<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            March 31, 1999
                                                            --------------
                                       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
                                 May 14, 1999.




<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
                                 Consolidated Notes to Financial Statements                                       7-9

               Item 2.           Management's Discussion and Analysis of                                     
                                 Financial Condition and Results of Operations                                  10-12

               Item 3.           Quantitative and Qualitative Disclosures about Market Risk                        12

              PART II            OTHER INFORMATION                                                           

               Item 1.           Legal Proceedings                                                                 12
               Item 2.           Changes in Securities and Use of Proceeds                                         12
               Item 3.           Defaults upon Senior Securities                                                   12
               Item 4.           Submission of Matters to a Vote of Security Holders                               12
               Item 5.           Other Information                                                                 13
               Item 6.           Exhibits and Report on Form 8-K                                                   13
</TABLE>







                                       2




<PAGE>   3


PART I.   FINANCIAL INFORMATION
ITEM 1.   FINANCIAL STATEMENTS

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

<TABLE>
<CAPTION>
                                                                                    MARCH 31,          DECEMBER 31,
                                                                                      1999                 1998
                                                                                      ----                 ----
ASSETS                                                                             (unaudited)   

<S>                                                                              <C>                   <C>         
Cash and cash equivalents                                                        $  2,267,840          $  4,488,565

Investments:
   Properties subject to operating leases, net                                    223,459,520           221,349,661
   Properties subject to financing leases, net                                      4,284,685             3,128,824
   Loans to affiliates, collateralized by mortgage loans                            8,257,089             8,915,523
   Investment in affiliated limited partnerships                                    4,395,000             4,395,000
   Other loans, related party                                                         400,845               405,775
                                                                                 ------------          ------------
             Total investments                                                    240,797,139           238,194,783

Short-term loans to affiliates                                                      3,163,728             2,505,294
Unbilled rent, net                                                                  4,356,166             3,710,487
Accounts receivable                                                                   102,396               144,642
Due from affiliates                                                                 1,338,244             1,242,675
Other assets                                                                        1,591,881             1,724,283
                                                                                 ------------          ------------
             Total assets                                                        $253,617,394          $252,010,729
                                                                                 ============          ============

LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
   Notes payable                                                                 $116,484,988          $113,984,988
   Accounts payable and accrued expenses                                              854,619             1,428,041
   Due to affiliates                                                                   24,038                76,513
   Federal income tax payable                                                         719,000               719,000
   Security deposits held on leases                                                   280,906               194,406
                                                                                 ------------          ------------
             Total liabilities                                                    118,363,551           116,402,948


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                                                               447,706               801,644
                                                                                 ------------          ------------
             Total stockholders' equity                                           135,253,843           135,607,781
                                                                                 ------------          ------------

             Total liabilities and stockholders' equity                          $253,617,394          $252,010,729
                                                                                 ============          ============
</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


<TABLE>
<CAPTION>

                                                                        Three Months Ended
                                                                              March 31,
                                                              ---------------------------------------
                                                                    1999                  1998
                                                                    ----                  ----
                                                                            (unaudited)
<S>                                                            <C>                     <C>        
Revenue:                                               
  Rental income from operating leases                          $ 6,005,078             $ 4,819,470
  Earned income from financing leases                              152,207                  47,880
  Interest income on loans to affiliates                           322,705                 494,830
  Other income                                                     555,641                 261,421
                                                               -----------             -----------

           Total revenue                                         7,035,631               5,623,601
                                                               -----------             -----------
Expenses:
  Interest                                                       2,239,880               1,070,321
  Management fees, affiliates, net                                 (68,013)                253,315
  General and administrative                                       430,905                 350,362
  Depreciation and amortization                                    833,409                 661,119
                                                               -----------             -----------

           Total expenses                                        3,436,181               2,335,117
                                                               -----------             -----------

           Net income before loss on sale of
               properties and accounting change                  3,599,450               3,288,484

Loss on sale of properties                                         (50,973)                (47,588)
                                                               -----------             -----------

           Net income before accounting change                   3,548,477               3,240,896

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

           Net Income                                          $ 3,211,602             $ 3,240,896
                                                               ===========             ===========

           Basic and Diluted EPS:
               Income before accounting change                 $      0.37             $      0.34
                                                               ===========             ===========
               Accounting change                               $     (0.03)            $         -
                                                               ===========             ===========
               Net Income                                      $      0.34             $      0.34
                                                               ===========             ===========

Weight average number of common shares
  outstanding                                                    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 THREE MONTHS ENDED MARCH 31, 1999
                                   (unaudited)

<TABLE>
<CAPTION>                                                                                                                  
                                                                Common Stock                                            Total
                                                         ------------------------     Paid-In         Retained        Stockholders' 
                                                            Shares       Amount       Capital         Earnings          Equity
                                                            ------       ------       -------         --------          ------

<S>                                                       <C>           <C>         <C>              <C>              <C>          
BALANCE, JANUARY 1, 1999                                  9,508,108     $95,081     $134,711,056     $   801,644      $ 135,607,781

Net Income                                                        -           -                -       3,211,602          3,211,602

Common stock dividends ($0.375 per share)                         -           -                -      (3,565,540)        (3,565,540)
                                                          ---------     -------     ------------     -----------      -------------

BALANCE, MARCH 31, 1999                                   9,508,108     $95,081     $134,711,056     $   447,706      $ 135,253,843
                                                          =========     =======     ============     ===========      =============
</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>
                                                                                         Three Months Ended
                                                                                              March 31,
                                                                               ----------------------------------------
                                                                                      1999                  1998
                                                                                      ----                  ----
<S>                                                                             <C>                      <C>         
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                                                      $ 3,211,602              $  3,240,896
Adjustments to net income:
   Depreciation and amortization                                                    833,409                   661,119
   Accounting change                                                                336,875                         -
   Amortization of debt issuance costs                                              142,160                   138,611
   Loss on sale of property                                                          50,973                    47,588
   Increase in unbilled rent                                                       (645,679)                 (403,520)
   Increase in accounts receivable and other assets                                (454,920)                 (194,937)
   Decrease in accounts payable and accrued expenses                               (573,422)                 (922,723)
                                                                                -----------              ------------

   Net cash provided by operating activities                                      2,900,998                 2,567,034
                                                                                -----------              ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of properties subject to operating leases                            (3,446,346)              (24,015,896)
Advances on loans to affiliates, collateralized by
   mortgage loans                                                                         -                   (51,942)
Acquisition of properties subject to financing leases                            (1,196,152)                        -
Collections on short-term loans to affiliates                                      (658,434)                   51,942
Proceeds from the disposition of properties                                         454,594                 1,046,025
Collections on loans to affiliates, collateralized by
   mortgage loans                                                                   658,434                         -
Collection of principal on other loans                                                4,930                     6,005
Collection of principal on financing leases                                          40,291                         -
Lease security deposits                                                              86,500                    52,514
                                                                                -----------              ------------

   Net cash used in investing activities                                         (4,056,183)              (22,911,352)
                                                                                -----------              ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid on common stock                                                   (3,565,540)               (1,854,082)
Borrowings of notes payable                                                       2,500,000                63,984,988
Debt issuance costs                                                                       -                (1,357,408)
Repayments of notes payable                                                               -               (42,746,189)
                                                                                -----------              ------------

   Net cash (used in) provided by financing activities                           (1,065,540)               18,027,309
                                                                                -----------              ------------

NET CASH FLOWS                                                                   (2,220,725)               (2,317,009)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                    4,488,565                 3,528,129
                                                                                -----------              ------------

CASH AND CASH EQUIVALENTS, END OF PERIOD                                        $ 2,267,840              $  1,211,120
                                                                                ===========              ============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
   Cash paid for interest                                                       $ 2,782,887              $  1,122,681
                                                                                ===========              ============
</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: Captec Net Lease Realty, Inc., a Delaware corporation
         (the "Company"), which operates as a real estate investment trust
         ("REIT"), was formed in August 1997 to invest in high-quality
         freestanding properties leased principally on a long-term triple-net
         basis to national and regional franchised restaurants and retailers.
         The Company completed its initial public offering in November 1997 and
         has subsequently operated as a REIT.

         UNAUDITED INTERIM FINANCIAL INFORMATION: The consolidated balance sheet
         as of March 31, 1999 and the consolidated statements of operations and
         cash flows for the three months ended March 31, 1999 have not been
         audited. In the opinion of management, all adjustments (consisting of
         normal recurring accruals) 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, 1998 filed
         with the Securities and Exchange Commission on March 30, 1999, as
         amended by its Annual Report on Form 10-K/A filed with the Securities
         and Exchange Commission on April 9, 1999.

         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 all quarters of all fiscal years beginning after June
         15, 1999 (January 1, 2000 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 $337,000
         non-cash charge during the three months ended March 31, 1999 for the
         balance of unamortized organization costs.

         RECLASSIFICATIONS: Certain prior period financial statement amounts 
         have been reclassified to conform to the 1999 presentations.

     2.  PROPERTIES SUBJECT TO OPERATING LEASES:

         The Company's real estate portfolio is 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 window periods during
         the fifth to seventh lease years.






                                       7
<PAGE>   8
                 CAPTEC NET LEASE REALTY, INC. and SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


         The Company's investment in real estate 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 as of March 31, 1999 is
         comprised of the following:

<TABLE>

<S>                                                                                   <C>           
         Land                                                                         $   82,415,699
         Buildings and improvements                                                      132,302,561
         Construction draws on properties                                                 14,226,708
                                                                                      --------------
                                                                                         228,944,968
         Less accumulated depreciation                                                    (5,485,448)
                                                                                      --------------

         Total                                                                        $  223,459,520
                                                                                      ==============
</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 for all amounts advanced under construction draws. At
         March 31, 1999 the Company had approximately $6.9 million of unfunded
         commitments on properties under construction.

     3.  FINANCING LEASES:

         The net investment in financing leases as of March 31, 1999 is
         comprised of the following:

<TABLE>

<S>                                                                                   <C>           
         Minimum lease payments to be received                                        $   10,519,387
         Estimated residual value                                                                  -
                                                                                      --------------
                Gross investment in financing leases                                      10,519,387
         Unearned income                                                                  (6,234,702)
                                                                                      --------------
                Net investment in financing leases                                    $    4,284,685
                                                                                      ==============
</TABLE>


     4.  NOTES PAYABLE:

         The Company's credit facility, as amended December 1, 1998 (the "Credit
         Facility"), provides up to $125 million for the acquisition of
         properties and working capital. The Credit Facility has a three year
         term and is subject to certain borrowing base restrictions. The Company
         had approximately $116 million of aggregate outstanding borrowings
         under the Credit Facility at March 31, 1999.

     5.  EARNINGS PER SHARE:

         Stock options currently outstanding under the Company's Long-Term
         Incentive Plan 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 months
         ended March 31, 1999.

     6.  RELATED PARTY TRANSACTIONS:

         The Company and Captec Net Lease Realty Advisors, Inc. ("Captec
         Advisors"), an affiliate, are parties to an Advisory Agreement whereby
         the Company pays to Captec Advisors a management fee. In December 1998
         the Advisory Agreement was amended to reduce the management fee
         otherwise payable by the Company to Captec Advisors by the amount of
         acquisition and other fees paid directly to Captec Advisors by, and as
         a result of acquisitions made by, affiliates of the Company. During the
         three months ended March 31, 1999 the Company incurred $253,000 in
         management fees prior to reductions. Captec Advisors earned
         approximately $321,000 of fees resulting in an equal reduction in the
         management fee paid by the Company to Captec Advisors.






                                       8
<PAGE>   9




                 CAPTEC NET LEASE REALTY, INC. and SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


     7.  SUBSEQUENT EVENTS:

         In April 1999, the Company  declared  dividends to its  shareholders  
         of $3,613,081,  or $0.38 per share of common stock, which was paid on 
         April 15, 1999.

         In April 1999, the Company invested $2,395,600, through the
         contribution of property, in the formation of a joint venture for the
         purpose of developing and acquiring net-leased restaurant and retail
         properties similar to those which the Company develops and acquires.









                                       9
<PAGE>   10




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 "Lessees"). The Company's triple-net leases (the
         "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 interest income on loans to affiliates and fee income earned from
         affiliates.

         As of March 31, 1999, the Company owned 163 properties, located in 30
         states, subject to long-term net Leases with 54 different Lessees under
         major restaurant and retail concepts including Bennigan's, Applebee's,
         Denny's, Best Buy, Athlete's Foot, Blockbuster Video, and Office Depot.

         RESULTS OF OPERATIONS

         During the three months ended March 31, 1999 (the "Quarter") total
         revenue increased 25% to $7.0 million as compared to $5.6 million for
         the three months ended March 31, 1998 (the "1998 Quarter"). Rental
         revenue from operating Leases for the Quarter increased 25% to 6.0
         million as compared to $4.8 million for the 1998 Quarter primarily from
         the benefit of a full period of rental revenue from properties acquired
         and leased in preceeding periods. Earned income from financing leases
         for the Quarter increased 218% to $152,000 as compared to $48,000 for
         the 1998 Quarter principally from the addition of four financing leases
         that began lease payments on January 1, 1999. Interest income on loans
         to affiliates decreased 35% to $323,000 for the Quarter as compared to
         $495,000 for the 1998 Quarter as a result of principal payments
         received on loans to affiliates in preceeding periods. Interest and
         other income increased 113% to $556,000 for the Quarter as compared to
         $261,000 for the 1998 Quarter primarily due to fee income earned from
         the Company's affiliates.

         Interest expense for the Quarter increased 109% to $2.2 million as
         compared to $1.1 million for the 1998 Quarter. The increase was
         principally due to the increased 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, decreased 40% to $363,000 for the Quarter as compared to
         $604,000 for the 1998 Quarter primarily due to offsetting reductions in
         management fees to affiliates due to acquisitions and other fees earned
         by Captec Advisors (see Note 6 to the Financial Statements).

         The Company sold one property during the Quarter, collecting gross
         proceeds of $455,000 and reflecting a loss of $51,000 on the sale of
         this property.

         As a result of the foregoing, the Company's net income before
         accounting change increased 9% to $ 3.5 million for the Quarter as
         compared to $3.2 million for the 1998 Quarter.

         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 for the
         balance of unamortized organization costs which resulted in net income
         for the Quarter of $3.2 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, 






                                       10

<PAGE>   11
         operating expenses and dividends have been paid out of cash flows from
         operations. Property acquisitions have been typically funded out of
         proceeds from borrowings. The Company expects to meet its liquidity
         requirements (principally property development and acquisition) through
         a variety of future sources of capital, including long-term secured and
         unsecured 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 including fixed increase amounts, and in limited
         circumstances indexation to CPI and/or percentage rent. 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.

         At March 31, 1999 the Company had cash and cash equivalents of $2.3
         million. For the Quarter, the Company generated cash from operations of
         $2.9 million as compared to $2.6 million for the 1998 Quarter. Cash
         generated from operations provides funds for distributions to
         shareholders in the form of quarterly dividends. Any excess cash from
         operations may also be used for investment in properties.

         CREDIT FACILITY. In February 1998, the Company entered into a credit
         facility (the "Credit Facility"), which is used 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 secured by the Company's properties.
         At March 31, 1999 the Company had $116.5 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. 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
         annually thereafter, one year in advance of maturity 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 secured by individual
         properties or groups of properties, by unsecured private or public debt
         offerings or by additional equity offerings.

         PROPERTY ACQUISITIONS AND COMMITMENTS. During the three months ended
         March 31, 1999 the Company acquired properties for an aggregate
         acquisition cost of $4.6 million. As of March 31, 1999, the Company had
         entered into commitments to acquire 58 properties totaling $99.4
         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 secured and
         unsecured 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 the primary
         demand for additional capital in the future.

         DIVIDENDS. The Company intends to pay a regular quarterly dividend on
         its common stock of $.38 per share (which if annualized would be $1.52
         per share). Dividends of $3,613,081 were paid on April 15, 1999 related
         to







                                       11
<PAGE>   12


         the first quarter declared dividend. The Company expects to pay future
         dividends from cash available for distributions. 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

         The Year 2000 issue is a result of the way computer programs
         historically manipulate date information based on a two-digit year
         ("99" instead of "1999"). The issue is that the "00" year designation
         can potentially cause miscalculations or failures within the computer
         system if "00" is misinterpreted as the year 1900 instead of the year
         2000. These failures could potentially lead to temporary disruption of
         operations and the inability to conduct normal business activities.

         The Company predominantly uses standard application software supported
         by third party vendors. Information has been obtained from key
         third-party financial software vendors that comprise the core business
         applications indicating the core software systems are currently Year
         2000 compliant.

         The Company is in the process of obtaining Year 2000 compliance updates
         from its key business partners, such as financial institutions and
         Lessees, to assess their Year 2000 readiness. Upon completion of the
         assessment process, a strategy on how to address each partner will be
         developed based on the relative importance of each relationship.
         Documentation regarding the state of readiness of business partners
         will be compiled as the assessment progresses.

         The Company's major software applications are currently Year 2000
         compliant, and the core computing infrastructure including personal
         computers and network server hardware and software are all compliant.
         Therefore, the Company does not anticipate the total cost of Year 2000
         compliance to have a material adverse effect on the Company's business
         or results of operations. The Company has incurred minimal costs to
         date related to Year 2000 compliance.

         The failure to identify and correct material Year 2000 problems
         adequately could result in an interruption to or failure of certain
         normal business activities or operations. These interruptions or
         failures could adversely affect the Company's financial condition;
         however, the extent of the impact can not presently be determined. The
         Company is dependent upon the Year 2000 readiness information provided
         by its vendors and external business partners, and their ability to
         achieve Year 2000 compliance with their computer systems.


         ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Not Applicable.


                           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.


 





                                       12

<PAGE>   13



         ITEM 5. OTHER INFORMATION.   None.


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

                 (a)  Exhibits
                      --------
                      Exhibit  10.14         FC Venture I, LLC Limited Liability
                                             Company Agreement*

                      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 March 31, 1999:

                      Current Report on Form 8-K dated April 12, 1999 included
                      information regarding the formation of a joint venture, FC
                      Venture I, LLC, with an affiliate of Fidelity Management
                      Trust Company.

                 ---------------

                 *  Incorporated by reference from the Company's Current Report
                    on Form 8-K filed with the Commission on April 22, 1999.

                           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," intent," "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.








                                       13

<PAGE>   14




                                   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.

      May 14, 1999                         By:  /s/ Patrick L. Beach
                                           -------------------------
                                           Patrick L. Beach
                                           Chief Executive Officer and President

      May 14, 1999                         By:  /s/ W. Ross Martin
                                           -----------------------
                                           W. Ross Martin
                                           Chief Financial Officer and
                                           Executive Vice President










                                       14



<PAGE>   15


                               INDEX TO EXHIBITS



EXHIBIT NO.                    DESCRIPTION
-----------                    -----------

  27.1                         Financial Data Schedule