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

                                    FORM 10-Q

[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
    Act of 1934

                  For the quarterly period ended March 31, 1999

                                       or

[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange
    Act of 1934

      For the transition period from _______________ to __________________


                         Commission File Number 1-13089


                        U.S. RESTAURANT PROPERTIES, INC.
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)

         Maryland                                        75-2687420
-------------------------------             ------------------------------------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)

          5310 Harvest Hill Rd., Ste. 270, LB 168, Dallas, Texas 75230
          ------------------------------------------------------------
            (Address principal executive offices, including zip code)

                                 972 / 387-1487
              ----------------------------------------------------
              (Registrant's telephone number, including area code)

-------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last report

         Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
Registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.

               Yes   X                                No
                   -----                                 -----

         Indicate  the  number of  shares  outstanding  of each of the  issuer's
classes of common stock, as of the latest practicable date.

As of May 7, 1999, there were 14,338,627  shares of Common Stock $.001 par value
outstanding.


                                  Page 1 of 21
<PAGE>


                        U.S. RESTAURANT PROPERTIES, INC.


PART I.  FINANCIAL INFORMATION

      Item 1.  Financial Statements

               Condensed Consolidated Balance Sheets as of March 31, 1999
                 (Unaudited) and December 31, 1998............................ 3

               Condensed Consolidated Statements of Income for the Three
                 Months Ended March 31, 1999 and 1998 (Unaudited)............. 4

               Condensed Consolidated Statements of Other Comprehensive
                 Income for the Three Months Ended March 31, 1999 and
                 1998 (Unaudited)............................................. 5

               Condensed Consolidated Statement of Stockholders' Equity 
                 for the Three Months Ended March 31, 1999 (Unaudited)........ 6

               Condensed Consolidated Statements of Cash Flows for the
                 Three Months Ended March 31, 1999 and 1998 (Unaudited)....... 7

               Notes to Condensed Consolidated Financial Statements
                 (Unaudited).................................................. 9

      Item 2.  Management's Discussion and Analysis of Financial Condition
                 and Results of Operations....................................15

      Item 3.  Quantitative and Qualitative Disclosures About Market Risk.....19


PART II. OTHER INFORMATION

      Item 1.  Legal Proceedings..............................................20

      Item 2.  Changes in Securities..........................................20

      Item 3.  Defaults upon Senior Securities................................20

      Item 4.  Submission of Matters to Vote of Security Holders..............20

      Item 5.  Other Information..............................................20

      Item 6.  Exhibits and Reports on Form 8-K...............................20


                                  Page 2 of 21


<PAGE>


                          Part I. FINANCIAL INFORMATION

Item 1.  Financial Statements
<TABLE>

<CAPTION>
                        U.S. RESTAURANT PROPERTIES, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (In thousands)

                                                           March 31,        December 31,
                                                             1999               1998
                                                       ----------------   ----------------
                                                            (Unaudited)
              ASSETS
<S>                                                    <C>                <C>
Property, net
  Land                                                  $    195,657       $    172,155
  Building and leasehold improvements                        389,376            342,686
  Machinery and equipment                                     11,624              8,057
                                                       ----------------   ----------------
                                                             596,657            522,898
  Less: Accumulated depreciation                             (32,795)           (27,938)
                                                       ----------------   ----------------
                                                             563,862            494,960

Construction in progress                                      19,943             30,713
Cash and cash equivalents                                        206              1,857
Restricted cash                                                  700                700
Rent and other receivables, net
  (includes $2,274 and $1,962 from related parties)           10,098             10,817
Prepaid expenses and purchase deposits                         2,184             10,091
Investments                                                    3,809              3,057
Notes receivable
  (includes $2,300 from related parties)                      18,233              8,225
Mortgage loan receivable                                      23,949             23,275
Net investment in direct financing leases                      9,151              9,678
Intangibles and other assets, net                             10,515             10,796
                                                       ----------------   ----------------
                                       TOTAL ASSETS     $    662,650       $    604,169
                                                       ================   ================

   LIABILITIES AND STOCKHOLDERS' EQUITY

Accounts payable and accrued liabilities                $     11,456       $     11,492
Accrued dividends and distributions                            8,635              8,456
Unearned contingent rent                                       1,928              2,148
Deferred gain on sale of property                                556                556
Lines of credit                                              164,000            136,000
Notes payable                                                240,050            205,050
Mortgage note payable                                          1,056              1,062
Capitalized lease obligations                                     46                 63
                                                       ----------------   ----------------
                                  TOTAL LIABILITIES          427,727            364,827

Minority interest in operating partnership                    31,656             29,567
Stockholders' Equity
Preferred stock, $.001 par value per share;
  50,000 shares authorized, Series A - 3,680
  shares issued and outstanding as of March 31,
  1999 and December 31, 1998 (aggregate
  liquidation value $92,000)                                       4                  4
Common stock, $.001 par value per share;
  100,000 shares authorized, 14,339 and 14,372
  shares issued and outstanding as of March 31,
  1999 and December 31, 1998, respectively                        14                 14
Additional paid in capital                                   261,320            262,024
Excess stock, $.001 par value per share, 15,000                  
  shares authorized, no shares issued
Accumulated other comprehensive loss                          (1,001)              (797)
Distributions in excess of net income                        (57,070)           (51,470)
                                                       ----------------   ----------------
                         TOTAL STOCKHOLDERS' EQUITY          203,267            209,775
                                                       ----------------   ----------------
         TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY     $    662,650       $    604,169
                                                       ================   ================
</TABLE>

See Notes to Consolidated Financial Statements

                                  Page 3 of 21
<PAGE>

<TABLE>

<CAPTION>
                        U.S. RESTAURANT PROPERTIES, INC.
                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                      (In thousands, except per share data)
                                   (Unaudited)



                                                       Three Months Ended March 31,
                                                   ------------------------------------
                                                           1999               1998
                                                   -----------------   ----------------
<S>                                                <C>                 <C>
Revenues:
  Rental income                                     $      16,744       $     11,633
  Interest income and other                                 1,737                596
  Amortization of unearned income
    on direct financing leases                                261                317
                                                   -----------------   ----------------
                        Total revenues                     18,742             12,546
Expenses:
  Rent                                                        115                 67
  Depreciation and amortization                             5,474              3,370
  General and administrative                                1,312              1,020
  Interest expense                                          6,739              3,261
  Termination of management contract                        2,550                 --
  Equity in net loss of affiliates                             61                 --
                                                   -----------------   ----------------
                        Total expenses                     16,251              7,718
                                                   -----------------   ----------------
Income before gain on sale of property, 
  minority interest in operating partnership
  and extraordinary item                                    2,491              4,828

Gain on sale of property                                       72                 --
                                                   -----------------   ----------------
Income before minority interest in operating
  partnership and extraordinary item                        2,563              4,828

Minority interest in operating partnership                    (53)              (234)
                                                   -----------------   ----------------
Income before extraordinary item                            2,510              4,594

Loss on early extinguishment of debt                           --               (190)
                                                   -----------------   ----------------
Net income                                                  2,510              4,404

Dividends on Preferred Stock                               (1,776)            (1,776)
                                                   -----------------   ----------------
Net income allocable to Common Stockholders         $         734       $      2,628
                                                   =================   ================
Net income per share 
   Basic                                            $        0.05       $       0.20
   Diluted                                          $        0.05       $       0.20

Weighted average shares outstanding
   Basic                                                   14,352             12,852
   Diluted                                                 15,300             13,017
</TABLE>


See Note 1 for Pro Forma effect of change in Accounting Principle

See Notes to Consolidated Financial Statements


                                  Page 4 of 21

<PAGE>

<TABLE>

<CAPTION>
                        U.S. RESTAURANT PROPERTIES, INC.
         CONDENSED CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME
                      (In thousands, except per share data)
                                   (Unaudited)



                                                      Three Months Ended March 31,
                                                   ------------------------------------
                                                         1999               1998
                                                   -----------------   ----------------

<S>                                                <C>                 <C>
Net income                                          $       2,510       $      4,404
   Other comprehensive loss - unrealized
      loss on investments                                    (204)                --
                                                   -----------------   ----------------
Comprehensive income                                $       2,306       $      4,404
                                                   =================   ================
</TABLE>

See Notes to Consolidated Financial Statements

                                  Page 5 of 21


<PAGE>

<TABLE>

<CAPTION>
                                         U.S. RESTAURANT PROPERTIES, INC.
                       CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Unaudited)
                                     FOR THE THREE MONTHS ENDED MARCH 31, 1999
                                                  (In thousands)



                                                                                                   
                                                                                                         Accumulated
                               Preferred Stock         Common Stock                       Distributions     Other
                             -------------------- ---------------------- Additional Paid  in Excess of  Comprehensive
                              Shares   Par Value   Shares     Par Value     In Capital      Net Income       Loss         Total
                             -------- ----------- --------- ------------ ---------------- ------------- ------------- ------------
<S>                          <C>      <C>         <C>        <C>         <C>              <C>           <C>           <C>
Balance  January 1, 1999       3,680   $     4      14,372    $     14    $     262,024    $  (51,470)   $      (797)  $  209,775

Common stock repurchased
  and retired                                          (33)                        (704)                                     (704)
Other comprehensive loss                                                                                        (204)        (204)
Net income                                                                                      2,510                       2,510
Distributions on preferred
  stock                                                                                        (1,776)                     (1,776)
Distributions on common
  stock and distributions  
  declared                                                                                     (6,334)                     (6,334)
                             -------- ----------- --------- ------------ ---------------- ------------- ------------- ------------
Balance March 31, 1999         3,680   $     4      14,339   $       14   $     261,320    $  (57,070)   $    (1,001)  $  203,267
                             ======== =========== ========= ============ ================ ============= ============= ============

</TABLE>

See Notes to Consolidated Financial Statements

                                  Page 6 of 21


<PAGE>

<TABLE>

<CAPTION>
                        U.S. RESTAURANT PROPERTIES, INC.
           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
                                 (In thousands)

                                                               Three Months ended
                                                                    March 31,
                                                       ----------------------------------
                                                            1999               1998
                                                       ----------------   ---------------

<S>                                                    <C>                <C>
Cash flows from operating activities:
Net Income                                              $      2,510       $    4,404
Adjustments to reconcile net income
  to net cash from operating activities:
    Depreciation and amortization                              5,474            3,370
    Amortization of deferred financing costs                     236              141
    Non-cash interest income                                    (136)              --
    Unrealized gain on trading securities                       (409)              --
    Gain on sale of property                                     (72)              --
    Termination of management contract                         2,550               --
    Distributions received on investments                        100               --
    Minority interest in operating partnership                    53              234
    Equity in loss of affiliates                                  61               --
    Loss on early extinguishment of debt                          --              190
    Increase in restricted cash                                   --             (700)
    Decrease (increase) in rent and other
      receivables, net                                           628             (743)
    Increase in prepaid expenses                                (616)            (357)
    Reduction in net investment in direct
      financing leases                                           527              583
    Increase (decrease) in accounts payable
      and accrued liabilities                                    (36)              64
    Decrease in unearned contingent rent                        (220)              --
                                                       ----------------   ---------------
                                                               8,140            2,782
                                                       ----------------   ---------------
            Cash provided by operating activities             10,650            7,186

Cash flows used in investing activities:
    Proceeds from sale of properties                           5,934               --
    Purchase of property                                     (45,418)         (43,547)
    Purchase of machines and equipment                        (2,028)            (736)
    Construction payments                                     (6,733)              --
    Decrease in purchase deposits                              8,523              236
    Purchase of investments                                     (573)             (92)
    Increase in mortgage loan receivable                      (1,200)              --
    Reduction of mortgage loan receivable                        
      principal                                                  526               42
    Increase in notes receivable                             (10,074)          (6,731)
    Reduction of notes receivable principal                       66               46
                                                       ----------------   ---------------
            Cash used in investing activities                (50,977)         (50,782)

</TABLE>

                             continued on next page

                                  Page 7 of 21


<PAGE>

<TABLE>

<CAPTION>
                        U.S. RESTAURANT PROPERTIES, INC.
     CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (Unaudited)
                                 (In thousands)

                                                              Three Months ended
                                                                   March 31,
                                                       ----------------------------------
                                                             1999               1998
                                                       ----------------   ---------------

<S>                                                    <C>                <C>
Cash flows from financing activities:
    Proceeds from line of credit                              40,000          139,786
    Payments on line of credit                               (12,006)         (78,782)
    Proceeds from notes payable                               20,000               --
    Proceeds from sale of common stock                            --            3,099
    Preferred stock dividends paid                            (1,776)          (2,348)
    Distributions to stockholders                             (6,169)          (4,809)
    Distributions to minority interest                          (500)            (425)
    Financing costs and other intangibles                       (140)            (985)
    Payments on capitalized lease obligations                    (29)             (26)
    Repurchase and retirement of stock                          (704)              --
                                                       ----------------   ---------------
      Cash flows provided by financing activities             38,676           55,510
                                                       ----------------   ---------------
Increase (decrease) in cash and cash equivalents              (1,651)          11,914
Cash and cash equivalents at beginning of period               1,857            1,104
                                                       ----------------   ---------------
Cash and cash equivalents at end of period              $        206       $   13,018
                                                       ================   ===============
Supplemental disclosure:
   Interest paid during the period                      $      4,116       $    2,572

Non-cash investing activities:
   Fair value of stock issued for ownership
     interest in another entity                         $         --       $      621
   Property acquired under capital lease                $         12       $       --
   Deferred rent on sale of property                    $         91       $       --
   Note payable in exchange for property                $     15,000       $       --
   Unrealized loss on investments                       $        204       $       --
   Net transfers from construction in 
     progress to property                               $     17,503       $       --

Non-cash financing activities:
   Common stock dividends declared                      $        165       $       --
   Distributions to minority interest declared          $         14       $       --

</TABLE>

See Notes to Consolidated Financial Statements

                                  Page 8 of 21


<PAGE>


                        U.S. RESTAURANT PROPERTIES, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

1.  INTERIM UNAUDITED FINANCIAL INFORMATION

U.S.  Restaurant  Properties,  Inc. (the "Company") is a  self-administered  and
self-managed  real  estate  investment  trust  ("REIT"),  as  defined  under the
Internal  Revenue Code of 1986,  as amended.  As noted in the  Company's  Annual
Report on Form 10-K for the year ended December 31, 1998, the Company became the
successor entity to U.S.  Restaurant  Properties Master L.P.  (collectively with
its  subsidiaries,  "USRP").  The  business  and  operations  of the Company are
conducted primarily through U.S. Restaurant Properties Operating L.P. ("OP"). At
March 31, 1999,  the Company owns 92.57% of and controls the OP. As of March 31,
1999, the Company owned 892 core business properties in 49 states.

The accompanying  condensed  consolidated financial statements should be read in
conjunction  with  the  consolidated  financial  statements  and  notes  thereto
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1998, which was filed with the Securities and Exchange  Commission  ("SEC").
The results of  operations  for the three months  ended March 31, 1999,  are not
necessarily  indicative  of the  results  to be  expected  for the  year  ending
December  31,  1999.  Certain  information  and  footnote  disclosures  normally
included in financial  statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted in this report on Form 10-Q
pursuant to the Rules and  Regulations of the SEC. In the opinion of management,
the  disclosures  contained in this report are adequate to make the  information
presented not misleading.

The accompanying  condensed  consolidated balance sheet as of March 31, 1999 and
the other  condensed  consolidated  financial  information  for the three months
ended March 31, 1999 and 1998,  are  unaudited,  but  management  of the Company
believes that all adjustments  (consisting  only of normal  recurring  accruals)
necessary  for a fair  presentation  of  the  Company's  condensed  consolidated
financial statements for the periods presented have been included therein.

The Company derives its revenues primarily from the leasing of its properties to
operators  (primarily  restaurants)  on a "triple net" basis.  Triple net leases
typically  require the tenants to be responsible for property  operating  costs,
including  property taxes,  insurance,  maintenance and in most cases the ground
rents where applicable.  Accordingly,  the accompany financial statements do not
include costs for property taxes and insurance which are the  responsibility  of
the tenants.  Additionally,  those amounts  associated  with ground rent expense
where the tenant is  responsible  for the ground  rents have been  recorded as a
reduction to rent  revenues  with no impact on net income.  For the three months
ended March 31, 1999 and 1998, the Company has recorded rent expense of $777,000
and $675,000, respectively as a reduction to rent revenues.

Amounts in previous periods have been  reclassified to conform to current period
presentation.

The Company had 14,338,627 and 14,372,027  shares of Common Stock outstanding as
of March 31,1999 and December 31, 1998 respectively.

In May 1998, the Financial  Accounting  Standards  Board's  Emerging Issues Task
Force issued EITF 98-9,  "Accounting  for Contingent  Rent in Interim  Financial
Periods," (EITF 98-9),  which provides  guidance on recognition of rental income
during interim  periods for leases which provide for contingent  rents (commonly
referred to as "percentage  rents").  In accordance  with the initial  consensus
reached  in EITF  98-9,  the  Company  revised  its  method  of  accounting  for
contingent  rent on a  prospective  basis  effective  May 21,  1998.  Using  the
historical basis of accounting, net income before extraordinary item, net income
and basic and diluted net income per share amounts  would have been  $2,290,000,
$2,290,000,  $0.04 and $0.03,  respectively,  for the three month  period  ended
March 31, 1999.

                                  Page 9 of 21

<PAGE>



The pro forma information below was prepared based on management's  estimate for
the  effects  of EITF 98-9 since it is  impracticable  to  calculate  the actual
amount on a retroactive basis precisely. Management of the Company believes that
the estimate is not  materially  different  from what actual  results would have
been under  EITF  98-9.  Following  is the pro forma  information  for the three
months  ended  March 31,  1999 and 1998 as if the EITF 98-9 were in effect as of
January 1, 1998:

<TABLE>
<CAPTION>
                                                               Three months ended
                                                                    March 31,
                                                       ----------------------------------
(In thousands, except per share amounts)                   1999                1998
                                                       --------------      --------------
<S>                                                    <C>                 <C>
Income before extraordinary item as reported            $    2,510          $    4,594
 Add: Adjustment for change in accounting policy
      on recognition of contingent lease rent                  622                  76
                                                       --------------      --------------
Income before extraordinary item as adjusted            $    3,132          $    4,670
                                                       ==============      ==============
Net income as adjusted                                  $    3,132          $    4,480
                                                       ==============      ==============
Net income available to common stockholders
  as adjusted                                           $    1,356          $    2,704
                                                       ==============      ==============
Income per share - Basic:
  Before extraordinary item, less dividends
    on Preferred Stock as reported                      $     0.05          $     0.22
  Adjustment for effect of change in 
    accounting policy                                         0.04                0.01
                                                       --------------      --------------
  Income before extraordinary item, less
    dividends on Preferred Stock as adjusted            $     0.09          $     0.23
                                                       ==============      ==============
  Net income available to common
    stockholders as reported                            $     0.05          $     0.20
  Adjustment for effect of change in
    accounting policy                                         0.04                0.01
                                                       --------------      --------------
  Net income available to common stockholders
    as adjusted                                         $     0.09          $     0.21
                                                       ==============      ==============
Income per share - Diluted:
  Before extraordinary item, less dividends
    on Preferred Stock as reported                      $     0.05          $     0.22
  Adjustment for effect of change in
    accounting policy                                         0.04                0.01
                                                       --------------      --------------
  Income before extraordinary item, less
    dividends on Preferred Stock as adjusted            $     0.09          $     0.23
                                                       ==============      ==============
  Net income available to common
    stockholders as reported                            $     0.05          $     0.20
  Adjustment for effect of change in
    accounting policy                                         0.04                0.01
                                                       --------------      --------------
  Net income available to common stockholders
    as adjusted                                         $     0.09          $     0.21
                                                       ==============      ==============
</TABLE>


2.  NET INCOME PER SHARE OF COMMON STOCK

Basic earnings per share are computed based upon the weighted  average number of
common  shares  outstanding.  Diluted  earnings per share  reflects the dilutive
effect  of stock  options,  contingent  shares  and  stock on which the price is
guaranteed  ("Guaranteed  Stock"). In addition,  convertible preferred stock was
antidilutive in the three months ended March 31, 1999 and 1998.

A  reconciliation  of net  income  per share  and the  weighted  average  shares
outstanding  for  calculating  basic and  diluted  net  income per share for the
periods ended March 31, 1999 and 1998 is as follows:

<TABLE>
<CAPTION>
                                                                Three Months Ended
                                                                      March 31,
                                                       --------------------------------------
(In thousands, except per share amounts)                     1999                 1998
                                                       -----------------     ----------------
<S>                                                    <C>                   <C>           
Net income before extraordinary item                    $      2,510          $     4,594
  Loss on early extinguishment of debt                            --                 (190)
                                                       -----------------     ----------------
Net income                                                     2,510                4,404
  Dividends on preferred stock                                (1,776)              (1,776)
                                                       -----------------     ----------------
Net income allocable to shareholders                    $        734          $     2,628
                                                       =================     ================
</TABLE>
                                 Page 10 of 21
<PAGE>


<TABLE>
<S>                                                    <C>                   <C>
Net income per share - Basic
  Before extraordinary item less preferred
    stock dividends                                     $       0.05          $     0.22
  Extraordinary loss on extinguishment of debt                    --               (0.02)
                                                       -----------------     ----------------
Net income allocable to common stockholders             $       0.05          $     0.20
                                                       =================     ================
Net income per share - Diluted
  Before extraordinary item, less preferred
    stock dividends                                     $       0.05          $     0.22
  Extraordinary loss on extinguishment of debt                    --               (0.02)
                                                       -----------------     ----------------
Net income allocable to common stockholders             $       0.05          $     0.20
                                                       =================     ================
Weighted average shares outstanding (a)
  Basic                                                       14,352              12,852
    Dilutive effect of outstanding options                        55                 165
    Dilutive effect of contingent OP units                       756                  --
    Dilutive effect of guaranteed stock                          137                  --
                                                       -----------------     ----------------
  Diluted                                                     15,300              13,017
                                                       =================     ================
</TABLE>


         (a)  March 31, 1999, excludes 3,679,938 shares of convertible preferred
              stock,  622,000  stock  options and  1,162,672  OP units which are
              anti-dilutive.  March  31,  1998,  excludes  3,680,000  shares  of
              convertible  preferred  stock,  913,563 shares of guaranteed stock
              and 1,148,418 OP units, which are anti-dilutive.

3.  PROPERTY ACQUISITIONS AND DISPOSITIONS

During the three months ended March 31, 1999, the Company completed the purchase
of 51 properties for an aggregate  purchase price of  $62,396,000.  In addition,
the Company transferred completed construction on previously acquired properties
of approximately $17,503,000 from construction in progress to land, building and
equipment.  In  addition,  12  properties  were  sold for net cash  proceeds  of
$5,934,000.

In the normal course of business,  the Company may sign purchase  agreements and
deposit earnest money to acquire restaurant  properties.  Such agreements become
binding  obligations  upon the  completion  of a due  diligence  period  ranging
usually from 15 - 30 days.

On March 31, 1999, earnest money purchase deposits amounting to $306,000 were on
deposit for the purchase of  properties.  These  amounts will be included in the
allocation of the purchase price of the respective  properties  once acquired or
reduced once the deposit is returned.  Non-refundable deposits are expensed once
it becomes unlikely that the property will be acquired.

4.  INVESTMENTS

The aggregate cost basis and net unrealized loss for  investments  classified as
available  for sale  under  SFAS 115 at  March  31,  1999  were  $4,072,000  and
$(1,001,000),  respectively.  The net unrealized  loss is recorded as a separate
component of  stockholders'  equity of which  $(204,000) was recorded during the
three months ended March 31,  1999.  In addition,  during the three months ended
March 31, 1999,  the Company  exercised  stock  options for 87,500 shares of ICH
Corporation  common  stock  and has  classified  the  common  stock as a trading
investment.  At March 31,  1999,  the fair value of the trading  investment  was
$738,000 and the unrealized gain on this trading investment amounted to $409,000
and is  included  in  interest  income and other in the  condensed  consolidated
financial statements.

5.  REVOLVING CREDIT FACILITIES

In January  1998,  the OP entered  into a credit  agreement  with a syndicate of
banks for an unsecured  revolving  credit line of $175 million.  As of March 31,
1999,  the Company has  approximately  $11 million  available  under this credit
agreement.  The Company  may request  advances  under this credit  agreement  to
finance the acquisition of properties,  to repair and update  properties and for
working  capital.  The banks will also issue  standby  letters of credit for the
account of the Company under this line of credit.  This credit agreement expires
on January 15, 2001 and provides that borrowings thereunder bear interest at the
then  current  LIBOR  plus a margin  spread  of  either  1.05%,  1.20% or 1.35%,

                                 Page 11 of 21

<PAGE>

dependent on a leverage ratio  formula.  As of March 31, 1999, the margin spread
was 1.35%  resulting in an effective  rate of 6.14%.  There is an unused line of
credit fee of 0.25% per annum on the unused portion of the credit agreement. The
line of credit  requires the Company to maintain a minimum  equity value of $200
million,   total  adjusted  outstanding   indebtedness  not  to  exceed  60%  of
capitalization  value,  secured indebtedness not to exceed 15% of capitalization
value,  debt yield of not less than 16% and  maintain  certain  other  financial
covenants as defined in the line of credit agreement.  On February 23, 1999, the
OP entered into an Assignment and Acceptance  agreement that became effective on
April 12, 1999 upon execution of the credit  agreement with Credit Lyonnais (see
Note 6). Under the terms of the  Assignment and Acceptance the OP became a party
to the revolving credit agreement, and accepted the assignment of $10 million of
the  available  credit  line.  This  agreement  effectively  reduced the maximum
availability under the revolving credit agreement by $10 million.

6.  NOTES PAYABLE

On December 15, 1998, the Company  entered into a secured note  agreement  ("PAC
Note") for $20  million.  On January 9, 1999 the  Company  obtained  $20 million
under the PAC Note which matures on December 15, 1999 and bears interest rate of
LIBOR plus 3.00% per annum (7.97% at March 31, 1999).  The note is secured by 35
properties.

On March 10,  1999,  the OP  financed  part of a property  acquisition  with the
seller in the  amount of $15  million.  The note bears  interest  at the rate of
7.25% per  annum.  The note was  repaid  with funds from a new note on April 12,
1999.

On April 12, 1999, the OP entered into an unsecured credit agreement with Credit
Lyonnais ("CLNY Agreement") under which the OP may borrow up to a maximum of $50
million. On July 9, 1999, no further borrowings can be made and the total amount
borrowed  becomes the  principal  balance of a note payable which will mature on
April 11, 2002. This note provides that  borrowings  thereunder bear interest at
the then  current  LIBOR  plus a margin  spread  ranging  from  2.00% to  2.75%,
dependent on a leverage  ratio  formula.  A total of $25 million was drawn under
this CLNY Agreement in April 1999.

The Company is in  compliance  with all covenants  associated  with its debt and
credit facilities as of March 31, 1999.

7.  RELATED PARTY TRANSACTIONS

The Managing General Partner of Arkansas Restaurants #10 L.P. (ARK #10) is owned
by an officer of the Company who receives no  compensation  for this role. As of
March 31, 1999 and December 31, 1998, notes receivable of $454,000 were due from
ARK #10.  The notes  receivable  are due on  September  1, 1999  ($394,000)  and
November 2, 1999 ($60,000) and have an interest rate of 9.0% per annum. At March
31, 1999 and December 31, 1998,  tenant and other  receivables from ARK #10 were
$657,000 and $678,000, respectively.

The Managing  General  Partner of Southeast  Fast Food  Partners,  L.P. (SFF) is
owned by another  officer of the Company.  As of March 31, 1999 and December 31,
1998, notes receivable of $1,070,000 were due from SFF. The notes receivable are
due on July 1, 1999 and have an  interest  rate of 9.0% per annum.  At March 31,
1999 and December 31, 1998 a note  receivable of $136,000 is due from the owners
of SFF.  This note is due on July 1, 1999,  and has an interest rate of 9.0% per
annum. As of March 31, 1999 and December 31, 1998,  tenant and other receivables
from SFF were $1,218,000 and $979,000, respectively.

During the three months ended March 31, 1999, the Company recorded  reserves for
bad debts of $689,000 which has been recorded as a reduction to rental  revenues
in the accompanying financial statements.

The Company is  currently in  negotiations  with ARK #10 and SFF to modify their
current lease and note agreements with the Company.

In April 1998, two affiliates of the Company,  U.S.  Restaurant Lending GP, Inc.
(the  "General  Partner")  and U.S.  Restaurant  Lending LP, Inc.  (the "Limited
Partner") entered into joint venture and limited partnership agreements with MLQ
Investors,  L.P.,  an  affiliate  of  Goldman,  Sachs & Co., to form two limited
partnerships.  The two  limited  partnerships  engage in lending  activities  to
owners and  operators of quick  service  franchise  and gas  station/convenience
store outlets. The Company has indirect ownership interests (through the General
Partner  and  Limited   Partner   interests   it  owns)  of  71.25%  and  47.5%,
respectively,  in these two partnerships.

                                  Page 12 of 21

<PAGE>

As of March 31, 1999 and December 31,  1998,  the Company had other  receivables
from the two lending  partnerships  of $399,000  and $306,000  respectively.  In
addition,  at March 31, 1999 and December 31, 1998 a note receivable of $640,000
is due from the General Partner and Limited Partner. Officers of the Company own
95% of the voting  stock of the General  Partner and the  Limited  Partner.  The
joint venture and limited  partnerships  are currently in the process of selling
all current loans  maintained by the  partnerships  and initiating a new partner
and  partnership to replace MLQ  Investors,  L.P. This process is expected to be
completed in 1999.

The Company has entered into lease agreements under which the tenant  operations
are  either  owned or a  majority  interest  is held by  members of the board of
directors  of the  Company.  As of March 31,  1999 and  December  31,  1998,  no
balances were outstanding on these properties.

8.  STOCKHOLDERS' EQUITY AND MINORITY INTEREST

DISTRIBUTIONS TO COMMON AND PREFERRED STOCKHOLDERS

During the three months ended March 31, 1999, the Company paid  distributions of
$6,669,000 to its Common  Stockholders and the minority  interests (or $0.43 per
share of Common Stock) and $1,776,000 to its Preferred  Stockholders (or $0.4825
per share of  Preferred  Stock) which were  declared and accrued in 1998.  As of
March  31,  1999,  $8,635,000  in  dividends  have been  declared  to be paid on
Preferred and Common Stock outstanding to stockholders and minority interests OP
unitholders of record on June 1, 1999.

COMMON STOCK

During the three  months  ended  March 31,  1999,  the Company  repurchased  and
retired  33,400  shares of Common Stock for $704,000.  As a March 31, 1999,  the
Company has repurchased and retired a total of 67,100 shares under the Company's
repurchase  program.  The  repurchase  program will  continue  until the Company
acquires 500,000 shares, as authorized by the Board of Directors,  or until such
time as the Board of Directors terminates the program.

MINORITY INTEREST

As reported in the Company's Annual Report on Form 10-K as of December 31, 1998,
OP units  represent  a  minority  interest  in the OP of the REIT.  Each OP unit
participates  in any income  (loss) of the OP based on the percent  ownership in
the OP and receives a cash dividend in an amount equivalent to a share of Common
Stock.  Each OP unit may be  exchanged  by the holder  thereof  for one share of
Common  Stock of the Company.  With each  exchange of  outstanding  OP units for
Common Stock, the Company's percentage ownership interest in the OP, directly or
indirectly,  will increase. In addition,  under a terminated management contract
in 1997 the original sole minority interest holder QSV Properties,  Inc. ("QSV")
is entitled to an  additional  825,000  shares of Common Stock of the Company or
its equivalent in OP units if certain earnings targets are met by the year 2000.
These  earnings  targets are based upon what QSV would have  received  under the
management contract that was terminated.  For the three month period ended March
31, 1999, the Company  accrued  $2,550,000  representing  an increase of 260,307
contingent  shares earned under the earnings  target formula.  These  additional
accrued  contingent shares have increased the total accrued contingent shares to
755,816 with an accrued value of approximately  $14,597,000 (based on the market
value of a share of the Company's  Common Stock at March 31, 1999).  The 755,816
contingent  shares have not been issued and will not  participate  in any income
(loss) or receive any distributions  from the OP until such units are issued. As
of March 31, 1999 there are 1,162,672 OP units outstanding.

Minority  interest  in the OP consists  of the  following  at March 31, 1999 (in
thousands):

             Balance December 31, 1998                $      29,567
             Market value of contingent shares
               earned for the period                          2,550
             Distributions paid and accrued in the
               period                                          (514)
             Income allocated to minority interest               53
                                                      --------------------
             Balance at March 31, 1999                $      31,656
                                                      ====================


                                 Page 13 of 21

<PAGE>


SHELF REGISTRATION

On August 22, 1997, the Company filed a shelf registration statement to register
shares of Common or Preferred Stock for sale in the amount of $150,000,000.  The
amount of securities available for sale under this shelf registration  statement
at March 31, 1999 is $25,025,000.

On October 30, 1998, the Company filed a shelf  registration for $175,000,000 to
register  shares of Common  and  Preferred  Stock  for sale.  This  registration
statement has not been declared effective as of the date of this Form 10-Q.

9.  PRO FORMA

The  following  pro forma  information  was  prepared  by  adjusting  the actual
consolidated  results of the Company for the three month periods ended March 31,
1999 and 1998 for the effects of:

         a.       the purchase of 51 properties on various dates from January 1,
                  1999 through March 31, 1999 for an aggregate purchase price of
                  $62,396,000;  and the  sale  of 12  properties  for  net  cash
                  proceeds of $5,934,000;  and the transfer of $17,503,000  from
                  construction in progress and related  financing  transactions;
                  and

         b.       the purchase of 286  properties  on various  dates during 1998
                  for an aggregate purchase price of $214,909,000  including the
                  value of 24,768  shares of  Common  Stock and  14,254 OP units
                  issued  to  sellers;   and  the  sale  of  12  properties  for
                  $8,174,000 and other related financing  transactions including
                  the sale of 1,359,063 shares of Common Stock for $32,407,000.

These pro forma  operating  results are not  necessarily  indicative of what the
actual  results of operations of the Company would have been assuming all of the
properties  were  acquired as of January 1, 1998 and do not purport to represent
the results of operations for future periods.

<TABLE>
<CAPTION>
                                                            Three Months Ended March 31,
                                                       --------------------------------------
(In thousands, except per share amounts)                      1999                1998
                                                       -----------------   ------------------
<S>                                                    <C>                 <C>
Total Revenues                                          $    19,887         $    19,536
                                                       =================   ==================
Net Income                                              $     2,766         $     4,823

Dividends on Preferred Stock                                 (1,776)             (1,776)
                                                       -----------------   ------------------
Net income allocable to Common Shareholders             $       990         $     3,047
                                                       =================   ==================
Net income per share
    Basic                                               $      0.07         $      0.21
    Diluted                                             $      0.06         $      0.21

Weighted average shares outstanding
    Basic                                                    14,352              14,255
    Diluted                                                  15,300              14,419

</TABLE>

                                 Page 14 of 21


<PAGE>


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

RESULTS OF OPERATIONS.

The Company  derives its revenue  primarily  from the leasing of its  Properties
(primarily  restaurant) to operators on a "triple net" basis.  Triple net leases
typically  require the tenants to be responsible for property  operating  costs,
including  property taxes,  insurance,  maintenance and in most cases the ground
rents where  applicable.  A majority of the Company's  leases provide for a base
rent  plus a  percentage  of the sales in excess  of a  threshold  amount.  As a
result,  a portion of the  Company's  revenues  is a  function  of the number of
properties in operation and their level of sales. Sales at individual properties
are influenced by local market conditions, by the efforts of specific operators,
by marketing,  by new product  programs,  support by the  franchisor  and by the
general state of the economy.

The following  discussion  considers the specific  impact of such factors on the
results of operations of the Company for the following periods.

Comparison  of the three  months  ended March 31, 1999 to the three months ended
March 31, 1998

The Company owned 591 properties  prior to January 1, 1998. The Company acquired
286  properties  (275 core  business  properties)  and sold 12  properties  from
January 1, 1998 to December 31, 1998 and the Company  acquired 51 properties (50
core business  properties)  and sold 12 properties from January 1, 1999 to March
31, 1999,  the rent from which are included in the periods  presented from their
respective dates of acquisition.

Revenues,  including  income  earned on direct  financing  leases,  in the three
months  ended March 31, 1999  totaled  $18,742,000  up 49% from the  $12,546,000
recorded for the three months ended March 31, 1998.  The increase in revenues is
primarily due to increases in the number of  properties  owned during the period
as compared to the same period in 1998. Through March 31, 1999, approximately 8%
of  the  Company's  rental  revenues   resulted  from  percentage  rents  (rents
determined as a percentage of tenant sales),  down from 12% for the three months
ended March 31, 1998. Percentage rents for the three months ended March 31, 1999
would  have  been  approximately  7% of the  Company's  rental  revenues  before
adjustment  for the impact of EITF 98-9.  As a result,  the impact of restaurant
sales continues to have a diminishing impact on total rental revenues.

Also  included  in revenues is  interest  income  relating to secured  notes and
mortgage receivable from tenants and related parties.  Interest income and other
was  $1,737,000 for the three months ended March 31, 1999 compared with $596,000
for the three months ended March 31, 1998,  an increase of 191% when compared to
the three months ended March 31, 1998. The increase resulted  primarily from the
increase in mortgage  loan  receivables  and notes  receivable  when compared to
March 31, 1998. In addition,  the Company recorded an unrealized gain on trading
securities of $409,000 during the three months ended March 31, 1999.

Rent  expense for the three  months  ended March 31,  1999  totaled  $115,000 an
increase  of 72% when  compared  to the  three  months  ended  March  31,  1998.
Depreciation and amortization  expenses in the three months ended March 31, 1999
totaled  $5,474,000,  an increase of 62% when compared to the three months ended
March 31, 1998. The increase in rent expense and  depreciation  and amortization
expenses directly relate to the property acquisitions.

General and  administrative  expenses  for the three months ended March 31, 1999
totaled  $1,312,000  an increase of 29% when  compared to the three months ended
March  31,  1998.  The  increase  was a result  of the  costs  of the  increased
infrastructure,  including  additional  employees,  required  by the  Company to
manage and maintain the Company's rate of growth.

Interest  expense for the three months ended March 31, 1999 totaled  $6,739,000,
an increase of 107%, when compared to the three months ended March 31, 1998. The
increase in interest  expense directly relates to the additional debt associated
with  the  acquisitions  and  the  higher  interest  rate  associated  with  the
additional debt.

A non-cash  accounting  charge of $2,550,000  relating to the termination of the
management  contract  with QSV was recorded for the three months ended March 31,
1999.  This charge  represents the market value,  based on the market value of a
share of Common Stock at March 31, 1999,  of 755,816  contingent  OP units (less
amounts  previously  recorded on 495,509  units as of December  31,  1998) which
would be  earned  by QSV at March 31,  1999 

                                 Page 15 of 21

<PAGE>

under the  terms of the  terminated  management  contract.  A  maximum  total of
825,000 shares may be issued to QSV if certain  earnings  targets are met by the
year 2000. These OP units have not been issued,  and will not participate in any
income  (loss) or  receive  any  distributions  from the OP until they have been
earned and issued.

Equity in net loss of affiliates of $61,000 for the three months ended March 31,
1999 relates to the Company's  share of net losses from its investments in other
entities in which the Company holds a minority interest.

Minority  interest in net income of the OP of $53,000 for the three months ended
March 31,  1999  relates  to OP units  held by QSV and other  minority  interest
holders.

Gain on sale of  properties of $72,000 for the three months ended March 31, 1999
related  to the sale of 12  properties  for cash of  $5,934,000  net of  closing
costs. The loss on extinguishment of debt of $190,000 for the three months ended
March 31, 1998 related to the  termination  of the  Company's  previous  line of
credit.

LIQUIDITY AND CAPITAL RESOURCES.

The Company's  principal source of cash to meet its short term cash requirements
is rental revenues generated by the Company's properties.  Cash generated by the
portfolio in excess of  operating  needs is used to reduce  amounts  outstanding
under the Company's  credit  agreements.  As of March 31, 1999,  the Company has
non-binding contracts for acquisitions of approximately $8 million. The terms of
the Company's leases ("triple net leases")  generally require that the tenant is
responsible for maintenance and  improvements to the property.  Thus the Company
is generally not required to expend funds for remodels and renovations. However,
the Company  expects to spend  approximately  $1 million a year to renovate  and
remodel currently owned properties.  As of March 31, 1999 approximately $274,000
has been funded for remodels and the Company had 23 properties in various stages
of   development.   As  of  March  31,  1999  the  Company  had  commitments  of
approximately  $8  million  representing  construction  contract  costs  not yet
incurred.

During the three months ended March 31, 1999 the Company paid dividends of $0.43
per share,  or an aggregate of  $6,669,000 to common  stockholders  and minority
interests.  In addition,  the Company paid dividends of $0.4825 per share, or an
aggregate $1,776,000 to preferred  stockholders covering the period December 16,
1998 to March 15, 1999. In addition,  on February 15, 1999, the Company declared
a dividend of $0.4425 per share to common  stockholders  and minority  interests
and $0.4825 per share to preferred stockholders to be paid on June 15, 1999.

On December 15, 1998, the Company  entered into a secured note  agreement  ("PAC
Note") for $20  million.  On January 9, 1999 the  Company  obtained  $20 million
under the PAC Note which matures on December 15, 1999 and bears interest rate of
LIBOR rate plus 3.00% per annum (7.97% at March 31,  1999).  The note is secured
by 35 properties.

On March 10,  1999,  the OP  financed  part of a property  acquisition  with the
seller in the  amount of $15  million.  The note bears  interest  at the rate of
7.25% per  annum.  The note was  repaid  with funds from a new note on April 12,
1999.

On April 12, 1999, the OP entered into an unsecured credit agreement with Credit
Lyonnais ("CLNY Agreement") under which the OP may borrow up to a maximum of $50
million. On July 9, 1999, no further borrowings can be made and the total amount
borrowed  becomes the  principal  balance of a note payable which will mature on
April 11, 2002. This note provides that  borrowings  thereunder bear interest at
the then  current  LIBOR  plus a margin  spread  ranging  from  2.00% to  2.75%,
dependent on a leverage  ratio  formula.  A total of $25 million was drawn under
this CLNY Agreement in April 1999.

On January 17, 1998 the OP entered into a credit  agreement  with a syndicate of
banks for an  unsecured  revolving  credit  line of $175  million.  This  credit
agreement  replaced the Company's then existing line of credit.  As of March 31,
1999, the Company has  approximately  $11 million  available under the unsecured
line of credit.  The Company may request advances under this credit agreement to
finance the acquisition of properties,  to repair and update  properties and for
working capital.  This credit agreement expires on January 15, 2001 and provides
that borrowings thereunder bear interest at LIBOR plus a margin spread which was
1.35% per annum at March 31, 1999. On February 23, 1999,  the OP entered into an
Assignment and Acceptance agreement that became effective on April 12, 1999 upon
execution of the credit  agreement with Credit  Lyonnais. 

                                 Page 16 of 21

<PAGE>

Under the terms of the  Assignment  and  Acceptance the OP became a party to the
revolving  credit  agreement,  and accepted the assignment of $10 million of the
available   credit  line.  This  agreement   effectively   reduced  the  maximum
availability under the revolving credit agreement by $10 million.

Management  believes that cash from operations and the existing debt facilities,
along with the  Company's  ability to raise  additional  equity,  including  the
issuance of OP units in exchange for  properties,  will provide the Company with
sufficient  liquidity  to meet  its  short-term  and  long-term  capital  needs.
However,  there can be no  assurance  that the terms at which  existing  debt is
refinanced will be as favorable to the Company as under the existing facilities.

FUNDS FROM OPERATIONS (FFO)

The Company  believes  that it computes  FFO in  accordance  with the  standards
established  by the  National  Association  of  Real  Estate  Investment  Trusts
("NAREIT"),  which may differ from the  methodology for calculating FFO utilized
by other equity  REITs,  and,  accordingly,  may not be comparable to such other
REITs.  The Company's  FFO is computed as net income (loss)  available to common
stockholders  (computed  in  accordance  with GAAP),  plus real  estate  related
depreciation  and  amortization  but excluding  the effects of direct  financing
leases,  minority  interest,  unusual  charges and gains (or  losses)  from debt
restructuring  and sales of property,  and the effect of EITF 98-9.  The Company
believes  FFO  enhances  and  is  helpful  to  investors  as a  measure  of  the
performance  of an equity  REIT  because,  along  with the  Company's  financial
condition,  results of operations and cash flows, it provides  investors with an
understanding  of the ability of the Company to incur and service  debt and make
capital  expenditures.  In evaluating  FFO and the trends it depicts,  investors
should consider the major factors  affecting FFO. Growth in FFO will result from
increases in revenue or decreases in related operating expenses. Conversely, FFO
will decline if revenues decline or related  operating  expenses  increase.  FFO
does not represent amounts available for management's  discretionary use because
of needed capital replacement or expansion,  debt service obligations,  or other
commitments and uncertainties. FFO should not be considered as an alternative to
net  income  (determined  in  accordance  with  GAAP)  as an  indication  of the
Company's  financial  performance  or to cash  flows from  operating  activities
(determined  in accordance  with GAAP) as a measure of the Company's  liquidity,
nor is it  indicative  of funds  available  to fund the  Company's  cash  needs,
including its ability to make distributions.

The  following  table sets forth,  for the three months ended March 31, 1999 and
1998, the calculation of FFO:

<TABLE>
<CAPTION>
(in thousands)                                                 Three Months Ended
                                                                    March 31,
                                                       ------------------------------------
Funds From Operations                                        1999                 1998
                                                       ---------------      ---------------
<S>                                                    <C>                  <C>
Net income allocable to common stockholders             $       734          $     2,628

Direct financing lease payments                                 508                  582
Capital lease principal payments                                (29)                 (26)
Depreciation and amortization                                 5,454                3,353
Gain on sale of property                                        (72)                  --
Termination of management contract (1)                        2,550                   --
Income allocable to minority interest                            53                  234
Loss on early extinguishment of debt                             --                  190
Effect of EITF 98-9 (2)                                        (220)                  --
                                                       ---------------      ---------------
Funds from operations (FFO)                             $     8,978          $     6,961
                                                       ===============      ===============

Total shares applicable to FFO                               15,707               14,165
                                                       ===============      ===============
</TABLE>

         (1)  The  charge for the  management  contract  is an unusual  non-cash
              charge  against  earnings.  The  Company  has no other  management
              contracts and the termination of this contract is a one time event
              and  does not  relate  to the  ongoing  business  activity  of the
              Company. The 1999 charge relates to contingent OP Units that would
              be  earned  by QSV at  March  31,  1999  under  the  terms  of the
              terminated  management  contract.  Since  FFO  is  intended  as  a
              supplementary  measure of operating  performance,  this charge has
              been added back to net income in arriving at FFO.

                                 Page 17 of 21
<PAGE>


         (2)  Net  income for 1999  reflects  the  implementation  of EITF Issue
              98-9,  effective  May 21,  1998.  The  adjustment  for  EITF  98-9
              represents  an decrease  in  percentage  rent that was  previously
              deferred for which cash has been previously received. Since FFO is
              intended as a supplementary measure of operating performance,  the
              impact of adoption of EITF Issue 98-9 has been  deducted  from net
              income in arriving at FFO.

INFLATION

Some of the  Company's  leases are subject to  adjustments  for increases in the
Consumer  Price  Index,  which  reduces  the risk to the  Company of the adverse
effects of inflation.  Additionally,  to the extent  inflation  increases  sales
volume,  percentage  rents may tend to offset the  effects of  inflation  on the
Company. Because triple net leases also require the property operator to pay for
some or all operating expenses,  property taxes, property repair and maintenance
costs and insurance,  some or all of the  inflationary  impact of these expenses
will be borne by the property operator and not by the Company.

Operators of restaurants,  in general, possess the ability to adjust menu prices
quickly.  However,  competitive  pressures  may  limit a  restaurant  operator's
ability to raise prices in the face of inflation.

SEASONALITY

Fast food  restaurant  operations  historically  have been  seasonal  in nature,
reflecting  higher unit sales during the second and third quarters due to warmer
weather and increase  leisure travel.  This seasonality can be expected to cause
fluctuations  in  the  Company's  quarterly  revenue  to  the  extent  it  earns
percentage rent.

YEAR 2000 SYSTEMS CONVERSION

The Company  recognizes the need to ensure that its data processing  systems and
operations  are not adversely  affected by the change to the calendar year 2000.
All  software  currently  in  use  at  U.  S.  Restaurant  Properties,  Inc.  is
represented  by the  respective  manufacturer  to be  Year  2000  compliant.  In
addition,  the Information  Technology  Association of America certifies through
its ITAA*2000 program, that our accounting software and the software used by our
outside  payroll   processor  are  Year  2000  compliant.   All   owned-property
information is maintained in a database that mandates use of 4-digit year input,
thus removing any Year 2000 ambiguity.

Hardware in current use has been tested and found to be Year 2000  compliant  or
to support manual rollover.  Two older workstations retained for historical data
retrieval  from  retired  systems  are not Year 2000  compliant.  However,  such
non-compliance is not believed to effect retrieval of the data and no upgrade is
planned.  All hardware not related to  information  processing  (e.g.,  copiers,
faxes,  phones,  etc.) is represented by the respective  manufacturer to be Year
2000 compliant with the exception of one fax machine.  Ongoing  verification  of
Company systems will continue throughout 1999.

All major vendors and all tenants were surveyed to determine the extent of their
preparedness  to meet Year 2000  challenges and to assess any possible impact on
USRP from a material  third-party  failure.  Vendor  responses  received  do not
identify any major potential  problems.  Several vendors,  have not responded to
our  inquiries;  however,  services  provided  by these  vendors  can be  easily
obtained  from other  sources.  No problems are  anticipated  in securing  these
services.

Tenant  responses to the survey have to date been limited.  The Company recently
sent  additional  surveys  to major  tenants to try to  determine  preparedness.
Should  adequate  assurances  that  tenants  are  prepared  not be  received,  a
contingency plan will be formulated to deal with any payment defaults.

In the event of  information  system  failure,  the  Company  would  continue to
process  transactions   manually,   assisted  by  any  systems  still  correctly
functioning.  The primary costs  associated  with such a scenario  would be time
delays  associated  with handling of information  and any  additional  personnel
required  to  process  the  data.  We  believe  the costs  associated  with such
personnel would not exceed $150,000.

The Company has not finalized its contingency plan as of this date.  However,  a
formal  contingency  plan will be developed as any risks are  identified  during
1999.

                                 Page 18 of 21

<PAGE>

The  Company  does not  anticipate  any  material  impact  on its  results  from
operations  or its financial  condition as a result of any Year 2000  compliance
issues.  The estimated  remaining costs of compliance,  consisting  primarily of
verification and testing costs, are not expected to exceed $25,000.

The most reasonably  likely worst case scenario would involve some or all of the
following  elements,  none of which pose a serious  threat to the  operations of
USRP:

1.   The operation of some of the properties will be  inconvenienced  due to the
     failure of alarm and safe systems which may temporarily  prevent the timely
     opening  of the  restaurant  or service  station  on  January 1, 2000.  The
     operator  may be able to bypass the  systems  involved  to  overcome  these
     inconveniences.

2.   Isolated  utility  outages  may occur,  preventing  the  operation  of some
     properties. Since these outages will also affect residential and government
     users of these services, they will likely be corrected quickly.

3.   Some properties may experience cash shortages due to failure of local banks
     to become Year 2000 compliant.  This may impede the ability of the operator
     to conduct  business  and/or pay rent timely until the Federal  Reserve has
     taken steps to overcome  the  problem.  This is also likely to be corrected
     quickly to preserve the integrity of the banking system.

4.   Some  properties  may  experience  delays or lack of food  supplies  due to
     disruption  in the  distribution  system.  Such  problems  may decrease the
     volume of business at the property until corrected.

If some or all of the  above  conditions  become  severe  or  sustained  for any
individual tenant, that tenant may become unable to pay rents on a timely basis.
Should this affect a number of tenants,  USRP could  experience  a reduction  of
cash receipts and could issue default notices to those tenants. A default due to
non-payment  of rent  arising  from  non-compliance  issues  could result in the
termination  of a lease.  Correcting  any  non-compliant  systems  could require
additional  capital  expenditures on the part of the Company in order to prepare
the property for re-lease. These expenditures,  should they be required, are not
expected to be significant.  Availability  of resources to correct  deficiencies
could  be  limited  depending  on the  extent  of  failures  experienced  in the
industry.

RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS INCLUDED IN THIS FORM 10-Q.

This Form 10-Q contains certain forward-looking statements within the meaning of
Section 27A of the  Securities Act of 1933 and Section 21E of the Securities Act
of 1934,  which are intended to be covered by the safe harbors created  thereby.
These  statements  include the plans and  objectives  of  management  for future
operations,  including plans and objectives  relating to property  acquisitions.
The forward-looking statements included herein are based on current expectations
that  involve  numerous  risks and  uncertainties.  Assumptions  relating to the
foregoing  involve  judgments  with  respect  to,  among  other  things,  future
economic,  competitive and market conditions and future business decisions,  all
of which are difficult or impossible to predict accurately and many of which are
beyond the  control of the  Company.  Although  the  Company  believes  that the
assumptions underlying the forward-looking statements are reasonable, any of the
assumptions  could be inaccurate  and,  therefore there can be no assurance that
the  forward-looking  statements  included  in this Form  10-Q will  prove to be
accurate.   In  light  of  the   significant   uncertainties   inherent  in  the
forward-looking  statements  included herein,  the inclusion of such information
should not be regarded as a  representation  by the Company or any other  person
that the objectives and plans of the Company will be achieved.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There were no significant changes to the information reported in the 1998 Annual
Report on Form 10-K.

                                 Page 19 of 21

<PAGE>




                           Part II. OTHER INFORMATION


ITEM 1    LEGAL PROCEEDINGS

          None

ITEM 2    CHANGES IN SECURITIES

          None

ITEM 3    DEFAULTS UPON SENIOR SECURITIES

          None

ITEM 4    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

          None

ITEM 5    OTHER INFORMATION

          None

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

          a)   Exhibits

               1) Exhibit 12.1 - Ratio of Earnings to Combined Fixed Charges and
                                 Preferred Stock Dividends
               2) Exhibit 27.1 - Financial Data Schedule


                                 Page 20 of 21

<PAGE>


                                   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.



                                    U.S. RESTAURANT PROPERTIES, INC.




Dated:  May 14, 1999                By     /s/ Robert J. Stetson
                                       -------------------------------------
                                         Robert J. Stetson
                                         President and Chief Executive Officer



                                    By    /s/ Michael D. Warren
                                       -------------------------------------
                                         Michael D. Warren
                                         Director of Finance




                                 Page 21 of 21