<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 June 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
                                August 14, 2000.

                                       1

<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                                                 18
</TABLE>





                                       2



<PAGE>   3


PART I.   FINANCIAL INFORMATION
ITEM 1.   FINANCIAL STATEMENTS

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


<TABLE>
<CAPTION>

                                                                JUNE 30,         DECEMBER 31,
                                                                  2000               1999
                                                                  ----               ----
<S>                                                          <C>              <C>
ASSETS                                                        (unaudited)

Cash and cash equivalents                                    $    970,322     $  1,035,607

Investments:
   Properties subject to operating leases, net                207,318,918      217,615,654
   Properties subject to financing leases, net                  4,475,703        4,407,195
   Loans to affiliates, collateralized by mortgage loans        7,665,805       10,979,804
   Investment in joint venture                                  7,239,371        7,305,894
   Investment in affiliated limited partnerships, net           4,200,484        4,251,568
   Other loans, related party                                     382,351          390,520
                                                             ------------     ------------
             Total investments                                231,282,632      244,950,635

Short-term loans to affiliates                                  3,664,634          398,471
Unbilled rent, net                                              7,184,966        6,027,221
Accounts receivable                                               591,389          491,052
Due from affiliates                                               816,665        1,326,307
Other assets                                                    1,862,068        1,292,399
                                                             ------------     ------------
             Total assets                                    $246,372,676     $255,521,692
                                                             ============     ============

LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
   Notes payable                                             $106,480,027     $116,921,555
   Accounts payable and accrued expenses                        3,352,334        2,672,529
   Federal income tax payable                                        --            719,000
   Security deposits held on leases                               262,861          272,943
                                                             ------------     ------------
             Total liabilities                                110,095,222      120,586,027
                                                             ------------     ------------
Stockholders' Equity:
   Common stock, ($.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                                            1,471,317          129,528
                                                             ------------     ------------
             Total stockholders' equity                       136,277,454      134,935,665
                                                             ------------     ------------
             Total liabilities and stockholders' equity      $246,372,676     $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                 Six Months Ended
                                                                            June 30,                          June 30,
                                                               -------------------------------     ---------------------------
                                                                    2000              1999             2000            1999
                                                                    ----              ----             ----            ----
<S>                                                            <C>              <C>               <C>              <C>
Revenue:
     Rental income from operating leases                       $  6,066,499     $  6,214,835      $ 12,205,248     $ 12,219,913
     Earned income from financing leases                            154,658          163,339           311,507          315,546
     Interest income on loans to affiliates                         315,033          311,016           631,094          630,371
     Other income, principally affiliated ventures                  507,499          359,337         1,527,204          918,328
                                                               ------------     ------------      ------------     ------------
              Total revenue                                       7,043,689        7,048,527        14,675,053       14,084,158
                                                               ------------     ------------      ------------     ------------
Expenses:
     Interest                                                     2,567,252        2,243,787         5,113,444        4,483,667
     Management fees, affiliates, net                                     -           (7,515)                -          (75,528)
     General and administrative                                     388,268          294,130           730,864          725,035
     Depreciation and amortization                                  867,545          848,666         1,732,513        1,682,075
     Non-recurring merger costs                                           -                -         1,143,000                -
                                                               ------------     ------------      ------------     ------------
              Total expenses                                      3,823,065        3,379,068         8,719,821        6,815,249
                                                               ------------     ------------      ------------     ------------
              Income before equity in joint venture,
                  gain/(loss) on sale of properties, other
                  non-recurring and accounting change             3,220,624        3,669,459         5,955,232        7,268,909

Equity in net income of joint venture                               144,535                -           295,077                -

Gain/(loss) on sale of properties                                   985,574          (10,446)        1,611,221          (61,419)

Other non-recurring                                                 706,421                -           706,421                -
                                                               ------------     ------------      ------------     ------------
              Income before accounting change                     5,057,154        3,659,013         8,567,951        7,207,490

Cummulative effect of accounting change                                   -                -                 -         (336,875)
                                                               ------------     ------------      ------------     ------------
              Net Income                                       $  5,057,154     $  3,659,013      $  8,567,951     $  6,870,615
                                                               ============     ============      ============     ============
              Basic and Diluted EPS:
                  Income before accounting change              $       0.53     $       0.38      $       0.90     $       0.76
                                                               ============     ============      ============     ============
                  Accounting change                            $          -     $          -      $          -     $      (0.04)
                                                               ============     ============      ============     ============
                  Net Income                                           0.53     $       0.38      $       0.90     $       0.72
                                                               ============     ============      ============     ============
Weighted average number of common shares
     outstanding                                                  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 SIX MONTHS ENDED JUNE 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                                               -                 -                 -         8,567,951          8,567,951

Common stock dividends ($0.38 per share)                 -                 -                 -        (7,226,162)        (7,226,162)
                                                 ---------     -------------     -------------     -------------      -------------

BALANCE, JUNE 30, 2000                           9,508,108     $      95,081     $ 134,711,056     $   1,471,317      $ 136,277,454
                                                 =========     =============     =============     =============      =============
</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>


                                                                                             Six Months Ended
                                                                                                 June 30,
                                                                               ----------------------------------------
                                                                                         2000                   1999
                                                                                         ----                   ----
<S>                                                                             <C>                      <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                                                        $    8,567,951         $   6,870,615
Adjustments to net income:
   Depreciation and amortization                                                       1,732,513             1,682,075
   Accounting change                                                                           -               336,875
   Amortization of debt issuance costs                                                   509,193               295,977
   Equity in net income of joint venture                                                (295,077)                    -
   (Gain)/loss on sale of property                                                    (1,640,470)               61,419
   Increase in unbilled rent                                                          (1,157,745)           (1,303,463)
   Increase in accounts receivable and other assets                                     (681,201)             (178,763)
   Decrease in accounts payable and accrued expenses                                     (39,195)             (964,532)
                                                                                  --------------         -------------
   Net cash provided by operating activities                                           6,995,969             6,800,203
                                                                                  --------------         -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of properties subject to operating leases                                 (6,187,101)           (6,219,165)
Acquisition of properties subject to financing leases                                          -            (1,153,037)
Advances on short-term loans to affiliates, net                                       (3,266,163)           (4,448,935)
Proceeds from the transfer of properties to
  joint venture                                                                                              3,385,972
Proceeds from the disposition of properties                                           16,454,522             2,936,896
Collections on loans to affiliates, collateralized by
   mortgage loans                                                                      3,313,999             4,448,935
Collection of principal on other loans                                                     8,169                 7,453
Investment in joint venture                                                                                 (2,712,000)
Proceeds from joint venture distribution                                                 361,600                     -
Collection of principal on financing leases                                              (68,508)                    -
Lease security deposits                                                                  (10,082)              86,500
                                                                                  --------------         -------------
   Net cash provided by (used in) investing activities                                10,606,436            (3,667,381)
                                                                                  --------------         -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid on common stock                                                        (7,226,162)           (7,178,621)
Borrowings of notes payable                                                            4,500,000               565,594
Repayments of notes payable                                                          (14,941,528)                    -
                                                                                  --------------         -------------
   Net cash used in financing activities                                             (17,667,690)           (6,613,027)
                                                                                  --------------         -------------
NET CASH FLOWS                                                                           (65,285)           (3,480,205)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                         1,035,607             4,488,565
                                                                                  --------------         -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD                                          $      970,322         $   1,008,360
                                                                                  ==============         =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
   Cash paid for interest                                                         $    4,894,568         $   4,848,712
                                                                                  ==============         =============
</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 June 30, 2000 and the consolidated statements of operations,
         stockholders' equity and cash flows for the three and six months ended
         June 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. Management of the Company has not yet
         determined the impact that the adoption of the statement will have on
         its earnings or statement of financial position.

         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.

         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 leased represent various properties
         leases 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>
                                                  June 30,          December 31,
                                                   2000                 1999
                                                   ----                 ----
         <S>                                  <C>                <C>
         Land                                 $  82,933,181      $  83,344,971
         Buildings and improvements             130,845,047        131,211,643
         Construction draws on properties         2,317,390         10,653,762
                                              -------------      -------------
                                                216,095,618        225,210,376
         Less accumulated depreciation           (8,776,700)        (7,594,722)
                                              -------------      -------------
         Total                                $ 207,318,918      $ 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 June 30, 2000 the Company had approximately $833,000 of
         unfunded commitments on properties under construction.

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>
                                                             June 30,      December 31,
                                                               2000            1999
                                                               ----            ----
         <S>                                             <C>               <C>
         Minimum lease payments to be received           $  9,911,887      $ 10,189,037
         Estimated residual value                                   -                 -
                                                         ------------      ------------
                Gross investment in financing leases        9,911,887        10,189,037
         Unearned income                                   (5,436,184)       (5,781,842)
                                                         ------------      ------------
                Net investment in financing leases       $  4,475,703      $  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 six months ended June 30,
         2000 is set forth below:

<TABLE>

<S>                                                                               <C>
         Investment in properties subject to leases, net                          $45,714,093
         Total assets                                                              48,340,447
         Notes payable                                                             16,517,252
         Total liabilities                                                         17,256,521
         Members' equity                                                           31,083,926
         Revenues                                                                   1,257,869
         Net income                                                                   639,536
</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 $106.5 million of
         aggregate outstanding borrowings under the credit facility at June 30,
         2000.

     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 six months ended June 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 June 30, 2000.

         Other non-recurring income for the three months ended June 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.

     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. each of which the
         Company owns a 60% non-voting common stock. During the six months ended
         June 30, 2000 the Company incurred approximately $746,000 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 six months
         ended June 30, 2000. In addition, the Company received $200,000 in
         management fees from Family Realty II during the six months ended June
         30, 2000. Both the formation cost and management fee have been recorded
         in other income.






                                       9

<PAGE>   10

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

     9.  SUBSEQUENT EVENTS:

         In July 2000, the Company declared dividends to its shareholders of
         $3,613,081, or $0.38 per share of common stock, which was paid on July
         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.
         Other revenues are derived primarily from fee income earned from
         affiliates and interest income on loans to affiliates.

         As of June 30, 2000, the Company owned 150 properties, located in 27
         states, subject to long-term net leases with 60 different lessees under
         major restaurant and retail concepts including Bennigan's, Applebee's,
         Denny's, Best Buy, Athlete's Foot, Blockbuster Video, and Jared
         Jewelers.

         RESULTS OF OPERATIONS

         THREE MONTHS ENDED JUNE 30, 2000. During the three months ended June
         30, 2000 total revenue remained unchanged at $7.0 million as compared
         to the three months ended June 30, 1999. Rental revenue from operating
         leases for the three months ended June 30, 2000 decreased 2.4% to $6.1
         million as compared to $6.2 million for the three months ended June 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 June 30, 2000 decreased 5.3% to approximately
         $155,000 for the three months ended June 30, 2000 as compared to
         approximately $163,000 for the three months ended June 30, 1999. The
         decrease is the result of the amortization of principal balances. Other
         income increased 41.2% to approximately $507,000 for the three months
         ended June 30, 2000 as compared to $359,000 for the three months ended
         June 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 increased 13.1% to $3.8 million for the three months
         ended June 30, 2000 as compared to $3.4 million for the three months
         ended June 30, 1999. Interest expense increased 14.4% to $2.6 million
         for the three months ended June 30, 2000 as compared to $2.2 million
         for the three months ended June 30, 1999. The increase was due to a 61
         basis point increase in the weighted average interest rate, slightly
         offset by an approximately $500,000 decrease in the average outstanding
         borrowings under the Company's credit facility used to fund the
         acquisition and development of properties. General and administrative
         expenses, including management fees to affiliates, increased 35.5% to
         approximately $388,000 for the three months ended June 30, 2000 as
         compared to approximately $287,000 for the three months ended June 30,
         1999 as a result of increases in marketing and convention expenses. The
         Company's management fee was equally offset due to acquisitions of its
         affiliated ventures during the three months ended June 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 2.2% to approximately $868,000
         for the three months ended June 30, 2000 as compared to approximately
         $849,000 for the three months ended June 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 June 30, 2000 the Company recorded approximately $145,000 as its
         portion of FC Venture's equity earnings.






                                       11


<PAGE>   12

         The Company sold 11 properties during the three months ended June 30,
         2000, collecting total net proceeds of $10.6 million and reflected a
         gain totaling approximately $1.0 on the sale of these properties. In
         addition, the Company recorded an impairment loss of $56,000 during the
         three months ended June 30, 2000 which is netted against the gain on
         sale of properties.

         During the three months ended June 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 a previously provided allowance for an estimated tax
         obligation.

         As a result of the foregoing, the Company's net income increased 38.2%
         to $5.1 million for the three months ended June 30, 2000 as compared to
         $3.7 million for the three months ended June 30, 1999.

         SIX MONTHS ENDED JUNE 30, 2000. During the six months ended June 30,
         2000 total revenue increased 4.2% to $14.7 million as compared to $14.1
         million for the six months ended June 30, 1999. Rental revenue from
         operating leases for the six months ended June 30, 2000 remained
         unchanged at $12.2 million as compared to the six months ended June 30,
         1999. Earned income from financing leases for the six months ended June
         30, 2000 decreased to approximately $312,000 as compared to
         approximately $316,000 for the six months ended June 30, 1999. The
         decrease is the result of the amortization of principal balances.
         Interest income on loans to affiliates remained unchanged at
         approximately $631,000 for the six months ended June 30, 2000 as
         compared to the six months ended June 30, 1999. Other income increased
         66% to $1.5 million for the six months ended June 30, 2000 as compared
         to approximately $918,000 for the six months ended June 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 six months ended June 30, 2000 increased 14.1%
         to $5.1 million as compared to $4.5 million for the six months ended
         June 30, 1999. The increase was due to a 62 basis point increase in the
         weighted average interest rate as well a $1.4 million increase in the
         average outstanding borrowings under the Company's credit facility used
         to fund the acquisition and development of properties. General and
         administrative expenses, including management fees to affiliates,
         increased 12.5% to approximately $731,000 for the six months ended June
         30, 2000 as compared to approximately $650,000 for the six months ended
         June 30, 1999 primarily due to offsetting reductions in management fees
         to affiliates due to acquisitions and other fees earned by Captec
         Advisors in 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 3.0% for the six
         months ended June 30, 2000 as compared to the six months ended June 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.

         The Company sold 14 properties during the six months ended June 30
         2000, collecting total net proceeds of $16.5 million and reflecting a
         gain of $1.6 million on the sale of these properties. In addition, the
         Company recorded an impairment loss of $56,000 during the six months
         ended June 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 six months
         ended June 30, 2000 the Company recorded approximately $295,000 as its
         portion of FC Venture's equity earnings.

         During the six months ended June 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 a previously provided allowance for an estimated tax
         obligation.



                                      12

<PAGE>   13
         As result of the foregoing, the Company's income before accounting
         change increased 18.9% to $8.6 million for the six months ended June
         30, 2000 as compared to $7.2 million for the six months ended June 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 six months ended June 30, 1999 representing the
         balance of unamortized organization costs which resulted in net income
         for the six months ended June 30, 1999 of $6.9 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 vacant Boston
         Chicken properties which it anticipates not exceeding $300,000.

         At June 30, 2000 the Company had cash and cash equivalents of
         approximately $970,000. For the six months ended June 30, 2000, the
         Company generated cash from operations of $7.0 million as compared to
         $6.8 million for the six months ended June 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 six
         months ended June 30, 2000 the Company generated $10.6 million from
         investing activities as compared to using $3.7 million during the six
         months ended June 30, 1999. The Company used $17.7 million in financing
         activities during the six months ended June 30, 2000 as compared to
         using $6.6 million during the six months ended June 30, 1999.

         CREDIT FACILITY. In February 1998, the Company entered into 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. On December 1, 1998 the Company amended the credit
         facility to provide up to $125.0 million of debt which is
         collateralized by the properties. At June 30, 2000 the Company had
         $106.5 million of aggregate outstanding borrowings under the credit
         facility.

         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 June
         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.



                                       13

<PAGE>   14


         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 or by additional equity offerings. No assurances
         can be made that the Company will be able to refinance such debt.

         PROPERTY ACQUISITIONS AND COMMITMENTS. During the three months ended
         June 30, 2000 the Company acquired properties for an aggregate
         acquisition cost of $2.2 million. As of June 30, 2000, the Company had
         entered into commitments to acquire 65 properties totaling $106.1
         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 six months ended June 30, 2000 the Company
         sold 14 properties collecting total net proceeds of $16.5 million and
         reflecting a gain of $1.6 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 six months ended June 30, 2000 the Company paid
         dividends of $7,226,162. In July 2000, the Company declared a second
         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
         July 12, 2000 and was paid on July 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.

         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 June 30, 2000
         substantially all of the Company's debt bears interest at variable
         rates of LIBOR rate plus 1.25% to 1.75%.





                                       14

<PAGE>   15



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


<TABLE>
<CAPTION>
                                                                                                   MATURITY
                                                                                  ------------------------------------------
                                                                                     0 TO 3         1 TO 5
                                                                                     MONTHS         YEARS          TOTAL
                                                                                  -----------   -------------  -------------
<S>                                                                               <C>           <C>           <C>
         Assets:
           Cash and cash equivalents...........................................   $   970,322   $           -  $     970,322
           Properties subject to operating leases, net(1)......................             -       2,317,390      2,317,390
                                                                                  -----------   -------------  -------------
              Total assets.....................................................   $   970,322   $   2,317,390  $   3,287,712
                                                                                  ===========   =============  =============
         Liabilities
           Notes payable.......................................................   $         -   $ 106,480,027  $ 106,480,027
                                                                                  ===========   =============  =============
           Reprice difference..................................................   $   970,322   $(104,162,637)
           Cumulative gap......................................................   $   970,322   $(103,192,315)
</TABLE>


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

        A 1% increase in the variable interest rate for the six months ended
        June 30, 2000 would have resulted in additional interest expense of
        approximately $371,000.

         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
         June 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.

              On April 24, 2000, the Company was notified that two lawsuits had
         been filed against the Company in the Court of Chancery of the State of
         Delaware in and for New Castle County.

              Steiner v. Beach, et al., C.A. 18005NC (Delaware Chancery Court)

              A complaint has been served on Captec by William Steiner, a
         stockholder, individually and on behalf of an alleged class consisting
         of the public stockholders of the Company, other than the defendants
         and any person related to or affiliated with the defendants, against
         the Company, Captec Financial Group Inc., Captec Advisors and each of
         the Company's directors individually in the Court of Chancery of the
         State of Delaware in and for New Castle County. The allegations of the
         complaint arise from the December 20, 1999 Omnibus Agreement and Plan
         of Merger by and among Captec, Captec Acquisition, Inc., Captec
         Financial Group and Captec Advisors, which provided for the merger of
         Captec Acquisition with and into Captec Financial Group and of Captec
         Advisors with and into the Company. The complaint alleges, among other
         things, that the defendants breached their fiduciary duties and other
         common law duties owed to the alleged class in approving the merger,
         the merger is unfair to the Company's stockholders, and the alleged
         class will be approving the merger, the merger is unfair to the
         Company's stockholders, and the alleged class will be irreparably
         damaged if the merger is consummated. The complaint seeks a declaration
         that the suit is properly maintainable as a class action, the
         certification of Mr. Steiner as representative of the alleged class, a
         preliminary and permanent injunction against the merger, rescission of
         the merger in the event the merger is consummated prior to disposition
         of the claim, and compensatory damages and reasonable attorneys fees
         and expenses incurred by the alleged class.

              Bailey v. Beach, et. al., C.A. 18006NC (Delaware Chancery Court)

              A complaint was filed by John W. Bailey, a stockholder
         individually and on behalf of an alleged class consisting of the public
         stockholders of the Company, other than the defendants, against Captec,
         Captec Financial Group, Captec Advisors and each of the Company's
         directors individually in the Court of Chancery of the State of
         Delaware in and for New Castle County. The allegations of this
         complaint also arise from the December 20, 1999 merger agreement. The
         complaint alleges, among other things, that the defendants breached
         their fiduciary duties to the alleged class, the defendants failed to
         disclose material facts about the merger in seeking stockholder action
         with respect to the merger, the merger is unfair to the Company's
         stockholders, and the alleged class will be irreparably damaged if the
         merger is consummated. The complaint seeks a declaration that the suit
         is properly maintainable as a class action, the certification of Mr.
         Bailey as representative of the alleged class, a preliminary and
         permanent injunction against the merger, an order compelling the
         defendants to correct misrepresentations and omissions in the
         defendants' disclosures to stockholders concerning the merger, an order
         compelling the defendants to seek, consider and develop alternatives to
         the merger that would provide the best value available to the public
         stockholders, rescission of the merger in the event the merger is
         consummated prior to disposition of the claim, and compensatory damages
         and attorneys fees and expenses incurred by the alleged class. The
         Company has not been served with the complaint in this action.

              On May 1, 2000, the merger agreement was terminated and the
         mergers provided for therein were abandoned.



         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

                      The Registrant filed the following Current Reports on Form
                      8-K during the three months ended June 30, 2000:

                      Current Report on Form 8-K dated April 24, 2000 as filed
                      with the United States Securities and Exchange Commission
                      on May 4, 2000 included information regarding the
                      Company's termination of the merger agreement with its
                      affiliates, Captec Financial Group, Inc. and Captec Net
                      Lease Realty Advisors, Inc.


                           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.

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

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


                                       17
<PAGE>   18


                                 Exhibit Index

Exhibit No.              Description

   27                    Financial Data Schedule