<PAGE>   1



                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    FORM 10-Q

             [ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                For the quarterly period ended       September 30, 2000
                                                     ------------------

                                       OR

             [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                     For the transition period from      to
                                                    -----  -----

                         Commission file number:     1045281
                                                     -------


                          CAPTEC NET LEASE REALTY, INC.
                          -----------------------------
             (Exact name of registrant as specified in its charter)

                                    Delaware
                                    --------
         (State or other jurisdiction of incorporation or organization)

                                   38-3368333
                                   ----------
                      (IRS Employer Identification Number)

             24 Frank Lloyd Wright Drive, Ann Arbor, Michigan 48106
             ------------------------------------------------------
          (Address of principal executive offices, including zip code)

                                 (734) 994-5505
                                 --------------
                         (Registrant's telephone number)

                                 Not Applicable
                                 --------------
   (Former name, former address and former fiscal year, if changed since last
    year)

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 filing requirements
for the past 90 days. Yes X  No
                         ---   ---


     APPLICABLE ONLY TO CORPORATE ISSUERS:  Indicate the number of shares
outstanding of each of the registrant's classes of common equity, as of the
latest practicable date.

       9,508,108 shares of Common Stock, $.01 par value, outstanding as of
       November 14, 2000.

<PAGE>   2



                         CAPTEC NET LEASE REALTY, INC.
                                AND SUBSIDIARIES

                                    CONTENTS
<TABLE>
<CAPTION>


     ITEM NO.                                                                                        PAGE
     --------                                                                                        ----
<S>                      <C>                                                                      <C>
       PART I             FINANCIAL INFORMATION

       Item 1.            Financial Statements:

                          Consolidated Balance Sheets                                                    3
                          Consolidated Statements of Operations                                          4
                          Consolidated Statement of Changes in Stockholders' Equity                      5
                          Consolidated Statements of Cash Flows                                          6
                          Notes to Consolidated Financial Statements                                 7 - 10

       Item 2.            Management's Discussion and Analysis of
                          Financial Condition and Results of Operations                             11 - 14

       Item 3.            Quantitative and Qualitative Disclosures about Market Risk                    14

      PART II             OTHER INFORMATION

       Item 1.            Legal Proceedings                                                             15
       Item 2.            Changes in Securities                                                         15
       Item 3.            Defaults upon Senior Securities                                               15
       Item 4.            Submission of Matters to a Vote of Security Holders                           15
       Item 5.            Other Information                                                             15
       Item 6.            Exhibits and Report on Form 8-K                                               16
</TABLE>























                                       2


<PAGE>   3



PART I.   FINANCIAL INFORMATION
ITEM 1.   FINANCIAL STATEMENTS


                 CAPTEC NET LEASE REALTY, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>


                                                                           SEPTEMBER 30,  DECEMBER 31,
                                                                               2000          1999
                                                                               ----          ----
ASSETS                                                                     (unaudited)

<S>                                                                      <C>            <C>
Cash and cash equivalents                                                $  2,148,006   $  1,035,607

Investments:
  Properties subject to operating leases, net                             202,494,435    217,615,654
  Properties subject to financing leases, net                               4,506,670      4,407,195
  Loans to affiliates, collateralized by mortgage loans                     9,335,946     10,979,804
  Investment in joint venture                                               7,032,284      7,305,894
  Investment in affiliated limited partnerships, net                        4,181,812      4,251,568
  Other loans, related party                                                  378,124        390,520
                                                                         ------------   ------------
            Total investments                                             227,929,271    244,950,635

Short-term loans to affiliates                                              1,969,695        398,471
Unbilled rent, net                                                          7,145,084      6,027,221
Accounts receivable                                                           693,131        491,052
Due from affiliates                                                         1,505,604      1,326,307
Other assets                                                                2,250,154      1,292,399
                                                                         ------------   ------------

           Total assets                                                  $243,640,945   $255,521,692
                                                                         ============   ============


LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
 Notes payable                                                           $104,378,412   $116,921,555
 Accounts payable and accrued expenses                                      1,668,039      2,672,529
 Federal income tax payable                                                         -        719,000
 Security deposits held on leases                                             244,861        272,943
                                                                         ------------   ------------

           Total liabilities                                              106,291,312    120,586,027
                                                                         ------------   ------------

Stockholders' Equity:
  Common stock, ($.01 par value) authorized: 40,000,000
   shares; issued and outstanding: 9,508,108                                   95,081         95,081
  Paid in capital                                                         134,711,056    134,711,056
  Retained earnings                                                         2,543,496        129,528
                                                                         ------------   ------------

           Total stockholders' equity                                     137,349,633    134,935,665
                                                                         ------------   ------------

           Total liabilities and stockholders' equity                    $243,640,945   $255,521,692
                                                                         ============   ============
</TABLE>

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



                                       3

<PAGE>   4



                 CAPTEC NET LEASE REALTY, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                   (unaudited)
<TABLE>
<CAPTION>


                                                               Three Months Ended            Nine Months Ended
                                                                   September 30,               September 30,
                                                           ---------------------------- ----------------------------
                                                                  2000          1999         2000          1999

<S>                                                       <C>             <C>           <C>           <C>
Revenue:
  Rental income from operating leases                        $ 5,940,528   $ 6,165,542   $18,145,776   $18,332,955
  Earned income from financing leases                            152,467       161,231       463,974       476,777
  Interest income on loans to affiliates                         316,642       320,634       947,736       951,005
  Other income, principally affiliated ventures                  522,362       724,277     2,049,566     1,695,106
                                                             -----------   -----------   -----------   -----------

         Total revenue                                         6,931,999     7,371,684    21,607,052    21,455,843
                                                             -----------   -----------   -----------   -----------

Expenses:
  Interest                                                     2,427,414     2,347,837     7,540,858     6,831,505
  Management fees, affiliates, net                                     -        52,426             -       (23,102)
  General and administrative                                     344,607       421,734     1,075,471     1,146,769
  Depreciation and amortization                                  859,414       850,527     2,591,927     2,532,602
  Non-recurring merger costs                                           -             -     1,143,000             -
                                                             -----------   -----------   -----------   -----------

         Total expenses                                        3,631,435     3,672,524    12,351,256    10,487,774
                                                             -----------   -----------   -----------   -----------

         Income before equity in joint venture,
             gain on sale of properties, other
             non-recurring and accounting change               3,300,564     3,699,160     9,255,796    10,968,069

Equity in net income of joint venture                            131,524        95,636       426,601        95,636

Gain on sale of properties, net                                1,253,172       127,665     2,864,393        66,246

Other non-recurring                                                    -             -       706,421             -
                                                             -----------   -----------   -----------   -----------

          Income before accounting change                      4,685,260     3,922,461    13,253,211    11,129,951

Cummulative effect of accounting change                                -             -             -      (336,875)
                                                             -----------   -----------   -----------   -----------

          Net Income                                         $ 4,685,260   $ 3,922,461   $13,253,211    10,793,076
                                                             ===========   ===========   ===========   ===========

          Basic and Diluted EPS:
              Income before accounting change                $      0.49   $      0.41   $      1.39   $      1.17
                                                             ===========   ===========   ===========   ===========
              Accounting change                              $         -   $         -   $         -   $     (0.04)
                                                             ===========   ===========   ===========   ===========
              Net Income                                     $      0.49   $      0.41   $      1.39   $      1.14
                                                             ===========   ===========   ===========   ===========

Weighted average number of common shares
     outstanding - basic and diluted                           9,508,108     9,508,108     9,508,108     9,508,108
                                                             ===========   ===========   ===========   ===========

</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements



                                       4

<PAGE>   5




                 CAPTEC NET LEASE REALTY, INC. AND SUBSIDIARIES
            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000

                                   (unaudited)
<TABLE>
<CAPTION>

                                                       Common Stock                                               Total
                                               -----------------------------    Paid-In        Retained       Stockholders'
                                                  Shares         Amount         Capital        Earnings          Equity
                                                  ------         ------         -------        --------          ------
<S>                                        <C>             <C>            <C>             <C>             <C>
BALANCE, JANUARY 1, 2000                       9,508,108   $      95,081   $ 134,711,056   $     129,528    $ 134,935,665

Net Income                                             -               -               -      13,253,211       13,253,211

Common stock dividends ($0.38 per share)               -               -               -     (10,839,243)     (10,839,243)
                                           -------------   -------------   -------------   -------------    -------------

BALANCE, September 30, 2000                    9,508,108   $      95,081   $ 134,711,056   $   2,543,496    $ 137,349,633
                                           =============   =============   =============   =============    =============

</TABLE>



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



                                       5

<PAGE>   6



                 CAPTEC NET LEASE REALTY, INC. and SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (unaudited)

<TABLE>
<CAPTION>


                                                                             Nine Months Ended
                                                                                September 30,
                                                                      ------------------------------
                                                                            2000            1999

<S>                                                                    <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                                             $ 13,253,211    $ 10,793,076
Adjustments to net income:
 Depreciation and amortization                                            2,591,927       2,532,602
 Accounting change                                                                -         336,875
 Amortization of debt issuance costs                                        819,396         474,628
 Equity in net income of joint venture                                     (426,601)        (95,636)
 Gain on sale of property                                                (2,864,393)        (66,246)
 Increase in unbilled rent                                               (1,117,863)     (1,881,298)
 (Increase) decrease in accounts receivable and other assets             (2,189,788)        177,600
 Decrease in accounts payable and accrued expenses                       (1,723,490)     (1,018,062)
                                                                       ------------    ------------

 Net cash provided by operating activities                                8,342,399      11,253,539
                                                                       ------------    ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of properties subject to operating leases                   (12,468,080)    (14,712,463)
Acquisition of properties subject to financing leases                             -      (1,153,037)
(Advances) collections on short-term loans to affiliates, net            (1,571,224)        696,268
Proceeds from the transfer of properties to
 joint venture                                                                            3,385,972
Proceeds from the disposition of properties                              27,962,782       9,062,193
Collections (advances) on loans to affiliates, collateralized by
 mortgage loans                                                           1,643,858        (683,229)
Collection of principal on other loans                                       12,396          11,309
Investment in joint venture                                                              (7,113,000)
Proceeds from joint venture distribution                                    700,211          63,828
Collection of principal on financing leases                                 (99,475)              -
Lease security deposits                                                     (28,082)         86,500
                                                                       ------------    ------------

 Net cash provided by (used in) investing activities                     16,152,386     (10,355,659)
                                                                       ------------    ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid on common stock                                          (10,839,243)    (10,791,702)
Borrowings of notes payable                                              11,945,000      11,000,000
Repayments of notes payable                                             (24,488,143)     (4,012,289)
                                                                       ------------    ------------

 Net cash used in financing activities                                  (23,382,386)     (3,803,991)
                                                                       ------------    ------------

NET CASH FLOWS                                                            1,112,399      (2,906,111)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                            1,035,607       4,488,565
                                                                       ------------    ------------

CASH AND CASH EQUIVALENTS, END OF PERIOD                               $  2,148,006    $  1,582,454
                                                                       ============    ============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
 Cash paid for interest                                                $  8,147,036    $  7,022,623
                                                                       ============    ============

</TABLE>


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





                                       6


<PAGE>   7



                 CAPTEC NET LEASE REALTY, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     1.  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

         ORGANIZATION: The Company, which has operated as a REIT since November
         1997, acquires, develops and owns freestanding properties which are
         leased on a long-term triple-net basis to operators of national and
         regional chain restaurants and national retailers. Triple-net leases
         generally impose on the lessee responsibility for all operating costs
         and expense of the property, including the costs of repairs,
         maintenance, real property taxes, assessments, utilities and insurance.
         The Company's leases typically provide for minimum rent plus specified
         fixed periodic rent increases.

         OTHER INFORMATION: On December 20, 1999 the Company executed an Omnibus
         Agreement and Plan of Merger by and among the Company, Captec
         Acquisition, Inc., a wholly-owned subsidiary of the Company, Captec
         Financial Group, Inc., and Captec Advisors. The merger agreement
         provided for the merger of Captec Acquisition with and into Financial
         Group and of Captec Advisors with and into the Company. On May 1, 2000
         the merger agreement was terminated by the mutual agreement of the
         parties thereto.

         UNAUDITED INTERIM FINANCIAL INFORMATION: The consolidated balance sheet
         as of September 30, 2000 and the consolidated statements of operations,
         stockholders' equity and cash flows for the three and nine months ended
         September 30, 2000 and 1999 have not been audited. In the opinion of
         management, all adjustments (including normal recurring adjustments)
         considered necessary for a fair presentation have been reflected
         therein. Results of operations for the interim periods are not
         necessarily indicative of results for the full year. These unaudited
         financial statements should be read in conjunction with the financial
         statements and notes thereto included in the Company's Annual Report on
         Form 10-K for the year ended December 31, 1999 filed with the United
         States Securities and Exchange Commission on March 30, 2000.

         NEW PRONOUNCEMENTS: In June 1998 the Financial Accounting Standards
         Board issued Statement of Financial Accounting Standards No. 133,
         "Accounting for Derivative Instruments and Hedging Activities," which
         is effective for the first quarter of the first fiscal year beginning
         after June 15, 2000 (January 1, 2001 for the Company). The statement
         requires that all derivative instruments be recorded at fair value on
         the balance sheet with changes in fair value recorded each period in
         current earnings or other comprehensive income, depending on whether a
         derivative is designated as part of a hedge transaction and, if it is,
         the type of hedge transaction.

         Pursuant to the provisions of SFAS 133, all hedging designations and
         the methodology for determining hedge effectiveness must be documented
         at the inception of the hedge, and upon the initial adoption of the
         standard, hedging relationships must be designated anew. The
         documentation must also indicate the risk management intent for
         entering into the hedging arrangement. The Company is currently
         assessing and implementing the documentation and methodologies as
         required by the standard. The Company currently has two derivative
         instruments that have been identified to be accounted for under the
         provisions of the standard; an interest rate swap contract and an
         interest rate cap contract. Both contracts have been designated as cash
         flow hedges used to hedge interest rate risk. The fair value of the two
         instruments at September 30, 2000 was $428,488. Under the provisions of
         the standard the Company would be required to record an asset with the
         offset to the other comprehensive income component of stockholders'
         equity for the effective portion of the hedge and current earnings for
         the ineffective portion of the hedge. The Company is in the process of
         completing its review to determine the impact of the new standard on
         income and equity.  Also, since the impact is dependent on future
         market rates and future derivative actions prior to year-end, it is not
         fully determinable at this time.

         In April 1998, the Accounting Standards Executive Committee issued
         Statement of Position 98-5, "Reporting on the Costs of Start-Up
         Activities." This statement requires start-up activities and
         organization costs to be expensed as incurred. In accordance with the
         provisions of the statement, the Company has recorded a $336,875
         non-cash charge during the three months ended March 31, 1999
         representing the balance of unamortized organization costs.

         In December 1999, the Securities and Exchange Commission issued Staff
         Accounting Bulletin No.  101, "Revenue Recognition in Financial
         Statements."  The Company has examined its revenue recognition
         practices in light of interpretive guidance and does not expect a
         material impact when SAB 101 is adopted in the fourth quarter of 2000.

         RECLASSIFICATIONS: Certain prior period financial statement amounts
         have been reclassified to conform to the 2000 presentations.


                                       7

<PAGE>   8


                 CAPTEC NET LEASE REALTY, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     2.  PROPERTIES SUBJECT TO OPERATING LEASES:

         Properties subject to operating leases represent various properties
         leased to tenants under long-term net operating leases. The lease
         agreements generally provide for monthly rents based upon a percentage
         of the property's cost. The initial term of the leases typically ranges
         from 15 to 20 years, although the Company in certain cases will enter
         into leases with terms that are shorter or longer. Most leases also
         provide for one or more five year renewal options. In addition, certain
         leases provide the tenant one or more options to purchase the
         properties at a predetermined price, generally only during stated
         periods during the fifth to seventh lease years.

         The Company's investment in properties subject to operating leases
         includes capitalized acquisition and interest costs which have been
         allocated between land and buildings and improvements on a pro rata
         basis. The net investment in properties subject to operating leases is
         comprised of the following as of:

<TABLE>
<CAPTION>
                                             September 30,     December 31,
                                                 2000             1999
                                                 ----             ----
<S>                                         <C>              <C>
Land
Buildings and improvements                  $  80,926,592    $  83,344,971
Construction draws on properties              126,675,051      131,211,643
                                                4,108,286       10,653,762
                                            -------------    -------------
Less accumulated depreciation                 211,709,929      225,210,376
                                               (9,215,494)      (7,594,722)
Total                                       -------------    -------------
                                            $ 202,494,435    $ 217,615,654
                                            =============    =============
</TABLE>

         The Company periodically invests in properties under construction. All
         construction draws are subject to the terms of a standard lease
         agreement with the Company which fully obligates the tenant to the
         long-term lease to all construction related costs advanced through
         construction draws, including interest during the construction period.
         Upon completion of construction and when the tenant lease payments
         begin, the construction draws are then capitalized as land and
         building. At September 30, 2000 the Company had approximately $1.0
         million of unfunded commitments on properties under construction.

         The Company sold eight properties during the three months ended
         September 30, 2000, collecting total net proceeds of $11.5 million
         and reflected a gain totaling approximately $1.3 million on the sale
         of these properties.

     3.  FINANCING LEASES:

         Properties subject to financing leases is comprised of four properties
         whereby the Company owns only the building and the land is subject to a
         ground lease between the tenant and an unrelated third party. The net
         investment in financing leases is comprised of the following as of:


<TABLE>
<CAPTION>
                                               September 30,   December 31,
                                                   2000           1999
                                                   ----           ----

<S>                                           <C>             <C>
Minimum lease payments to be received         $  9,784,037    $ 10,189,037
Estimated residual value                                 -               -
                                              ------------    ------------
    Gross investment in financing leases         9,784,037      10,189,037
Unearned income                                 (5,277,367)     (5,781,842)
                                              ------------    ------------
    Net investment in financing leases        $  4,506,670    $  4,407,195
                                              ============    ============
</TABLE>





                                       8

<PAGE>   9



                 CAPTEC NET LEASE REALTY, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     4.  INVESTMENT IN JOINT VENTURE:

         In 1999 the Company invested $7.1 million for a 22.6% membership
         interest in FC Venture I, LLC. The investment is accounted for under
         the equity method. Summarized financial information of the Company's
         joint venture investment as of and for the nine months ended September
         30, 2000 is set forth below:

<TABLE>

<S>                                                              <C>
               Investment in properties subject to leases, net   $48,389,457
               Total assets                                       51,238,984
               Notes payable                                      20,233,425
               Total liabilities                                  21,071,372
               Members' equity                                    30,167,612
               Revenues                                            3,537,521
               Net income                                          1,887,614
</TABLE>


     5.  NOTES PAYABLE:

         The Company's credit facility expires in February 2001 and provides up
         to $125 million for the acquisition and development of properties and
         working capital. The credit facility is subject to certain borrowing
         base restrictions. The Company had approximately $102.4 million of
         aggregate outstanding borrowings under the credit facility at September
         30, 2000. At September 30, 2000 the Company is in compliance with all
         debt covenants.

         During the three months ended September 30, 2000 the Company entered
         into three promissory notes for an aggregate amount of $1,945,000 with
         a lending institution. The notes are collateralized by certain
         properties in the Company's property portfolio. The notes have terms of
         20 years and bear interest at 9.0% per annum.

     6.  EARNINGS PER SHARE:

         Stock options currently outstanding were excluded from the computation
         of diluted earnings per share because their exercise price was in
         excess of the average market price of the Company's common stock during
         the three and nine months ended September 30, 2000 and 1999.

     7.  NON-RECURRING ITEMS:

         As described in Note 1 above, the Company terminated a merger agreement
         on May 1, 2000 that resulted in the Company recognizing expense of $1.1
         million in non-recurring merger costs in the three month period ended
         March 31, 2000. Merger costs of approximately $700,000 which represent
         services that have near term potential benefit are included in other
         assets as of September 30, 2000.

         Other non-recurring income for the nine months ended September 30, 2000
         of approximately $706,000 represents the reversal of a previously
         provided allowance for an estimated income tax obligation which is no
         longer required due to the recent completion of an IRS audit that
         resulted in no additional tax payment.






                                       9

<PAGE>   10




                 CAPTEC NET LEASE REALTY, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     8.  RELATED PARTY TRANSACTIONS:

         The Company is party to an advisory agreement, as amended, with Captec
         Net Lease Realty Advisors, Inc., an affiliate, whereby the Company pays
         to Captec Advisors a management fee which is subject to a reduction in
         management fees paid to Captec Advisors based on the acquisition levels
         of Family Realty, Inc. and Family Realty II, Inc. of each of which the
         Company owns 60% of the non-voting common stock. During the nine months
         ended September 30, 2000 the Company incurred approximately $1.1
         million in management fees and received an equal reduction in the
         management fees from Captec Advisors.

         In 1999 Family Realty II, Inc. was formed and as a result the Company
         received $100,000 for formation costs incurred during the nine months
         ended September 30, 2000. In addition, the Company received $500,000 in
         management fees from Family Realty II during the nine months ended
         September 30, 2000. Both the formation cost and management fee have
         been recorded in other income.

     9.  SUBSEQUENT EVENTS:

         In October 2000, the Company declared dividends to its shareholders of
         $3,613,081, or $0.38 per share of common stock, which was paid on
         October 19, 2000.




                                       10


<PAGE>   11



         ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
         AND RESULTS OF OPERATIONS

         OVERVIEW

         The Company, which operates as a REIT, acquires, develops and owns
         freestanding properties which are leased on a long-term triple-net
         basis to operators of national and regional chain restaurants and
         retailers. The Company's triple-net leases generally impose on the
         lessee responsibility for all operating costs and expense of the
         property, including the costs of repairs, maintenance, real property
         taxes, assessments, utilities and insurance. The Company's leases
         typically provide for minimum rent plus specified fixed periodic rent
         increases. Other revenues are derived primarily from fee income earned
         from affiliates and interest income on loans to affiliates.

         As of September 30, 2000, the Company owned 146 properties, located in
         27 states, subject to long-term net leases with 62 different lessees
         under major restaurant and retail concepts including Bennigan's,
         Applebee's, Denny's, Athlete's Foot, Blockbuster Video, and Jared
         Jewelers.

         During the three months ended September 30, 2000, the board of
         directors accepted a recommendation concerning strategic alternatives
         for maximizing shareholder value.  Based on the recommendations, the
         board authorized the Company to proceed with pursuing a possible sale
         of the Company and formed a committee consisting of four directors to
         oversee the process.

         RESULTS OF OPERATIONS

         THREE MONTHS ENDED SEPTEMBER 30, 2000. During the three months ended
         September 30, 2000 total revenue decreased 6.0% to $6.9 million as
         compared to $7.4 million the three months ended September 30, 1999.
         Rental revenue from operating leases for the three months ended
         September 30, 2000 decreased 3.7% to $5.9 million as compared to $6.2
         million for the three months ended September 30, 1999, due to the
         reduction of the Company's property portfolio as a result of property
         sales. Earned income from financing leases for the three months ended
         September 30, 2000 decreased 5.4% to approximately $152,000 for the
         three months ended September 30, 2000 as compared to approximately
         $161,000 for the three months ended September 30, 1999. The decrease is
         the result of the amortization of principal balances. Other income
         decreased 27.9% to approximately $522,000 for the three months ended
         September 30, 2000 as compared to $724,000 for the three months ended
         September 30, 1999 due to fees earned for the acquisition, development
         and management of properties on behalf of its affiliated ventures. The
         amount of fees earned for the acquisition, development and management
         of properties on behalf of its affiliated ventures are subject to
         variations, principally by the amount of new properties identified and
         acquired by the affiliated ventures.

         Total expenses decreased 1.1% to $3.6 million for the three months
         ended September 30, 2000 as compared to $3.7 million for the three
         months ended September 30, 1999. Interest expense increased 3.4% to
         $2.4 million for the three months ended September 30, 2000 as compared
         to $2.3 million for the three months ended September 30, 1999. The
         increase was due to a 62 basis point increase in the weighted average
         interest rate as well an increase of approximately $132,000 in
         amortization of debt financing costs partially offset by a $11.9
         million reduction in the average outstanding borrowings under the
         Company's credit facility during the three months ended September 30,
         2000 as compared to the three months ended September 30, 1999. General
         and administrative expenses, including management fees to affiliates,
         decreased 27.3% to approximately $345,000 for the three months ended
         September 30, 2000 as compared to approximately $474,000 for the three
         months ended September 30, 1999 primarily due to a decrease in
         management fees and an increase in reimbursable general and
         administrative expenses as a result of the acquisition activities of
         affiliated ventures. The Company's management fee was equally offset
         due to acquisitions of its affiliated ventures during the three months
         ended September 30, 2000. The management fee paid and reductions
         received are subject to variations, principally changes in the
         Company's property portfolio balance caused by property acquisitions
         and dispositions, and the amount of new properties identified and
         acquired by the affiliated ventures. Depreciation and amortization
         increased 1.0% to approximately $859,000 for the three months ended
         September 30, 2000 as compared to approximately $851,000 for the three
         months ended September 30, 1999 principally due to the amortization of
         goodwill in connection with the Company's investment in Captec
         Franchise Capital Partners L.P. III and Captec Franchise Capital
         Partners L.P. IV.

         In 1999 the Company invested $7.1 million in a 22.6% membership
         interest in FC Venture I, LLC, a joint venture. During the three months
         ended September 30, 2000 the Company recorded approximately $132,000 as
         its portion of


                                       11

<PAGE>   12


         FC Venture's equity earnings as compared to approximately $96,000 for
         the three months ended September 30, 1999. The increase is primarily
         due to growth of FC Venture's property portfolio.

         The Company sold 8 properties during the three months ended September
         30, 2000, collecting total net proceeds of $11.5 million and reflected
         a gain totaling approximately $1.3 million on the sale of these
         properties.

         As a result of the foregoing, the Company's net income increased 19.5%
         to $4.7 million for the three months ended September 30, 2000 as
         compared to $3.9 million for the three months ended September 30, 1999.

         NINE MONTHS ENDED SEPTEMBER 30, 2000. During the nine months ended
         September 30, 2000 total revenue increased 1.0% to $21.6 million as
         compared to $21.5 million for the nine months ended September 30, 1999.
         Rental revenue from operating leases for the nine months ended
         September 30, 2000 decreased 1.0% to $18.1 million for the nine months
         ended September 30, 2000 as compared to $18.3 million for the nine
         months ended September 30, 1999, due to the reduction of the Company's
         property portfolio as a result of property sales. Earned income from
         financing leases for the nine months ended September 30, 2000 decreased
         to approximately $464,000 as compared to approximately $477,000 for the
         nine months ended September 30, 1999. The decrease is the result of the
         amortization of principal balances. Interest income on loans to
         affiliates for the nine months ended September 30, 2000 decreased to
         approximately $948,000 as compared to $951,000 for the nine months
         ended September 30, 1999. The decrease is primarily the result of
         collection on principal. Other income increased 21.0% to $2.0 million
         for the nine months ended September 30, 2000 as compared to $1.7
         million for the nine months ended September 30, 1999 primarily due to
         fee income earned from affiliates. The amount of fees earned for the
         acquisition, development and management of properties on behalf of its
         affiliated ventures are subject to variations, principally by the
         amount of new properties identified and acquired by the affiliated
         ventures.

         Interest expense for the nine months ended September 30, 2000 increased
         10.4% to $7.5 million as compared to $6.8 million for the nine months
         ended September 30, 1999. The increase was due to a 62 basis point
         increase in the weighted average interest rate as well an increase of
         approximately $345,000 in amortization of debt financing costs
         partially offset by a $3.1 million reduction in the average outstanding
         borrowings under the Company's credit facility during the nine months
         ended September 30, 2000 as compared to the nine months ended September
         30, 1999. General and administrative expenses, including management
         fees to affiliates, remained unchanged at $1.1 million for the nine
         months ended September 30, 2000 as compared to $1.1 million for the
         nine months ended September 30, 1999. The management fee paid and
         reductions received are subject to variations, principally changes in
         the Company's property portfolio balance caused by property
         acquisitions and dispositions, and the amount of new properties
         identified and acquired by the affiliated ventures. Depreciation and
         amortization increased 2.3% for the nine months ended September 30,
         2000 as compared to the nine months ended September 30, 1999
         principally due to the amortization of goodwill in connection with the
         Company's investment in Captec Franchise Capital Partners L.P. III and
         Captec Franchise Capital Partners L.P. IV, slightly offset by the
         elimination of depreciation as a result of property sales.
         Non-recurring merger costs were $1.1 million during the nine months
         ended September 30, 2000 as a result of the termination of the merger
         agreement.

         The Company sold 22 properties during the nine months ended September
         30, 2000, collecting total net proceeds of $28.0 million and reflecting
         a gain of $2.8 million on the sale of these properties. In addition,
         the Company recorded an impairment loss of $56,000 during the nine
         months ended September 30, 2000 which is netted against the gain on
         sale of properties.

         In 1999 the Company invested $7.1 million in a 22.6% membership
         interest in FC Venture I, LLC, a joint venture. During the nine months
         ended September 30, 2000 the Company recorded approximately $427,000 as
         its portion of FC Venture's equity earnings as compared to
         approximately $96,000 for the three months ended September 30, 1999.
         The increase is primarily due to growth of FC Venture's property
         portfolio.



                                       12

<PAGE>   13

         During the nine months ended September 30, 2000 an IRS audit of periods
         prior to the Company's initial public offering was completed resulting
         in no additional tax payment. As a result of the completed audit the
         Company recorded other non-recurring income of approximately $706,000
         representing the reversal of a previously provided allowance for an
         estimated tax obligation.

         As result of the foregoing, the Company's income before accounting
         change increased 19% to $13.3 million for the nine months ended
         September 30, 2000 as compared to $11.1 million for the nine months
         ended September 30, 1999.

         In April 1998, the Accounting Standards Executive Committee issued
         Statement of Position 98-5, "Reporting on the Costs of Start-Up
         Activities". This statement requires start-up activities and
         organization costs to be expensed as incurred. In accordance with the
         provisions of the statement, the Company recorded a $336,875 non-cash
         charge during the nine months ended September 30, 1999 representing the
         balance of unamortized organization costs which resulted in net income
         for the nine months ended September 30, 1999 of $10.8 million.

         LIQUIDITY AND CAPITAL RESOURCES

         The Company's principal use of funds is for property development and
         acquisition, payment of interest on its outstanding indebtedness, and
         payment of operating expenses and dividends. Historically, interest
         expense, operating expenses and dividends have been paid out of cash
         flows from operations. Property acquisition and development have been
         typically funded out of proceeds from borrowings. The Company expects
         to meet its liquidity requirements, which are principally property
         acquisition and development and scheduled debt maturities, through a
         variety of future sources of capital, including long-term
         collateralized and uncollateralized indebtedness, the issuance of
         additional equity or debt securities and "off-balance sheet" financing
         through the formation of joint ventures.

         The Company's leases generally provide for specified periodic rent
         increases. In addition, most of the Company's leases require the lessee
         to pay all operating costs and expenses including repairs, maintenance,
         real property taxes, assessments, utilities and insurance, thereby
         substantially reducing the Company's exposure to increases in costs and
         operating expenses. Based upon these factors, the Company does not
         anticipate significant capital demands related to the management of its
         properties other than potential costs of re-leasing the four vacant
         Boston Chicken properties which it anticipates not exceeding $100,000.

         At September 30, 2000 the Company had cash and cash equivalents of
         approximately $2.1 million. For the nine months ended September 30,
         2000, the Company generated cash from operations of $8.3 million as
         compared to $11.3 million for the nine months ended September 30, 1999.
         Cash generated from operations provides funds for dividends. Any excess
         cash from operations may also be used for investment in properties. For
         the nine months ended September 30, 2000 the Company generated $16.2
         million from investing activities as compared to using $10.4 million
         during the nine months ended September 30, 1999. The Company used $23.4
         million in financing activities during the nine months ended September
         30, 2000 as compared to using $3.8 million during the nine months ended
         September 30, 1999.

         CREDIT FACILITY. The Company maintains a syndicated credit facility
         with First Union National Bank, as agent, to provide funds for the
         acquisition and development of properties and working capital, and
         repaid all amounts outstanding under a prior credit facility. The
         credit facility provides up to $125.0 million of debt which is
         collateralized by the properties. At September 30, 2000 the Company had
         $102.4 million of aggregate outstanding borrowings under the credit
         facility.



                                       13

<PAGE>   14

         The credit facility has a three year term and the revolving credit
         borrowings are subject to borrowing base restrictions. The credit
         facility is subject to covenants which, among other restrictions,
         require the Company to maintain a minimum net worth, a maximum leverage
         ratio, and specified interest and fixed charge coverage ratios. At
         September 30, 2000 the Company is in compliance with all debt
         covenants. The credit facility bears interest at an annual rate of
         LIBOR plus a spread ranging from 1.25% to 1.75%, set quarterly
         depending on the Company's leverage ratio, or at the Company's option,
         the bank's base rate. In connection with the credit facility the
         Company incurred issuance costs of $1.7 million and is also required to
         pay an unused commitment fee ranging from .125% to .20% per annum on
         the unused amount of the commitment.

         The credit facility expires in February 2001 and may be renewed subject
         to the consent of the lender. Upon expiration, the entire outstanding
         balance of the credit facility will mature and become immediately due
         and payable. At that time, the Company expects to refinance such debt
         either through additional debt financings collateralized by individual
         properties or groups of properties, by uncollateralized private or
         public debt offerings, by additional equity offerings, or through the
         sale of the Company. No assurances can be made that the Company will be
         able to refinance such debt.

         PROPERTY ACQUISITIONS AND COMMITMENTS. During the three months ended
         September 30, 2000 the Company invested in properties for an aggregate
         acquisition cost of $6.2 million. As of September 30, 2000, the Company
         had entered into commitments to acquire 64 properties totaling $102.9
         million. The commitments are subject to various conditions to closing
         which are described in the contracts or letters of intent relating to
         these properties. In addition, in the ordinary course of business the
         Company is in negotiations regarding the proposed acquisition of other
         properties and related co-development opportunities. The Company may
         enter into commitments to acquire some of these prospective properties
         in the future. The Company expects to finance its acquisition
         commitments through a variety of sources of capital, including
         borrowings under the credit facility, other long-term collateralized
         and uncollateralized indebtedness, "off-balance sheet" financing
         through the formation of joint ventures and the issuance of additional
         equity or debt securities. Property acquisition commitments are
         expected to generate demand for additional capital in the future.

         PROPERTY SALES. During the three months ended September 30, 2000 the
         Company sold 8 properties collecting total net proceeds of $11.5
         million and reflecting a gain of $1.3 million on the sale of these
         properties. The Company will assess the additional need for future
         property sales as a means of generating capital to meet its current
         commitments of future property acquisitions and developments.

         DIVIDENDS. During the nine months ended September 30, 2000 the Company
         paid dividends of $10,839,243. In October 2000, the Company declared a
         third quarter dividend on its common stock in the amount of $0.38 per
         share or $3,613,081. The dividend was payable to shareholders of record
         on October 12, 2000 and was paid on October 19, 2000. The Company
         expects to pay future dividends from cash available for distribution.
         The Company believes that cash from operations will be sufficient to
         allow the Company to make distributions necessary to enable the Company
         to continue to qualify as a REIT.

         YEAR 2000

         As a result of the Company's Year 2000 efforts and the timely
         completion of all related projects, the Company did not experience any
         disruption in its business operations in January 2000. In addition, the
         Company was not adversely affected by any of its key business vendors,
         lessees or other partners not being Year 2000 ready.






                                       14

<PAGE>   15
         ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Market risk represents a risk of loss arising from adverse changes in
         market prices and interest rates. The Company's market risk arises from
         interest rate risk inherent in its financial instruments. The Company
         is not subject to foreign currency exchange rate risk or commodity
         price risk.

         The Company monitors and manages interest rate exposure as an integral
         part of its overall risk management program, which recognizes the
         unpredictability of financial markets and seeks to reduce the
         potentially adverse effect on its results. At September 30, 2000
         substantially all of the Company's debt bears interest at variable
         rates of LIBOR rate plus 1.25% to 1.75%.

         The following table presents certain information on the Company's
         assets and liabilities which are sensitive to interest rate changes at
         September 30, 2000:

<TABLE>
<CAPTION>

                                                                                                    MATURITY
                                                                                  ------------------------------------------
                                                                                     0 TO 3         1 TO 5
                                                                                     MONTHS          YEARS          TOTAL
                                                                                  -----------   -------------  -------------
<S>                                                                               <C>           <C>            <C>
         Assets:
          Cash and cash equivalents............................................   $ 2,148,006   $           -  $   2,148,006
          Properties subject to operating leases, net(1).......................             -       4,108,286      4,108,286
                                                                                  -----------   -------------  -------------
              Total assets.....................................................   $ 2,148,006   $   4,108,286  $   6,256,292
                                                                                  ===========   =============  =============
         Liabilities
          Notes payable........................................................   $         -   $ 102,433,412  $ 102,433,412
                                                                                  ===========   =============  =============
          Reprice difference...................................................   $ 2,148,006   $ (98,325,126)
          Cumulative gap.......................................................   $ 2,148,006   $ (96,177,120)
</TABLE>

        (1) Represents leases that are under construction and sensitive to
            interest rate fluctuations.

        A 1% increase in the variable interest rate for the nine months ended
        September 30, 2000 would have resulted in additional interest expense of
        approximately $515,000.

        The Company uses derivative financial instruments in the normal course
        of business to manage its exposure to fluctuations in interest rates.
        Those instruments involve, to varying degrees, market risk, as the
        instruments are subject to rate and price fluctuations, and elements of
        credit risk in the event the counterparty should default. The Company
        does not enter into derivative transactions for trading purposes. At
        September 30, 2000 the Company had an interest rate swap contract
        outstanding with a total notional amount of $50 million, and an interest
        rate cap contract outstanding with a total notional amount of $31.5
        million. The notional amounts serve solely as a basis for the
        calculation of payments to be exchanged and are not a measure of the
        exposure of the Company through the use of derivatives. Under the
        interest rate swap contract, the Company agrees to pay a fixed rate of
        5.8% and the counterparty agrees to make payments based on 3-month
        LIBOR. Under the interest rate cap agreement the counterparty agrees to
        make payments to the Company if LIBOR exceeds 6.5% through July 1, 1999
        or 7.5% thereafter. The interest rate swap contract terminates July 2001
        and the interest rate cap contract terminates January 2001.

                           PART II - OTHER INFORMATION

         ITEM 1. LEGAL PROCEEDINGS.  None.

         ITEM 2. CHANGES IN SECURITIES.   None.

         ITEM 3. DEFAULTS UPON SENIOR SECURITIES.   None.

         ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.  None.

         ITEM 5. OTHER INFORMATION.  None.



                                       15

<PAGE>   16


         ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

                 (a)  Exhibits

                      Exhibit  27.1            Financial Data Schedule.


                 (b) Reports on Form 8-K

                      No reports on Form 8-K were filed during the three months
                      ended September 30, 2000.


                           FORWARD-LOOKING STATEMENTS

         This Form 10-Q contains certain "forward-looking statements" which
         represent the Company's expectations or beliefs, including, but not
         limited to, statements concerning industry performance and the
         Company's operations, performance, financial condition, plans, growth
         and strategies. Any statements contained in this Form 10-Q which are
         not statements of historical fact may be deemed to be forward-looking
         statements. Without limiting the generality of the foregoing, words
         such as "may," "will," "expect," "anticipate," intend," "could,"
         estimate" or continue" or the negative or other variations thereof or
         comparable terminology are intended to identify forward-looking
         statements. These statements by their nature involve substantial risks
         and uncertainties, certain of which are beyond the Company's control,
         and actual results may differ materially depending on a variety of
         important factors many of which are beyond the control of the Company.
























                                       16


<PAGE>   17



                                   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.

                                    CAPTEC NET LEASE REALTY, INC.

      November 14, 2000             By:  /s/ Patrick L. Beach
                                         ------------------------
                                         Patrick L. Beach
                                         Chief Executive Officer and President

      November 14, 2000            By:   /s/ W. Ross Martin
                                         --------------------------------
                                         W. Ross Martin
                                         Chief Financial Officer and
                                         Executive Vice President









                                       17
<PAGE>   18


                                 Exhibit Index
                                 -------------


<TABLE>
<CAPTION>
Exhibit No.                   Description
-----------                   -----------
<S>                           <C>
   27.1                       Financial Data Schedule

</TABLE>