given that we will be able to qualify at all times.  If we qualify as a REIT, we will generally not
be subject to federal corporate income taxes on our net income that is currently distributed to our stockholders.  This
treatment substantially eliminates the "double taxation" (at the corporate and stockholder levels) that typically applies
to corporate dividends.  Our failure to continue to qualify under the applicable REIT qualification rules and regulations
would cause us to owe state and federal income taxes and would have a material adverse impact on our financial
position, results of operations and cash flows.

CAPITAL RESOURCES AND LIQUIDITY

*Term Note Payable*

In May 2004, we borrowed $17,000,000 under a bank term loan with an interest rate of 30 day LIBOR plus
1.5% and a three year term.  The proceeds of the loan were used to repay a note payable to NHC in the approximate
amount of $14,922,000 (interest rate of LIBOR + 2.25% with a floor of 4%) and a senior secured note payable to NHC
in the approximate amount of $1,723,000 (interest rate of 8.4%).  The term note payable required monthly interest
payments plus quarterly principal payments in the amount of $425,000 until maturity on May 14, 2007 at which time
the entire outstanding principal balance is due.

On February 3, 2006, our bank term loan was assigned to National Health Investors, Inc. and certain terms of
the loan were amended.  The assigned loan as amended requires monthly interest payments at the interest rate of 30 days
LIBOR plus 1.00%.  The unpaid principal ($10,025,000 at March 31, 2006) is due at maturity (January 2, 2008).

*Contractual Cash Obligations*

Our contractual cash obligations for periods subsequent to March 31, 2006 are as follows:

|                                   |         | Less than | 2-3     | 4-5      | After 5 
|---------------------------------- | ------- | --------- | ------- | -------- | --------
|(in thousands)                     | Total   | 1 Year    | Years   | Years    | Years   
|Long-term debt - principal         | $10,025 | $ --      | $10,025 | $     -- | $     --
|Long-term debt - interest          | 1,130   | 565       | 565     | --       | --      
|Advisory Agreement                 | 500     | 500       | --      | --       | --      
|Total Contractual Cash Obligations | $10,525 | $500      | $10,025 | $     -- | $     --

Our potential commitment of up to $26,225,000 to purchase bed additions constructed by NHC on our properties
haze been excluded from the above table.  Amounts are not estimable and are dependent on events that have not yet
occurred.

We expect that current cash on hand, marketable securities, short-term notes receivable, operating cash flows,
and as needed, our borrowing capacity will be adequate to finance our operating and financing requirements for 2006
and 2007.

*Sources and Uses of Funds*

Our leasing and mortgage services generated net cash from operating activities during the three months ended
March 31, 2006, in the amount of $5,123,000 compared to $4,661,000 in the prior period.  Net cash from operating
activities generally includes net income plus non-cash expenses, such as depreciation and amortization and provision for
loan losses, if any, and working capital changes.  The period to period decrease is due primarily to reduced mortgage
interest income offset in part by reduced interest expense.

Cash flows provided by investing activities totaled $198,000 during the three months ended March 31, 2006,
compared to $96,000 in the prior period.  Collection of mortgage notes receivable provided $198,000 of cash flow in the
current period compared to $96,000 in the same period last year.

Cash flows used in financing activities totaled $5,250,000 ($3,502,000 last year) and included payments on long-term debt of $425,000 ($425,000 last year), payments for dividends to stockholders of $4,299,000 ($4,001,000 last year),
and payments for cash distributions to minority interest partners of $526,000 ($501,000 last year) offset in part by $-0-
proceeds from issuance of common shares in the current year ($1,425,000 last year).

*Dividends*

We intend to pay quarterly distributions to our stockholders in an amount at least sufficient to satisfy the
distribution requirements of a real estate investment trust.  Such requirements necessitate that at least 90% of our taxable
income be distributed annually.  The primary source for distributions will be rental and interest income we earn on the
real property and mortgage notes receivable.

*Debt to Equity Ratio*

At March 31, 2006, our debt as a percentage of total liabilities and capital was 7.1%.

Our current cash on hand, marketable securities, collections on leases and notes receivable, operating cash flows
and, as needed, our borrowing capacity is expected to be adequate to pay or finance any scheduled debt reduction, plus
our operating requirements for 2006 and into 2007.

RESULTS OF OPERATIONS

*Three Months Ended March 31, 2006 Compared to Three Months Ended March 31, 2005*

Net income for the three months ended March 31, 2006, is $3,103,000 versus $2,783,000 for the same period
in 2005, an increase of 11.5%.  Diluted earnings per common share is 31 cents in the 2006 period, compared to 28 cents
in the 2005 period.

Total revenues for the three months ended March 31, 2006, increased $263,000 to $5,163,000 from $4,900,000
for the three months ended March 31, 2005.  Revenues from rental income increased $321,000 or 7.5% when compared
to the same period in 2005.  Revenues from mortgage interest decreased $58,000 or 9.8% in 2006 as compared to the
same period in 2005.

The increase in rental income is due to increased percentage rent.  Percentage rent is calculated at 3% of the
amount by which gross revenues of each leased health care center in each quarter of each year after 1999 exceed the gross
revenues of such health care facility in the applicable quarter of 1999.

The decrease in mortgage interest income is due to the reductions in the principal of mortgage notes due to
regular monthly amortization offset in part due to increased interest rates due to variable rate notes receivable.

Total expenses for the 2006 three month period decreased $91,000 or 4.8% to $1,807,000 from $1,898,000 for
the 2005 three month period.  Interest expense decreased $15,000 or 9.1% in the 2006 three month period as compared
to the 2005 period.  Depreciation of real estate decreased $45,000 or 3.1%.  General and administrative costs decreased
$31,000 or 11.7%.

Interest expense decreased due to a $4,000,000 voluntary prepayment of our bank term loan in the fourth quarter
of 2005 as well as regular quarterly payments that reduced the loan balance.  Decreases were offset in part due to the
interest rate on variable rate debt being greater in the 2006 three month period.

General and administrative expenses decreased due primarily to decreases in audit fees, stock compensation
expense and franchise tax expense.  The decreases were offset in part due to increases in advisory fees.

Non-operating income, which is composed of net revenues from investment, loan renewal fee, interest income,
and equity in losses of an unconsolidated investment  increased $2,000 or 1.6% for the three months ended March 31,
2006 compared to the same period in 2005.  Investment and interest income for the three months ended March 31, 2006
includes $108,000 of dividend income, $48,000 of bank interest income, $50,000 loan renewal fee and $81,000 of equity
in losses of an unconsolidated investment.

**Funds From Operations**

Our funds from operations ("FFO") for the three months ended March 31, 2006, on a diluted basis was
$4,371,000, an increase of $281,000 as compared to $4,090,000 for the same period in 2005.  FFO represents net earnings
available to common stockholders, excluding the effects of asset dispositions, plus depreciation associated with real estate
investments.  Diluted FFO assumes, if dilutive, the conversion of cumulative convertible preferred stock and the exercise
of stock options using the treasury stock method.

We believe that funds from operations is an important supplemental measure of operating performance for a
real estate investment trust.  Because the historical cost accounting convention used for real estate assets requires straight-line depreciation (except on land), such accounting presentation implies that the value of real estate assets diminishes
predictably over time.  Since real estate values instead have historically risen and fallen with market conditions,
presentations of operating results for a real estate investment trust that use historical cost accounting for depreciation
could be less informative, and should be supplemented with a measure such as FFO.  The term FFO was designed by the
real estate investment trust industry to address this issue.  Our measure may not be comparable to similarly titled measures
used by other REITs.  Consequently, our funds from operations may not provide a meaningful measure of our
performance as compared to that of other REITs.  Since other REITs may not use our definition of FFO, caution should
be exercised when comparing our Company's FFO to that of other REITs.  Funds from operations in and of itself does
not represent cash generated from operating activities in accordance with GAAP (funds from operations does not include
changes in operating assets and liabilities) and therefore should not be considered an alternative to net earnings as an
indication of operating performance, or to net cash flow from operating activities as determined by GAAP in the United
States, as a measure of liquidity and is not necessarily indicative of cash available to fund cash needs.

The following table reconciles net income to funds from operations:

|                                                   | Three Months Ended
|-------------------------------------------------- | ------------------
|                                                   | March 31          
|                                                   | 2006              
|Net income applicable to common stockholders       | $3,103            
|Adjustments:                                       |                   
|Real estate depreciation                           | 1,423             
|Minority interest in NHR/OP, L.P. share            |                   
|of add back for real estate depreciation           | (155)             
|Funds from operations                              | $4,371            
|                                                   |                   
|Basic funds from operations                        | $    .44          
|Diluted funds from operations                      | $    .44          
|                                                   |                   
|Shares for basic funds from operations per share   | 9,939,463         
|Shares for diluted funds from operations per share | 9,946,538         

FUTURE RENTAL AND MORTGAGE INTEREST INCOME UNCERTAINTIES

Our rental and mortgage interest income revenues are believed by management to be secure. However, the
majority of the income of our lessees and borrowers is derived from the lessees' participation in the Medicare and
Medicaid programs.  Adverse changes in these programs or the inability of our lessees and borrowers to participate in
these programs would have a material adverse impact on the financial position, results of operations and cash flows of
our lessees and borrowers and their resultant ability to service their obligations to us.  Additionally, prepayment by our
borrowers of their mortgage notes to us would reduce our future income.

INCOME TAXES

We intend at all times to qualify as a REIT under Sections 856 through 860 of the Internal Revenue Code of
1986, as amended. Therefore, we will not be subject to federal income tax provided we distribute at least 90% of our
annual REIT taxable income to our stockholders and meet other requirements to continue to qualify as a REIT.
Accordingly, no provision for federal income taxes has been made in the consolidated financial statements. Our failure
to continue to qualify under the applicable REIT qualification rules and regulations would have a material adverse impact
on our financial position, results of operations and cash flows.

IMPACT OF INFLATION

Inflation may affect us in the future by changing the underlying value of our real estate or by impacting our cost
of financing operations.

Our revenues are primarily from long-term investments.  Our leases with NHC require increases in rent income
based on increases in the revenues of the leased facilities.

FORWARD-LOOKING STATEMENTS

References throughout this document to "the Company", "we" or "us" include National Health Realty, Inc. and
its subsidiaries.  In accordance with the Securities and Exchange Commission's "Plain English" guidelines, this Quarterly
Report on Form 10-Q has been written in the first person.  In this document, the words "we", "our", "ours" and "us" refer
only to National Health Realty, Inc. and its subsidiaries and not any other person.

This Quarterly Report on Form 10-Q and other information we provide from time to time, contains certain
"forward-looking" statements as that term is defined by the Private Securities Litigation Reform Act of 1995.  All
statements regarding our expected future financial position, results of operations, cash flows, funds from operations,
continued performance improvements, ability to service and refinance our debt obligations, ability to finance growth
opportunities, and similar statements including, without limitations, those containing words such as "believes",
"anticipates", "expects", "intends", "estimates", "plans", and other similar expressions are forward-looking statements.

Forward-looking statements involve known and unknown risks and uncertainties that may cause our actual
results in future periods to differ materially from those projected or contemplated in the forward-looking statements as
a result of, but not limited to, the following factors:

*	national and local economic conditions, including their effect on the availability and cost of labor,
utilities and materials;

*	the effect of government regulations and changes in regulations governing the healthcare industry,
including compliance with such regulations by us and our borrowers and/or lessees;

*	changes in Medicare and Medicaid payment levels and methodologies and the application of such
methodologies by the government and its fiscal intermediaries;

*	the ability to pay when due or refinance certain debt obligations when they mature;

*	the competitive environment in which we operate.

See the notes to the quarterly financial statement, and "Item 1.  Business" and "Item 1A.  Risk Factors" as is
found in our 2005 Annual Report on Form 10-K for a discussion of various governmental regulations and other operating
factors relating to the healthcare industry and the risk factors inherent in them.  The Annual Report and Form 10-Q's are
available on our web site at www.nationalhealthrealty.com.  You should carefully consider those risks before making
any investment decisions in the Company.  These risks and uncertainties are not the only ones facing the Company.
There may be additional risks that we do not presently know of or that we currently deem immaterial.  If any of the risks
actually occur, our business, financial condition or results of operations could be materially adversely affected.  In that
case, the trading price of our Common Stock could decline, and you may lose all or part of your investment.  Given these
risks and uncertainties, we can give no assurances that these forward-looking statements will, in fact, transpire and,
therefore, caution investors not to place undue reliance on them.

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

INTEREST RATE RISK

Our cash and cash equivalents consist of highly liquid investments with an original maturity of less than three
months.  Approximately $7,982,000 of our notes receivable bear interest at fixed interest rates.  As the interest rates on
these notes receivable are fixed, a hypothetical 10% change in market interest rates would have no impact on our future
earnings and cash flows related to these instruments.  Approximately $5,027,000 of our notes receivable bear interest
at variable rates (generally at prime plus 2%).  Because the interest rate of these instruments are variable, a hypothetical
10% change in market interest rates would result in a related increase or decrease in annual interest income of
approximately $49,000.

As of March 31, 2006, all of our debt ($10,025,000) bears interest at variable interest rates.  Because the interest
rates of these instruments are variable, a hypothetical 10% increase in interest rates would result in additional annual
interest expense of $56,500 and a 10% reduction in interest rates would result in annual interest expense declining
$56,500.

We currently do not use any derivative instruments to hedge our interest rate expense or for trading purposes.
The use of such instruments would be subject to strict approvals by our senior officers.  Therefore, our exposure related
to such derivative instruments is not material to our financial position, results of operations or cash flows.

EQUITY PRICE RISK

We consider our investments in marketable securities as available for sale securities and unrealized gains and
losses are recorded in stockholders' equity in accordance with Statement of Financial Accounting Standards No. 115.
The investments in marketable securities are recorded at their fair market value based on quoted market prices.  Thus,
there is exposure to equity price risk, which is the potential change in fair value due to a change in quoted market prices.
Hypothetically, a 10% increase in quoted market prices would result in a related 10% increase in the fair value of our
investments in marketable securities of approximately $571,000 and 10% reduction in quoted market prices would result
in a related 10% decrease in the fair value of our investments in marketable securities of approximately the same amount.

**Item 4.  Controls and Procedures**

As of March 31, 2006, an evaluation was performed under the supervision and with the participation of the
Company's management, including the Chief Executive Officer ("CEO") and Principal Accounting Officer ("PAO"),
of the effectiveness of the design and operation of the Company's disclosure controls and procedures.  Based on that
evaluation, the Company's management, including the CEO and PAO, concluded that the Company's disclosure controls
and procedures were effective as of March 31, 2006.  There have been no significant changes in the Company's internal
control over financial reporting or in other factors that could significantly affect or are reasonably likely to significantly
affect internal controls over financial reporting during the quarterly period ended or subsequent to March 31, 2006. ****

**PART II.  OTHER INFORMATION**

Item 1.	Legal Proceedings.  None

Item 1A. Risk Factors.

*We depend on the operating success of our tenants, who operate in the skilled nursing and assisted living
industry for collection of our rent revenues.*Our skilled nursing facility operators' revenues are primarily driven by
occupancy, Medicare and Medicaid reimbursement and private pay rates.  Our assisted living facility operators' revenues
are primarily driven by occupancy and private pay rates.  Expenses for these facility types are driven by the costs of labor,
food, utilities, taxes, insurance and rent or debt service.  Revenues from government reimbursement have, and may
continue, to come under pressure due to reimbursement cuts and federal and state budget shortfalls.  Liability insurance
and staffing costs continue to increase for our operators.  To the extend that any decrease in revenues and/or any increase
in operating expenses result in a facility not generating enough cash to make payments to us, the credit of our operator
and the value of other collateral would have to be relied upon.

*We are exposed to the risk that our operators may not be able to meet the rent, principal and interest or other
payments due us, which may result in an operator bankruptcy or insolvency, or that an operator might become subject
to bankruptcy or insolvency proceedings for other reasons.*Although our operating lease agreements provide us the
right to evict an operator, demand immediate payment of rent and exercise other remedies, and our mortgage loans
provide us the right to terminate any funding obligations, demand immediate repayment of principal and unpaid interest,
foreclose on the collateral and exercise other remedies, the bankruptcy laws afford certain rights to a party that has filed
for bankruptcy or reorganization.  An operator in bankruptcy may be able to limit or delay our ability to collect unpaid
rent in the case of a lease or to receive unpaid principal and/or interest in the case of a mortgage loan, and to exercise
other rights and remedies.

We may be required to fund certain expenses (e.g., real estate taxes, maintenance and capital improvements)
to preserve the value of a facility, avoid the imposition of liens on a facility and/or transition a facility to a new operator.
In some instances, we have terminated our lease with an operator and relet the facility to another operator.  In some of
those situations, we provided working capital loans to and limited indemnification of the new operator.  If we cannot
transition a leased facility to a new operator, we may take possession of that facility, which may expose us to certain
successor liabilities.  Should such events occur, our revenue and operating cash flow may be adversely affected.

*We are exposed to risk as a result of approximately two-thirds of our revenue (66.8% in 2005) is being
generated from a lease with NHC.*Additionally, 14 of our 23 owned properties are leased to NHC.  In the event NHC
experiences a decline in profitability from their operations, NHC's ability to pay our rent could be adversely affected.
If NHC defaults in its obligation to pay our rent timely, such event would have a material adverse effect on our financial
results, carrying value of our assets and on our ability to pay dividends.

*We are exposed to risks related to government regulations and the effect they have on our operators' business.*
Our operators' businesses are affected by government reimbursement and private payor rates.  To the extend that any
skilled nursing facility receives a significant portion of its revenues from governmental payors, primarily Medicare and
Medicaid, such revenues may be subject to statutory and regulatory changes, retroactive rate adjustments, recovery of
program overpayments or set-offs, administrative rulings, policy interpretations, payment or other delays by fiscal
intermediaries, government funding restrictions (at a program level or with respect to specific facilities) and interruption
or delays in payments due to any ongoing governmental investigations and audits at such facility.  In recent years,
governmental payors have frozen or reduced payments to health care providers due to budgetary pressures.  Changes in
health care reimbursement will likely continue to be of paramount importance to federal and state authorities.  We cannot
make any assessment as to the ultimate timing or effect any future legislative reforms may have on the financial condition
of the health care industry.  There can be no assurance that adequate reimbursement levels will continue to be available
for services provided by any facility operator, whether the facility receives reimbursement from Medicare, Medicaid or
private payors.  Significant limits on the scope of services reimbursed and on reimbursement rates and fees could have
a material adverse effect on an operator's liquidity, financial condition and results of operations, which could adversely
affect the ability of an operator to meet its obligations to us.  In addition, the replacement of an operator that has defaulted
on its lease or loan could be delayed by the approval process of any federal, state or local agency necessary for the
transfer of the facility or the replacement of the operator licensed to manage the facility.

*We are exposed to the risk that the cash flows of our tenants and mortgages will be affected by increased
liability claims and increased general and professional liability insurance costs.* Long-term care facility operators
(assisted living and skilled nursing facilities) have experienced substantial increases in both the number and size of
patient care liability claims in recent years, particularly in the state of Florida.  As a result, general and professional
liability costs have increased and may continue to increase.  Nationwide, long-term care liability insurance rates are
increasing because of large jury awards in states like Texas and Florida.  Over the past two years, both Texas and Florida
have adopted skilled nursing facility liability laws that modify or limit tort damages.  Despite some of these reforms, the
long-term care industry overall continues to experience very high general and professional liability costs.  Insurance
companies have responded to this claims crisis by severely restricting their capacity to write long-term care general and
professional liability policies.  No assurances can be given that the climate for long-term care general and professional
liability insurance will improve in any of the foregoing states or any other states where the facility operators conduct
business.  Insurance companies may continue to reduce or stop writing general and professional liability policies for
assisted living and skilled nursing facilities.  Thus, general professional liability insurance coverage may be restricted,
very costly, or not available, which may adversely affect the facility operators' future operations, cash flows and financial
condition, and may have a material adverse effect on the facility operators' ability to meet their obligations to us.

*We have risks relating to the success of future acquisitions.*  We could encounter unanticipated difficulties and
expenditures relating to any acquired properties, including contingent liabilities, and newly acquired properties might
require significant management attention that would otherwise be devoted to our ongoing business.  If we agree to
provide construction funding to an operator and the project is not completed, we may need to take steps to ensure
completion of the project or we could lose the property.  Moreover, if we issue equity securities or incur additional debt,
or both, to finance future acquisitions, it may reduce our per share financial results.  These costs may negatively affect
our results of operations.

*We are exposed to risks related to environmental laws and the costs associated with the liability related to
hazardous substances.*Under various federal and state laws, owners or operators of real property may be required to
respond to the release of hazardous substances on the property and may be held liable for property damage, personal
injuries or penalties that result from environmental contamination.  These laws also expose us to the possibility that we
may become liable to reimburse the government for damages and costs it incurs in connection with the contamination.
Generally, such liability attaches to a person based on the person's relationship to the property.  Our tenants or borrowers
are primarily responsible for the condition of the property and since we are a passive landlord, we do not "participate in
the management" of any property in which we have an interest.  Moreover, we review environmental site assessments
of the properties that we own or encumber prior to taking an interest in them.  Those assessments are designed to meet
the "all appropriate inquiry" standard, which qualifies us for the innocent purchaser defense if environmental liabilities
arise.  Based upon such assessments, we do not believe that any of our properties are subject to material environmental
contamination.  However, environmental liabilities, including mold, may be present in our properties and we may incur
costs to remediate contamination, which could have a material adverse effect on our business or financial condition.

*We depend on the ability to reinvest cash from our operating, investing and financing activities in a timely
manner and on acceptable terms.*From time to time, we will have cash available from (1) the proceeds of sales of our
securities, (2) principal payments on our loans receivable, and (3) the sale of properties, including non-elective
dispositions, under the terms of master leases or similar financial support arrangements.  We must re-invest these
proceeds, on a timely basis, in health care investments or in qualified short-term investments.  We compete for real estate
investments with a broad variety of potential investors.  This competition for attractive investments may negatively affect
our ability to make timely investments on terms acceptable to us.  Delays in acquiring properties may negatively impact
revenues and perhaps our ability to make distributions to stockholders.

*We depend on the ability to qualify or remain qualified as a REIT.*We intend to operate as a REIT under the
Internal Revenue Code and believe we have and will continue to operate in such a manner.  Since REIT qualification
requires us to meet a number of complex requirements, it is possible that we may fail to fulfill them, and if we do, our
earnings will be reduced by the amount of federal taxes owed.  A reduction in our earnings would affect the amount we
could distribute to our stockholders.  Also, if we were not a REIT, we would not be required to make distributions to
stockholders since a non-REIT is not required to pay dividends to stockholders amounting to at least 90% of its annual
taxable income.

*We are subject to risks associated with our obligation to purchase leasehold improvements and additions made
by NHC as tenant to our real estate properties.*  Our lease of fourteen properties to NHC has currently been extended
until December 31, 2017.  Under the terms of the lease, at such time as NHC is no longer a tenant by virtue of lease
terminations, then NHR shall purchase the bed additions paid for by NHC but unreimbursed by NHR for the lesser of
(1) the appraised value of the addition or (2) the construction cost incurred by NHC plus 50% of any appraised value
increase over cost.  Also under the terms of the lease, NHC agrees at NHR's request to finance NHR's purchase of the
addition with a floating rate interest only note at the prime rate of interest for a period of up to two years.  NHC has
submitted a listing of certain NHR owned properties expected to be expanded by NHC for which the construction cost
is expected to total approximately $26,225,000.  Therefore, we would be required at that time of termination of our leases
with NHC (or, if NHC financing is utilized, within two years after termination of our leases with NHC) to obtain
financing or to use our own capital resources to purchase these bed additions.  The terms of such financing or the
availability of our own capital at the time of such lease terminations cannot be determined at this time.

*We are dependent upon NHC for services related to investment activities and day-to-day management.*
Processes such as accounting, monitoring of investments, finance activities, etc. are performed for us by NHC under an
advisory agreement that may be cancelled upon 90 days notice or upon demand in some circumstances.  The cancellation
of this agreement would, at least temporarily, have a material adverse impact on our business activities and upon our
ability to comply with government regulations.

Item 2.	Unregistered sales of Equity Securities and Use of Proceeds.  Not applicable

Item 3.	Defaults Upon Senior Securities.  None

Item 4.	Submission of Matters to a Vote of Security Holders.  None

Item 5.	Other Information.  None

Item 6.	Exhibits.

(a)	List of exhibits

|Exhibit No. | Description                                                           
|----------- | ----------------------------------------------------------------------
|31.1        | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer     
|            |                                                                       
|31.2        | Rule 13a-14(a)/15d-14(a) Certification of Principal Accounting Officer
|            |                                                                       
|32          | Certification pursuant to 18 U.S.C. Section 1350 by Chief Executive   
|            | Officer and Principal Accounting Officer                              
|            |                                                                       
|99          | Restated Audit Committee Charter                                      



**SIGNATURES**

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

|                | NATIONAL HEALTH REALTY, INC.    
|--------------- | --------------------------------
|                | (Registrant)                    
|               
|               
|               
|DateMay 1, 2006 | /s/Robert G. Adams              
|                | Robert G. Adams                 
|                | President                       
|               
|               
|               
|DateMay 1, 2006 | /s/Donald K. Daniel             
|                | Donald K. Daniel                
|                | Senior Vice President/Controller
|                | (Principal Financial Officer)