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 June 30, 1998

                                       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 August 10, 1998,  there were  13,021,838  shares of Common Stock $.001 par
value outstanding.


                                  Page 1 of 16
<PAGE>


                        U.S. RESTAURANT PROPERTIES, INC.


PART I.       FINANCIAL INFORMATION

  Item 1. Financial Statements

          Condensed Consolidated Balance Sheets as of June 30, 1998
            (Unaudited)and December 31, 1997................................. 3

          Condensed Consolidated Statements of Income for the Three
            months and Six months Ended June 30, 1998 and 1997 (Unaudited)... 4

          Condensed Consolidated Statements of Stockholders' Equity
            for the Six months ended June 30, 1998 (Unaudited)............... 5

          Condensed Consolidated Statements of Cash Flows for the Six
            Months Ended June 30, 1998 and 1997 (Unaudited).................. 6

          Notes to Condensed Consolidated Financial Statements (Unaudited)... 7

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

  Item 3. Quantitative and Qualitative Disclosures About Market Risk.........14


PART II.      OTHER INFORMATION

  Item 1.  Legal Proceedings.................................................15

  Item 2.  Changes in Securities.............................................15

  Item 3.  Defaults upon Senior Securities...................................15

  Item 4.  Submission of Matters to Vote of Security Holders.................15

  Item 5.  Other Information.................................................15

  Item 6.  Exhibits and Reports on Form 8-K..................................15


                                  Page 2 of 16

<PAGE>




                          PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                        U.S. RESTAURANT PROPERTIES, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                    (In thousands, expect per share amounts)
<TABLE>
<CAPTION>
                                                                 June 30,        December 31,
                                                                   1998              1997
                                                             ----------------   ---------------
                                                               (Unaudited)
<S>                                                          <C>                <C> 
                                  ASSETS
Property, net
    Land                                                      $     145,829      $    109,515
    Building and leasehold improvements                             256,773           211,200                          
    Machinery and equipment                                           5,599             4,813                                     
                                                             ----------------   ---------------
                                                                    408,201           325,528
    Less: Accumulated depreciation                                  (20,025)          (13,438)
                                                             ----------------   ---------------
                                                                    388,176           312,090

Cash and cash equivalents                                             8,781             1,104
Restricted cash                                                       1,332                --
Rent and other receivables, net
   (includes $878 and $523 from related parties)                      6,480             4,791
Prepaid expenses and purchase deposits                                2,237             1,967
Notes receivable
   (includes $5,577 and $5,406 from related parties)                 10,000             8,518
Mortgage loan receivable                                              6,307             5,947
Net investment in direct financing leases                            12,416            13,764
Intangibles and other assets, net                                    11,923            10,968
                                                             ----------------   ---------------
                                           TOTAL ASSETS       $     447,652      $    359,149
                                                             ================   ===============

             LIABILITIES AND STOCKHOLDERS' EQUITY

Accounts payable and accrued liabilities
   (includes $0 and $121 due to related parties)              $       5,294      $      4,193
Unearned contingent rent                                                468                --
Deferred gain on sale of property                                       555               642
Lines of credit                                                      67,000            89,196
Notes payable                                                       150,593            40,000
Capitalized lease obligations                                           118               170
                                                             ----------------   ---------------
                                      TOTAL LIABILITIES             224,028           134,201
                                                                           
Minority interest in operating partnership                           19,172            19,536
Stockholders' Equity
Preferred stock, $.001 par value per share;
   50,000 shares authorized, Series A - 3,680
   shares issued and outstanding as of
   June 30, 1998 and December 31, 1997
   (aggregate liquidation value $92,000)                                  4                 4
Common  stock, $.001 par value per share;
   100,000 shares authorized,  13,022 and 12,698
   shares issued and outstanding as of June 30,
   1998 and December 31, 1997, respectively                              13                13
Additional paid in capital                                          229,860           226,140
Excess stock, $.001 par value per share,
   15,000 shares authorized, no shares issued                            --                --
Distributions in excess of net income                               (25,425)          (20,745)
                                                             ----------------   ---------------
                             TOTAL STOCKHOLDERS' EQUITY             204,452           205,412
                                                             ----------------   ---------------
           TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY         $     447,652      $    359,149
                                                             ================   ===============

</TABLE>

See Notes to Condensed Consolidated Financial Statements

                                  Page 3 of 16

<PAGE>


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

<TABLE>
<CAPTION>
                                            Three months ended              Six months ended
                                                 June 30,                        June 30,
                                        ----------------------------    ----------------------------
                                           1998             1997           1998            1997
                                        ------------    ------------    ------------   -------------
<S>                                     <C>             <C>             <C>            <C>
Revenues:
   Rental Income                         $  13,180       $   7,978       $  25,488      $   13,687
   Interest Income                             732             166           1,328             278
   Amortization of unearned
    income on direct financing leases          283             413             600             857
                                        ------------    ------------    ------------   -------------
                       Total revenues       14,195           8,557          27,416          14,822

Expenses:
   Rent                                        726             600           1,468           1,189
   Depreciation and amortization             3,690           1,800           7,060           3,366
   Taxes, general and administrative         1,178           1,137           2,198           1,843
   Interest expense                          3,871           2,395           7,132           3,847
                                        ------------    ------------    ------------   -------------
                      Total  expenses        9,465           5,932          17,858          10,245
                                        ------------    ------------    ------------   -------------
Income before gain on sale of
  property, unusual items and other          4,730           2,625           9,558           4,577
  Gain on sale of property                     457             266             457             266
  Equity in net income (loss)
    of affiliates                              (56)             --             (56)             --
  REIT conversion costs                         --            (744)             --            (744)
                                        ------------    ------------    ------------   -------------
Income before minority interest
  and extraordinary item                     5,131           2,147           9,959           4,099

Minority interest in operating
  partnership                                 (269)             --            (503)             --
                                        ------------    ------------    ------------   -------------
Income before extraordinary item             4,862           2,147           9,456           4,099

Loss on early extinguishment of debt            --              --            (190)             --
                                        ------------    ------------    ------------   -------------
Net income                                   4,862           2,147           9,266           4,099

Dividends on Preferred Stock/
  General Partner's interest                (1,776)            (42)         (3,551)            (81)
                                        ------------    ------------    ------------   -------------

Net income allocable to Common
  Stockholders                           $   3,086       $   2,105       $   5,715      $    4,018
                                        ============    ============    ============   =============


Weighted average shares outstanding
  Basic                                     13,022          11,435          12,938          10,906
  Diluted                                   13,229          11,661          13,124          11,142

Net income per share
  Basic                                  $    0.24       $    0.18       $    0.44      $     0.36
  Diluted                                $    0.23       $    0.18       $    0.44      $     0.36
                                                                                               
</TABLE>


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

See Notes to Condensed Consolidated Financial Statements

                                  Page 4 of 16

<PAGE>


                        U.S. RESTAURANT PROPERTIES, INC.
      Condensed Consolidated Statements of Stockholders' Equity (Unaudited)
                     For the Six months ended June 30, 1998
                                 (In thousands)

<TABLE>


<CAPTION>
                              Preferred Stock       Common Stock       
                            -------------------  -------------------- Additional Paid     Distributions in
                            Shares   Par Value   Shares    Par Value    In Capital      Excess of Net Income      Total
                            -----------------------------------------------------------------------------------------------
<S>                         <C>      <C>        <C>        <C>        <C>              <C>                    <C>
Balance December 31, 1997    3,680    $     4     12,698    $    13    $    226,140     $       (20,745)       $  205,412

Proceeds from exercised
 stock options                                       300                      3,099                                 3,099
  
Stock issued for purchase
 of ownership interest
 in another entity                                    24                        621                                   621
  
Net income                                                                                        9,266             9,266
Dividends on preferred
 stock                                                                                           (4,123)           (4,123)
Dividends on common                                                                             
 stock                                                                                           (9,823)           (9,823)
                            -------  ---------  ---------  ---------  --------------   ---------------------  -------------
Balance June 30, 1998        3,680    $     4     13,022    $    13    $    229,860     $       (25,425)       $  204,452
                            =======  =========  =========  =========  ==============   =====================  =============

</TABLE>

See Notes to Condensed Consolidated Financial Statements


                                  Page 5 of 16

<PAGE>



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


<CAPTION>
                                                                   Six months ended
                                                                       June 30,
                                                             ----------------------------
                                                                 1998           1997
                                                             ------------   -------------
<S>                                                          <C>            <C>
Cash flows from operating activities:
 Net income                                                   $   9,266      $    4,099
 Adjustments to reconcile net income to net
     cash from operating activities
          Depreciation and amortization                           7,060           3,366
          Amortization of deferred financing costs                  269             145
          Amortization of discount on notes payable                  17              --
          Gain on sale of property                                 (457)           (266)
          Equity in loss of affiliates                               56              --
          Minority interest in operating partnership                503              --
          Loss on early extinguishment of debt                      190              --
          Increase in restricted cash                            (1,332)             --
          Increase in rent and other receivables, net            (1,908)           (824)
          Increase in prepaid expenses                             (502)           (521)
          Reduction in net investment in direct
             financing leases                                     1,175           1,130
          Increase in accounts payable and
             accrued liabilities                                  1,101             564
          Increase in unearned contingent rent                      468              --
                                                             ------------   -------------
                                                                  6,640           3,594
                                                             ------------   -------------
               Cash provided by operating activities             15,906           7,693

Cash flows used in investing activities:
         Proceeds from sale of property                             632           1,171
         Purchase of property                                   (70,505)        (81,005)
         Purchase of machines and equipment                        (786)           (981)
         Purchase deposits (paid) used                              232            (182)
         Increase in mortgage loan receivable                      (360)             --
         Increase in notes receivable                           (12,629)           (686)
                                                             ------------   -------------
               Cash used in investing activities                (83,416)        (81,683)

Cash flows from financing activities:
         Loan origination costs and other intangibles            (1,427)           (728)
         Payments on capitalized lease obligations                  (52)            (99)
         Proceeds from line of credit                           167,786          62,467
         Payments on line of credit                            (189,982)        (39,640)
         Proceeds from notes payable                            110,576          40,000
         Proceeds from issuance of common stock                   3,099          21,025
         Preferred stock dividends paid                          (4,123)             --
         Cash distributions to stockholders/partners             (9,823)         (7,639)
         Distributions to minority interest                        (867)             --
                                                             ------------   -------------
               Cash flows provided by financing activities       75,187          75,386
                                                             ------------   -------------
Increase in cash and cash equivalents                             7,677           1,396
Cash and cash equivalents at beginning of period                  1,104             381
                                                             ------------   -------------
Cash and cash equivalents at end of period                    $   8,781      $    1,777
                                                             ============   =============

Supplemental disclosure:
         Interest paid during the period                      $   5,786      $    3,267

Non-cash investing activities:
         Fair value of stock issued for ownership
              interest in another entity                      $     621      $       --
         Fair value of stock/units issued for property        $      --      $    3,320
         Deferred gain on sale of property                    $      85      $       --
         Notes received on sale of property                   $     675      $       --
         Property purchased for note receivable               $  11,822      $       --
         Property purchased for accounts receivable           $     219      $       --

</TABLE>

See Notes to Condensed Consolidated Financial Statements

                                  Page 6 of 16

<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, 1997, 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
June 30,  1998,  the Company  owns 91.98% of and controls the OP. As of June 30,
1998, the Company owned 682 restaurant and other properties in 47 states.

The accompanying  condensed  consolidated financial statements should be read in
conjunction  with the  condensed  consolidated  financial  statements  and notes
thereto  included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997,  which was filed with the Securities and Exchange  Commission
("SEC").  The results of operations  for the six months ended June 30, 1998, are
not  necessarily  indicative  of the results to be expected  for the year ending
December  31,  1998.  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 June 30, 1998 and
the other condensed  consolidated financial information for the six months ended
June 30, 1998, and 1997, 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 had 13,021,838 and 12,698,113  shares of Common Stock outstanding as
of June 30, 1998 and December 31, 1997 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").  Under EITF 98-9,  the Company  revised its
method of  accounting  for  contingent  rent on a prospective  basis.  Using the
historical basis of accounting net income before  extraordinary item, net income
and basic and diluted per share amounts would have been $5,292,000,  $5,292,000,
$0.27 and $0.27,  respectively,  for the three month  period ended June 30, 1998
and $9,886,000,  $9,696,000,  $0.48,  and $0.47,  respectively for the six month
period ended June 30, 1998.

This pro forma  information was prepared based on management's  estimate for the
effects of EITF 98-9.  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 pro forma  information  for the three months and six months
ended June 30, 1997 as if the EITF 98-9 were in effect as of January 1, 1997:

<TABLE>

<CAPTION>
                                                   Three months ended       Six months ended
                                                         June 30,                June 30,
                                                 ----------------------------------------------
(In thousands, except per share amounts)           1998         1997         1998       1997
                                                 ----------  ---------    ----------  ---------
<S>                                              <C>         <C>          <C>         <C>
Income before extraordinary item as reported      $  4,862    $ 2,147      $  9,456    $ 4,099
Add: Adjustment for change in accounting
     policy on recognition of contingent
     lease rent                                        478         85           561        374
                                                 ----------  ---------    ----------  ---------
Income before extraordinary item as adjusted      $  5,340    $ 2,232      $ 10,017    $ 4,473
                                                 ==========  =========    ==========  =========

Net income as adjusted                            $  5,340    $ 2,232      $  9,827    $ 4,473
                                                 ==========  =========    ==========  =========
Net income available to common stockholders
    as adjusted                                   $  3,564    $ 2,187      $  6,276    $ 4,384
                                                 ==========  =========    ==========  =========
Income per share - Basic:
   Before extraordinary item, less dividends
    on Preferred Stock/General Partner's
    interest as reported                          $   0.24    $  0.18      $   0.46    $  0.36
   Adjustment for effect of change in
    accounting policy                                 0.03       0.01          0.04       0.04
                                                 ----------  ---------    ----------  ---------
   Income before extraordinary item, less
    dividends on Preferred Stock/General
    Partner's interest as reported                $   0.27    $  0.19      $   0.50    $  0.40
                                                 ==========  =========    ==========  =========
   Net income available to common
    stockholders as reported                      $   0.24    $  0.18      $   0.44    $  0.36
   Adjustment for effect of change in
    accounting policy                                 0.03       0.01          0.04       0.04
                                                 ----------  ---------    ----------  ---------
   Net income available to common
    stockholders as adjusted                      $   0.27    $  0.19      $   0.48    $  0.40
                                                 ==========  =========    ==========  =========

Income per share - Diluted:
   Before extraordinary item, less dividends
    on Preferred Stock/General Partner's
    interest as reported                          $   0.23    $  0.18      $   0.45    $  0.36
   Adjustment for effect of change in
    accounting policy                                 0.03       0.01          0.04       0.03
                                                 ----------  ---------    ----------  ---------
   Income before extraordinary item, less
    dividends on Preferred Stock/General
    Partner's interest as reported                $   0.26    $  0.19      $   0.49    $  0.39
                                                 ==========  =========    ==========  =========

   Net income available to common
    stockholders as reported                      $   0.23    $  0.18      $   0.44    $  0.36
   Adjustment for effect of change in
    accounting policy                                 0.03       0.01          0.04       0.03
                                                 ----------  ---------    ----------  ---------
   Net income available to common
    stockholders as adjusted                      $   0.26    $  0.19      $   0.48    $  0.39
                                                 ==========  =========    ==========  =========

</TABLE>

                                  Page 7 of 16
<PAGE>

2.  NET INCOME PER SHARE OF COMMON STOCK

Effective  December  31,  1997,  the  Company  adopted  Statement  of  Financial
Accounting  Standards No. 128;  Earnings per share (SFAS No. 128).  Earnings per
share amounts  presented for the three and six months period ended June 30, 1997
have been restated to comply with the provisions of SFAS No. 128.

The following table reflects the  calculation of basic and diluted  earnings per
share for the three and six months period ended June 30, 1998 and 1997.

<TABLE>

<CAPTION>
                                                           Three months ended          Six months ended
                                                                 June 30,                   June 30,
                                                       --------------------------------------------------------
(In thousands, except per share amounts)                   1998            1997          1998           1997
                                                       ------------    -----------    -----------   -----------
<S>                                                    <C>             <C>            <C>           <C>   
Net income before extraordinary item                    $   4,862       $  2,147       $  9,456      $  4,099
    Loss on early extinguishment of debt                       --             --           (190)           --
                                                       ------------    -----------    -----------   -----------
Net income                                                  4,862          2,147          9,266         4,099
    Dividends on preferred stock/General
      partner interest                                     (1,776)           (42)        (3,551)          (81)
                                                       ------------    -----------    -----------   -----------
Net income allocable to shareholders                    $   3,086       $  2,105       $  5,715      $  4,018
                                                       ============    ===========    ===========   ===========

Net income per share - Basic
    Before extraordinary item less
      preferred stock dividends/general
      partner interest                                  $    0.24       $   0.18       $   0.45      $   0.36
    Extraordinary loss on extinguishment
      of debt                                                  --             --          (0.01)           --
                                                       ------------    -----------    -----------   -----------
Net income allocable to common stockholders             $    0.24       $   0.18       $   0.44      $   0.36
                                                       ============    ===========    ===========   ===========
Net income per share - Diluted
    Before extraordinary item, less
      preferred  stock dividends/general                                                
      partner interest                                  $    0.23       $   0.18       $   0.45      $   0.36
    Extraordinary loss on extinguishment
      of debt                                                  --             --          (0.01)           --
                                                       ------------    -----------    -----------   -----------
Net income allocable to common stockholders             $    0.23       $   0.18       $   0.44      $   0.36
                                                       ============    ===========    ===========   ===========
Weighted average shares outstanding (a)
    Basic                                                  13,022         11,435         12,938        10,906
      Dilutive effect of outstanding options                  207            226            186           236
      Dilutive effect of guaranteed stock                      --             --             --            --
                                                       ------------    -----------    -----------   -----------
    Diluted                                                13,229         11,661         13,124        11,142
                                                       ============    ===========    ===========   ===========

</TABLE>


         (a)  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 at June 30, 1998.

Comprehensive  income is the same as net  income  for the  three and six  months
ended June 30, 1998 and 1997.

3.  PROPERTY ACQUISITIONS AND DISPOSITIONS

During the three months ended June 30, 1998, the Company  completed the purchase
of 49 restaurant,  gas station and other  properties  for an aggregate  purchase
price of $38,374,000.

During the three months ended March 31, 1998, the Company completed the purchase
of 44 restaurant properties for an aggregate purchase price of $44,160,000.

During the three months ended June 30, 1998, two restaurant properties were sold
for cash of $632,000,  net of closing costs resulting in a gain of $284,000. The
Company  received a note  receivable of $675,000  which bears  interest at 8.50%
with interest and principal due monthly through July 2012 in connection with the
sale of one of the  properties.  In  accordance  with  Statement  of  Accounting
Standards  No. 66  "Accounting  for Real Estate  Sales" the  Company  recorded a
deferred  gain of  $85,000  as a result of the sale.  In  addition,  a  previous
deferred gain on sale of $173,000 was recognized.

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 June 30, 1998,  earnest money purchase deposits amounting to $289,000 were on
deposit for the purchase of one Arby's,  one TGIF  Friday's,  one  Wendy's,  one
Kentucky Fried Chicken and 17 other restaurant and gas station properties.


                                  Page 8 of 16
<PAGE>

4.  REVOLVING CREDIT FACILITIES

On January 17, 1998 the Company 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 June 30,
1998, the Company has approximately  $108 million available under the new credit
agreement.  The Company  may request  advances  under this credit  agreement  to
finance  the  acquisition  of  restaurant  properties,   to  repair  and  update
restaurant properties and for working capital. The banks will also issue standby
letters of credit for the  account of the Company  under this credit  agreement.
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%,  dependent on a leverage ratio formula. As of June
30, 1998, the margin spread was 1.05%.  There is an unused line of credit fee of
0.25% per annum on the unused portion of the credit agreement.

On January 17, 1998, the Company's  previous  secured  revolving credit facility
was  terminated  and  the  related  unamortized  costs  were  expensed  and  the
outstanding balance thereunder of $63,782,000 was repaid with funds from the new
unsecured credit agreement.

On August 15,  1997,  a wholly owned  subsidiary  of the Company  entered into a
short term borrowing  facility (the "Pacific  Mutual  Facility") of $30 million.
This  revolving  credit  facility was repaid in full during the six month period
ending June 30, 1998 and the borrowing facility was terminated.

5.  NOTES PAYABLE

On February 26, 1997,  the Company issued  $40,000,000 in privately  placed debt
which consists of $12,500,000  Series A Senior Secured  Guaranteed  Notes with a
8.06% interest rate and due date of January 31, 2000; and  $27,500,000  Series B
Senior  Secured  Guaranteed  Notes  with a 8.30%  interest  rate and due date of
January  31,  2002.  In January  1998 the note  holders  agreed to  release  the
collateral for these notes.

On May 12,  1998 the  Company  issued  $111  million of 7 year fixed rate senior
unsecured notes payable in a private  placement.  The notes bear interest at the
rate of 7.15% per annum and are due May 1, 2005.  The net  proceeds of the notes
were used to repay a portion of the revolving  credit  agreement and for general
corporate purposes.

6.  RELATED PARTY TRANSACTIONS

Prior to October 15, 1997, QSV Properties,  Inc, the Managing General Partner of
USRP ("QSV") was responsible for managing the business and affairs of USRP. USRP
paid QSV a  non-accountable  annual  allowance  (adjusted  annually  to  reflect
increases in the Consumer Price Index and additions to the property  portfolio),
plus reimbursement of out-of-pocket costs incurred to other parties for services
rendered to USRP.  The  allowance for the three months and six months ended June
30, 1997 was $593,000 and $973,000, respectively. The Company's accounts payable
balance  includes  $121,000  for this  allowance  as of December  31,  1997.  In
addition  QSV was paid a one-time  acquisition  fee equal to one  percent of the
purchase price for additional  property purchases which amounted to $621,000 and
$820,000 for the three months and six months ended June 30, 1997,  respectively.
This contract was terminated in conjunction  with the Company's  conversion to a
REIT on October 15, 1997.

A note receivable of $394,000 and $261,000 is due from Arkansas  Restaurants #10
L.P.  ("ARLP") at June 30, 1998 and December 31,  1997,  respectively.  The note
receivable  is due on  September 1, 1998,  and has an interest  rate of 9.0% per
annum. At June 30, 1998 and December 31, 1997, tenant and other receivables from
ARLP were $353,000 and $158,000,  respectively.  The managing general partner of
ARLP is owned by an officer of the  Company,  who receives no  compensation  for
this role.

As of June 30, 1998 and December 31, 1997,  notes  receivable of $1,070,000 were
due from Southeast Fast Food Partners,  L.P.  ("SFF").  The notes receivable are
due on July 1, 1998  ($207,000) and July 1, 1999 ($863,000) and have an interest
rate of 9.0% per annum. At June 30, 1998 and December 31, 1997 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 June 30, 1998 and  December  31,
1997,  tenant  and  other  receivables  from SFF  were  $327,000  and  $362,000,
respectively.  The Managing General Partner of SFF is owned by an officer of the
Company, who receives no compensation for this role.

During 1996, the Company agreed to make available to USRP Development  Company a
revolving  line of credit in the  principal  amount  of  $5,000,000,  to be used
solely for paying for the acquisition and development of restaurant  properties,
which will be purchased by the Company upon completion of development.  The line
of credit is secured by certain development  properties and bears interest at an
annual  rate of 9.0%.  In  April  1998,  the line of  credit  was  increased  to
$15,000,000  with interest  only  payments due on November 1, 1998,  and on each
anniversary  thereof  throughout  the  term of the  note  with  all  outstanding
principal  and accrued but unpaid  interest  due on October  31,  2001,  when it
matures. At June 30, 1998, the outstanding balance was $3,957,000.

As of the  April 29,  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  will engage in
lending  activities to owners and operators of quick service  franchises and gas
station/convenience  store outlets. The Company has indirect ownership interests
(through  the  General  Partner  and  Limited  Partner)  of  71.25%  and  47.5%,
respectively,  in these two  partnerships.  As of June 30, 1998, the Company had
other  receivables  from the two lending  partnerships  of  $198,000  and a note
receivable of $20,000 from the General Partner and Limited Partner.

                                  Page 9 of 16

<PAGE>


7.  STOCKHOLDERS' EQUITY AND MINORITY INTEREST

COMMON STOCK

As reported in the Company's Annual Report on Form 10-K as of December 31, 1997,
the  Company  effected  the  conversion  of USRP  into a  self-administered  and
self-managed REIT on October 15, 1997. As a result of the Merger,  USRP became a
subsidiary of the Company and, at the effective time of the Merger,  all holders
of units of  beneficial  interest of USRP became  stockholders  of the  Company.
Accordingly,  information  contained in these condensed  consolidated  financial
statements related to the equity ownership of USRP following October 15, 1997 is
presented as ownership of shares of Common Stock of the Company.  On October 30,
1997, the Company  effected a three-for-two  stock split.  All of the historical
Units and per unit information has been restated to reflect this stock split and
conversion of the units to Common Stock.

The  Company  announced  on August 5,  1998  that the  Board of  Directors  have
authorized  the  Company to  repurchase  up to 500,000  shares of the  Company's
Common Stock and  Convertible  Preferred  Stock.  Any  purchases  made under the
program  will be made from time to time in open market or  privately  negotiated
transactions.  The repurchase  program will continue until the Company  acquires
500,000  shares,  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, 1997,
the  management  contract  between  QSV and USRP was  terminated.  The  contract
termination  and QSV's  partnership  interests in USRP were converted to 126,582
shares of Common  Stock of the  Company  and  1,148,418  units of the OP. The 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 the OP  units  held  by QSV  receive  a cash  dividend  in an  amount
equivalent to a share of Common Stock. Each OP unit held by QSV may be exchanged
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.  An additional  825,000 shares of
Common Stock of the Company or its  equivalent  in OP units may be issued to QSV
if certain earnings targets are met by the Company by the year 2000.
As of June 30, 1998 these earnings targets have not been met.

Minority interest in the OP consists of the following (in thousands):


     Balance December 31, 1997                   $   19,536
     Distributions                                     (867)
     Income allocated to minority interest              503
                                                -------------
     Balance at June 30, 1998                    $   19,172
                                                =============


                                 Page 10 of 16

<PAGE>


8.  PRO FORMA (UNAUDITED)

The  following  pro forma  information  was  prepared  by  adjusting  the actual
condensed  consolidated  results of the Company for the six month  periods ended
June 30, 1998 and 1997 for the effects of:

         a.       the purchase of 93 properties on various dates from January 1,
                  1998 through June 30, 1998 for an aggregate  purchase price of
                  $82,534,000,   the  sale  of  two  restaurant  properties  for
                  $1,313,000 and related financing transactions; and

         b.       the purchase of 277  restaurant  properties  on various  dates
                  during 1997 for an aggregate  purchase  price of  $182,396,000
                  including  the value of 680,696  shares of Common Stock issued
                  to  sellers;  the  sale of  eight  restaurant  properties  for
                  $5,822,000;  the Preferred  Stock  dividends  required and the
                  reduction  of  interest  expense as a result of the  Preferred
                  Stock  offering   proceeds  used  to  reduce  the  total  debt
                  outstanding by $87,622,000;  the three-for-two  stock split on
                  October 30, 1997;  and other related  financing  transactions,
                  including  the sale of  1,434,831  shares of Common  Stock for
                  $25,000,000.

These  pro  forma  operating  results  are  based  on the  historical  basis  of
accounting  and 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, 1997 and do not purport to  represent  the results of
operations for future periods.

                                                  Six months ended June 30,
                                                 ---------------------------
(In thousands, except per share amounts)             1998          1997
                                                 ------------   ------------
Total Revenues                                    $  28,944      $  27,445
                                                 ============   ============
Net Income                                            9,452          7,504

Dividends on Preferred Stock                         (3,551)        (3,551)
                                                 ------------   ------------
Net income allocable to Common Shareholders       $   5,901      $   3,953
                                                 ============   ============
Weighted average shares outstanding
         Basic                                       12,947         12,607
         Diluted                                     13,178         12,951

Net income per share
         Basic                                        $0.46          $0.31
         Diluted                                      $0.45          $0.31


                                 Page 11 of 16

<PAGE>


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

RESULTS OF OPERATIONS.

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

On October  15, 1997 the  Company  changed  its form of  business  from a master
limited  partnership to a REIT. U. S.  Restaurant  Properties,  Inc.  became the
successor  entity to U.S.  Restaurant  Properties  Master  L.P.  The  results of
operations for the three and six months ended June 30, 1998 are presented as the
continuation of the operations of the predecessor entity.

Certain  statements  in the  analysis  of  financial  condition  and  results of
operations   constitute   "forward-looking   statements"   and  involve   risks,
uncertainties  and other factors which may cause the actual  performance of U.S.
Restaurant  Properties,  Inc. to be materially  different  from the  performance
expressed or implied by such statements.  These risks include interest rates and
other general economic  conditions,  income  fluctuations in U.S. households and
the general health of the fast food and casual dining industry segments.

The results of operations of the Company,  together with its  predecessors,  for
the periods discussed below have been affected by the growth in the total number
of  Properties  owned by the Company,  as well as by increases in rental  income
across the portfolio, over such time periods. 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 SIX MONTHS  ENDED JUNE 30, 1998 TO THE SIX MONTHS  ENDED JUNE
30, 1997.

The Company owned 322 properties  prior to January 1, 1997. The Company acquired
277 properties  and sold 8 properties  from January 1, 1997 to December 31, 1997
and the Company acquired 93 properties and sold two properties,  from January 1,
1998 to June 30,  1998,  the  operations  of which are  included  in the periods
presented from their respective dates of acquisition.

Revenues  for the six  months  ended June 30,  1998  totaled  $27,416,000  up 85
percent  from the  $14,822,000  recorded for the six months ended June 30, 1997.
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 1997.
Through  June 30,  1998,  approximately  12% of the  Company's  rental  revenues
resulted  from  percentage  rents (rents  determined  as a percentage  of tenant
sales),  down from 20% for the six months ended June 30, 1997. As a result,  the
impact of restaurant sales had a diminishing impact on total rental revenues. In
addition,  the company deferred percentage rent of approximately  $468,000 under
the  provisions  of EITF  98-9 for the six  months  ended  June 30,  1998.  Also
included in revenues is interest income relating  primarily to secured notes and
mortgage  receivable  from  tenants and  related  parties.  Interest  income was
$1,328,000 for the six months ended June 30, 1998 compared with $278,000 for the
six months ended June 30, 1997.

Rent  expense  for the six months  ended June 30,  1998  totaled  $1,468,000  an
increase  of  23%  when  compared  to  the  six  months  ended  June  30,  1998.
Depreciation  and  amortization  expenses in the six months  ended June 30, 1998
totaled  $7,060,000;  an increase of 110% when  compared to the six months ended
June 30, 1997. The increase in rent expense and  depreciation  and  amortization
expenses directly relates to the property acquisitions.

Taxes,  general and  administrative  expenses  for the six months ended June 30,
1998 totaled $2,198,000 an increase of 19% when compared to the six months ended
June  30,  1997.  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 six months ended June 30, 1998 totaled  $7,132,000,  an
increase  of 85%,  when  compared  to the six months  ended June 30,  1997.  The
increase in interest  expense directly relates to the additional debt associated
with the acquisitions.

Minority  interest in net income of the OP of $503,000  for the six months ended
June 30, 1998 related to OP units held by QSV.

Loss on debt  extinguishment  of $190,000 for the six months ended June 30, 1998
related to the termination of the Company's previous line of credit.

COMPARISON  OF THE THREE  MONTHS  ENDED JUNE 30, 1998 TO THE THREE  MONTHS ENDED
JUNE 30, 1997.

Revenues for the three months  ended June 30, 1998 totaled  $14,195,000  up 66 %
from the  $8,557,000  recorded for the three  months  ended June 30,  1997.  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 1997. Also included in
revenues is interest  income  relating  primarily to secured  notes and mortgage
receivable  from tenants and related  parties.  Interest income was $732,000 for
the three months ended June 30, 1998 compared with $166,000 for the three months
ended June 30, 1997.

Rent  expense  for the three  months  ended June 30,  1998  totaled  $726,000 an
increase  of 21%  when  compared  to the  three  months  ended  June  30,  1997.
Depreciation and  amortization  expenses in the three months ended June 30, 1998
totaled $3,690,000;  an increase of 105% when compared to the three months ended
June 30, 1997. The increase in rent expense and  depreciation  and  amortization
expenses directly relates to the property acquisitions.

Taxes,  general and administrative  expenses for the three months ended June 30,
1998  totaled  $1,178,000  an increase of 4% when  compared to the three  months
ended June 30, 1997.  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.

                                 Page 12 of 16

<PAGE>


Interest expense for the three months ended June 30, 1998 totaled $3,871,000, an
increase of 62%,  when  compared to the three months  ended June 30,  1997.  The
increase in interest  expense directly relates to the additional debt associated
with the acquisitions.

Minority interest in net income of the OP of $269,000 for the three months ended
June 30, 1998 related to OP units held by QSV.

LIQUIDITY OF 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.  Currently,  the Company's primary source
of funding  for  acquisitions  is its  existing  revolving  line of credit.  The
Company  anticipates  meeting its future  long-term  capital  needs  through the
issuance of additional  debt or equity,  including the issuance of additional OP
units, along with cash generated from internal operations. During the six months
ended June 30,  1998 the  Company  paid  dividends  of $0.755  per share,  or an
aggregate of  $10,690,000  to common  stockholders  and minority  interests.  In
addition,  the Company  paid  dividends  of $1.1205 per share,  or an  aggregate
$4,123,000 to preferred  stockholders  covering the period  November 17, 1997 to
June 15, 1998.

On January 17, 1998 the Company 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 June 30,
1998, the Company has approximately  $108 million available under the new credit
agreement.  The Company  may request  advances  under this credit  agreement  to
finance  the  acquisition  of  restaurant  properties,   to  repair  and  update
restaurant  properties and for working capital.  This credit agreement  provides
that borrowings thereunder bear interest at LIBOR plus a margin spread which was
1.05% per annum at June 30.

On May 12,  1998 the  Company  issued  $111  million of 7 year fixed rate senior
unsecured notes payable in a private  placement.  The notes bear interest at the
rate of 7.15% per annum and are due May 1, 2005.  The net  proceeds of the notes
were used to repay a portion of the revolving  credit  agreement and for general
corporate purposes.

Management believes that 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 operating and growth requirements.

YEAR 2000 ISSUE

The Company has recognized the need to ensure that its data  processing  systems
and operations will not be adversely affected by the change to the calendar year
2000. The Company has taken steps to identify  potential  areas of risk, and has
begun to  address  these  risk  factors in its  planning,  purchasing  and daily
operations.  The cost of converting  all internal  systems and operations is not
expected to be material.  Estimated costs relating to the failure of third party
service  providers  and vendors to prepare  for the year 2000 is not  available.
However,  the Company is  attempting to identify  those risks,  and is requiring
third party service  providers and vendors to provide  evidence of their systems
ability to incorporate the change to the year 2000.

FUNDS FROM OPERATIONS (FFO)

FFO is computed as net income (loss) available to common stockholders  (computed
in  accordance  with GAAP),  excluding the effects of direct  financing  leases,
minority interest, unusual charges and gains (or losses) from debt restructuring
and sales of property,  plus real estate related  depreciation and amortization.
The Company believes FFO is helpful to investors as a measure of the performance
of an equity REIT because,  along with cash flows from operating,  financing and
investing activities, it provides investors with an understanding of the ability
of the  Company to incur and service  debt and make  capital  expenditures.  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.  Further,  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 six months ended June 30, 1998 and 1997,
the calculation of FFO:

                                 Page 13 of 16

<PAGE>



(in thousands)                                          Six months ended
                                                             June 30,
                                                    -------------------------
Funds From Operations                                 1998            1997
                                                    ----------     ----------
Net income allocable to common stockholders         $   5,715      $   4,018
                                                                        
Direct financing lease payments                         1,175          1,130
Capital lease principal payments                          (52)           (99)
Depreciation and amortization                           7,023          3,366
Gain on sale of property                                 (457)          (266)
REIT conversion costs                                      --            744
Income allocable to minority interest                     503             --
Income allocable to general partner                        --             81
Distributions to general partner                           --           (151)
Loss on early extinguishment of debt                      190             --
                                                    ----------     ----------
EITF 98-9 adjusted Funds from operations (FFO)         14,097          8,823

Effect of EITF 98-9                                       468             --
                                                    ----------     ----------
FFO on a basis comparable with prior periods         $ 14,565       $  8,823
                                                    ==========     ==========
Total shares applicable to FFO                         14,272         11,142
                                                    ==========     ==========


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 restaurant  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 restaurant 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  receives
percentage rent.


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Not applicable


                                 Page 14 of 16


<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

         a) An annual meeting of stockholders was held on June 2, 1998.

         b) (1) The election of six directors to hold office for terms expiring
                at the next annual meeting of stockholders

                                                    Votes Against
                Nominees              Votes For      or Withheld    Abstentions
                --------            -------------   -------------   -----------
                Robert J. Stetson    11,576,920         40,596            0
                Fred H. Margolin     11,585,667         31,849            0
                Gerald H. Graham     11,583,764         33,752            0
                Darrel L. Rolph      11,583,464         34,052            0
                David K. Rolph       11,584,501         33,015            0
                Eugene G. Taper      11,585,301         32,215            0

            (2) To approve the U.S. Restaurant Properties, Inc. Flexible
                Incentive Plan.

                                 Votes Against
                 Votes For        or Withheld          Abstentions
                 ---------       -------------         -----------
                 10,611,053          825,746             180,717

            (3) To ratify Deloitte & Touche LLP as the Company's
                independent auditors.

                                 Votes Against
                 Votes For        or Withheld          Abstentions
                 ---------       -------------         -----------
                 11,321,746          248,140              47,630

ITEM 5.  OTHER INFORMATION

         None

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         a)   Exhibits

              1) Exhibit 27 - Financial data schedule

         b)   Reports on Form 8-K

              None


                                 Page 15 of 16
<PAGE>


                                    SIGNATURE


         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:  August 14, 1998              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 16 of 16