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

                                    FORM 10-Q


(Mark One)

[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

                  For the quarterly period ended June 30, 2005

                                       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


                           Trustreet Properties, Inc.
_______________________________________________________________________________
             (Exact name of registrant as specified in its charter)


       Maryland                                              75-2687420
(State or other jurisdiction                               (IRS Employer
    of incorporation)                                     Identification No.)


       450 South Orange Avenue                                 32801
          Orlando, Florida
   _________________________________________        ___________________________
    (Address of principal executive offices)                (Zip Code)

        Registrant's telephone number, including area code (407) 540-2000
 ______________________________________________________________________________

         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 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 by checkmark  whether the registrant is an  accelerated  filer
(as defined in Rule 12b-2 of the Exchange Act). Yes X No___

         57,901,860 shares of common stock, $0.001 par value,  outstanding as of
August 9, 2005.


<PAGE>
                                    CONTENTS





Part I                                                                Page

    Item 1.Financial Statements:

                Condensed Consolidated Balance Sheets                  3-4

                Condensed Consolidated Statements of Income            5

                Condensed Consolidated Statements of
                    Stockholders' Equity and Comprehensive
                    Income/(Loss)                                      6-7

                Condensed Consolidated Statements of Cash Flows        8-9

                Notes to Condensed Consolidated Financial
                    Statements                                         10-35

    Item 2.Management's Discussion and Analysis of Financial
                Condition and Results of Operations                    36-55

    Item 3.Quantitative and Qualitative Disclosures About
                Market Risk                                            55

    Item 4.Controls and Procedures                                     55-57

Part II

    Other Information                                                  58-61


<PAGE>

Item 1.  Financial Statements

                           TRUSTREET PROPERTIES, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)
                                 (In thousands)


<TABLE>
<CAPTION>

 <c>
                                                                           June 30,               December 31,
                                                                             2005                     2004
                                                                        ----------------         ----------------
ASSETS

Real estate investment properties                                          $   1,576,216             $    535,163
Net investment in direct financing leases                                        157,182                   98,068
Real estate and other assets held for sale                                       195,841                  147,619
Mortgage, equipment and other notes receivable, net of
    allowance of $7,281 and $7,261, respectively                                 292,106                  290,140
Other investments                                                                 15,997                   16,495
Cash and cash equivalents                                                         28,287                   22,744
Restricted cash                                                                   14,521                    7,402
Receivables, less allowance for doubtful accounts
    of $2,997 and $2,136, respectively                                             6,603                    7,391
Accrued rental income                                                             31,984                   28,392
Goodwill                                                                         224,278                   56,260
Other assets                                                                     128,687                   33,975
                                                                       ------------------       ------------------
                                                                           $   2,671,702            $   1,243,649
                                                                       ==================       ==================

LIABILITIES AND STOCKHOLDERS' EQUITY

Revolver                                                                    $    134,000             $     21,000
Notes payable                                                                    585,302                  162,810
Mortgage warehouse facilities                                                    103,004                  101,394
Subordinated note payable                                                             --                   21,875
Bonds payable                                                                    790,048                  405,421
Due to related parties                                                               658                   37,172
Other payables                                                                    98,407                   33,736
                                                                       ------------------       ------------------
    Total liabilities                                                      $   1,711,419             $    783,408
                                                                       ------------------       ------------------

</TABLE>

     See accompanying notes to condensed consolidated financial statements.

<PAGE>


                           TRUSTREET PROPERTIES, INC.
                CONDENSED CONSOLIDATED BALANCE SHEETS - CONTINUED
                                   (UNAUDITED)
                                 (In thousands)

<TABLE>
<CAPTION>

 <c>
                                                                           June 30,               December 31,
                                                                             2005                     2004
                                                                        ----------------         ----------------

Minority interests, including redeemable partnership interest
    in 2004                                                                      4,835                    6,819
    2004

Commitments and contingencies (Note 15)

Stockholders' equity:
    Preferred stock, $0.001 par value per share.
       84,500 shares authorized and unissued                                        --                       --
    Preferred stock, $0.001 par value per share:  Series A
       Cumulative Convertible Preferred Stock - 8,000 shares
       authorized, 7,834 shares issued and outstanding at June
       30, 2005 (aggregate liquidation value of $195,855)                            8                       --
    Preferred stock, $0.001 par value per share:  Series C
       Redeemable Convertible Preferred Stock - 7,500
       shares authorized, 7,244 shares issued and outstanding
       at June 30, 2005 (aggregate liquidation value of
       $181,101)                                                                     7                       --
    Excess shares, $0.001 par value per share.
       400,000 shares authorized and unissued                                       --                       --
    Common stock, $0.001 par value per share; 300,000 shares
       authorized, 57,915 and 45,286 shares issued at
       June 30, 2005 and December 31, 2004, respectively ,
       and 57,915 and 45,249 shares outstanding at
       June 30, 2005 and December 31, 2004, respectively                            58                      452
    Capital in excess of par value                                           1,356,988                  825,134
    Accumulated other comprehensive loss                                       (12,571 )                (12,434 )
    Accumulated distributions in excess of net income                         (389,042 )               (359,730 )
                                                                       ------------------       ------------------
       Total stockholders' equity                                              955,448                 453,422
                                                                       ------------------       ------------------

                                                                         $   2,671,702           $   1,243,649
                                                                       ==================       ==================
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

<PAGE>


                           TRUSTREET PROPERTIES, INC.
                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                                   (UNAUDITED)
                    (In thousands except for per share data)

<TABLE>
<CAPTION>

 <c>
                                                                        Quarter ended                   Six months ended
                                                                           June 30,                         June 30,
                                                                    2005              2004            2005             2004
                                                                -------------     -------------  ---------------   -------------

Revenues:

    Rental income from operating leases                            $  39,523         $  14,158      $    62,927       $  28,513
    Earned income from direct financing leases                         3,281             2,539            6,017           5,090
    Interest income from mortgage, equipment and
       other notes receivables                                         6,554             6,674           12,835          13,327
    Investment and interest income                                       448               979              993           2,170
    Other income                                                       1,595             1,146            2,658           2,505
                                                                -------------     -------------  ---------------   -------------
                                                                      51,401            25,496           85,430          51,605
                                                                -------------     -------------  ---------------   -------------
Expenses:
    General operating and administrative                               9,992             6,659           20,933          12,959
    Interest expense                                                  24,868            11,994           41,759          23,824
    Property expenses, state and other taxes                           2,083               201            3,286             337
    Depreciation and amortization                                      8,999             2,932           14,228           5,727
    Loss on termination of cash flow hedge                                 --               585                --             940
    Recovery of loss on loans                                           (468 )               --             (453 )             --
    Impairments and provisions on assets                                 271               503              277           1,050
                                                                -------------     -------------  ---------------   -------------
                                                                      45,745            22,874           80,030          44,837
                                                                -------------     -------------  ---------------   -------------
Income from continuing operations before minority
    interest, equity in earnings of unconsolidated joint
    ventures and gain on sale of assets                                5,656             2,622            5,400           6,768

Minority interest                                                       (734 )          (1,296 )         (1,549 )        (1,957 )

Equity in earnings of unconsolidated joint ventures                       32                31               62              65

Gain on sale of assets                                                    23                 --               23               6
                                                                -------------     -------------  ---------------   -------------

Income from continuing operations                                      4,977             1,357            3,936           4,882

Income from discontinued operations, after income taxes               13,172             7,863           17,663          15,187
                                                                -------------     -------------  ---------------   -------------

Net income                                                            18,149             9,220           21,599          20,069
    Dividends to preferred stockholders                               (7,176 )               --          (10,099 )             --
                                                                -------------     -------------  ---------------   -------------
Net income allocable to common stockholders                        $  10,973         $   9,220      $    11,500       $  20,069
                                                                =============     =============  ===============   =============

Basic and diluted net income per share:
    Income/(loss) from continuing operations allocable to
       common stockholders                                         $   (0.04 )       $    0.04       $    (0.12 )     $    0.14
    Income from discontinued operations                                 0.23              0.22             0.35            0.43
                                                                -------------     -------------  ---------------   -------------

Basic and diluted net income per share                             $    0.19         $    0.26       $     0.23       $    0.57
                                                                =============     =============  ===============   =============

Weighted average number of shares of common stock
    outstanding (Notes 2 and 13):
       Basic                                                          57,908            35,032           50,922          35,032
                                                                =============     =============  ===============   =============
       Diluted                                                        57,908            35,032           50,922          35,032
                                                                =============     =============  ===============   =============

</TABLE>

     See accompanying notes to condensed consolidated financial statements.

<PAGE>
<TABLE>
<CAPTION>

 <c>
                           TRUSTREET PROPERTIES, INC.
 CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME/(LOSS)
                         Six Months ended June 30, 2005
                                   (UNAUDITED)
                                 (In thousands)


                               Preferred Stock        Preferred Stock
                                   Series A              Series C           Common Stock

                             --------------------- ---------------------- ------------------
                                                                                              Capital in
                              Number of    Par      Number of     Par     Number of   Par     excess of     Unearned    Loans to
                               shares     aalue      shares      value     shares    value    par value   compensation Stockholders
                             ---------- ---------- -----------  --------- --------- --------  ----------  ------------ ------------

Balance at December 31, 2004      --     $    --      --      $   --       45,249  $  452    $ 825,134      $ --        $  --

Effect of USRP Merger:
    Assumption of USRP equity  4,084           4      --          --       22,599      23      440,483        --         (224 )
    Conversion of common
       shares                     --          --   7,244           7      (10,223 )  (417 )        410        --           --

Acquisition of Income Funds    3,750           4      --          --           --      --       88,231        --           --

Net income                        --          --      --          --           --      --           --        --           --

Other comprehensive income,
    market revaluation on
    available for sale
    securities                    --          --      --          --           --      --           --        --           --

Current period adjustment to
    recognize change in
    fair value of cash flow
    hedges, inclusive of
    $1,650 in tax provision       --          --      --          --           --      --           --        --           --


Total comprehensive income        --          --      --          --           --      --           --        --           --


Repayment by stockholder of
    loan                          --          --       --         --           --      --           --        --          224

Distributions declared on
    common stock                  --          --       --         --           --      --           --        --           --

Distributions declared on
    preferred stock               --          --       --         --           --      --           --        --           --

Issuance of common stock to
    directors and employees       --          --       --         --          119      --        2,053        --           --


</TABLE>

     See accompanying notes to condensed consolidated financial statements.

<PAGE>





Accumulated    Accumulated
distributions     other                    Compre-
 in excess       compre-                   hensive
  of net         hensive                   income/
  income      income/(loss)   Total        (loss)
-----------    -----------   ----------   -----------

$ (359,730)  $  (12,434 )  $ 453,422


        --           --      440,286

        --           --           --

        --           --       88,235

    21,599           --       21,599        21,599




        --         (144 )       (144 )        (144 )





        --            7            7             7
                                        -----------

        --           --           --      $ 21,462
                                        ===========


        --           --          224


   (40,812 )         --      (40,812 )


   (10,099 )         --      (10,099 )


        --           --        2,053









<PAGE>

<TABLE>
<CAPTION>

 <c>
                           TRUSTREET PROPERTIES, INC.
 CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME/(LOSS)
                         Six Months ended June 30, 3005
                                   (UNAUDITED)
                                 (In thousands)


                            Preferred Stock        Preferred Stock
                                Series A               Series C            Common Stock
                          ---------------------  ---------------------   ------------------  Capital in
                          Number of    Par       Number of      Par      Number of   Par      excess of     Unearned      Loans to
                           shares     value       shares       value      shares    value     par value   compensation  Stockholders
                          ---------- ----------  -----------  --------   ---------  -------  -----------  ------------  -----------

Issuance of restricted
    stock to directors
    and employees             --     $    --         --      $  --         138    $   --    $   2,347    $  (2,347 )   $     --

Amortization of unearned
    compensation              --          --         --         --          --        --           --          202           --

Proceeds from exercised
    stock options             --          --         --         --          33        --          475           --           --
                          ---------- ----------  ---------  --------   --------- --------- -----------  ------------  ----------- --

Balance at June 30, 2005   7,834     $     8      7,244      $   7      57,915    $   58   $1,359,133   $   (2,145 )    $    --
                          ========== ==========  =========  ========   ========= ========= ===========  ============  ===========

</TABLE>



     See accompanying notes to condensed consolidated financial statements.


<PAGE>


Accumulated    Accumulated
distributions    other                    Compre-
  in excess     compre-                   hensive
   of net        hensive                   income/
   income       income/(loss)   Total       (loss)
-----------    -----------   ----------  -----------



 $     --     $     --       $    --


       --           --           202


       --           --           475
---------   -----------    ----------

$ (389,042 )  $ (12,571 )   $ 955,448
===========   ===========    ==========




<PAGE>


                           TRUSTREET PROPERTIES, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
                                 (In thousands)

<TABLE>
<CAPTION>

 <c>
                                                                                       Six months ended
                                                                                           June 30,
                                                                                   2005                2004
                                                                               --------------       ------------
  Cash flows from operating activities:

     Net income                                                                  $    21,599         $   20,069
     Adjustments to reconcile net income to net cash
        provided by operating activities:
           Depreciation and amortization on real estate assets                        13,539              5,428
           Depreciation and amortization on non-real estate assets                     1,187                723
           Amortization of deferred financing costs                                    4,716              2,685
           Provision for loss on loans                                                    74                  --
           Impairments and provisions on assets                                          426              2,261
           Gain on sales of assets                                                      (867 )           (1,309 )
           Stock based compensation                                                    2,255                  --
           Increase in income tax payable                                              1,618              1,053
           Decrease in deferred tax asset                                              2,184                  --
           Increase in accrued rental income                                          (3,606 )           (2,010 )
           Amortization of investment in direct financing leases                       2,399              1,073
           Changes in inventories of real estate held for sale                         1,192            (72,672 )
           Changes in other operating assets and liabilities                           4,728             (3,386 )
                                                                              ---------------      -------------
        Net cash provided by /(used in) operating activities                          51,444            (46,085 )
                                                                              ---------------      -------------

  Cash flows from investing activities:
     Additions to real estate investment properties and intangibles                  (88,089 )          (12,081 )
     Proceeds from sale of assets                                                      8,165             17,299
     Decrease in restricted cash                                                         673              3,620
     Acquisition of Income Funds                                                    (449,997 )                --
     Cash acquired through merger                                                     43,473                  --
     Payment of merger costs for USRP reverse merger                                 (13,072 )                --
     Collection on mortgage, equipment and other notes receivable                     13,930             12,284
                                                                              ---------------      -------------
        Net cash provided by/(used in) investing activities                         (484,917 )           21,122
                                                                              ---------------      -------------

</TABLE>

     See accompanying notes to condensed consolidated financial statements.



<PAGE>



                           TRUSTREET PROPERTIES, INC.
           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
                                   (UNAUDITED)
                                 (In thousands)
<TABLE>
<CAPTION>

 <c>
                                                                                      Six months ended
                                                                                          June 30,
                                                                                   2005               2004
                                                                              ---------------    ---------------
     Cash flows from financing activities:
        Payment of stock issuance costs                                               (1,543 )           (1,493 )
        Repayment of loan to stockholder                                             (33,860 )               --
        Proceeds from borrowings on revolver, term loan and note payable           1,080,098             24,000
        Payment on revolver and note payable                                        (988,875 )          (42,524 )
        Proceeds from borrowings on mortgage warehouse facilities                     91,839            140,998
        Payments on mortgage warehouse facilities                                    (90,230 )          (81,333 )
        Proceeds from borrowings on senior notes                                     250,000                 --
        Proceeds from issuance of bonds                                              275,000              5,000
        Retirement of bonds payable                                                  (34,001 )          (18,458 )
        Payment of bond issuance and debt refinancing costs                          (28,306 )             (489 )
        Proceeds from termination of hedge                                             1,685                 --
        Proceeds from exercised stock options                                            475                 --
        Retirement of convertible preferred stock                                    (32,500 )               --
        Loans from stockholder                                                            --             10,900
        Acquisition of minority interest                                                (655 )               --
        Distributions to minority interest                                            (1,062 )           (1,822 )
        Distributions to common stockholders                                         (36,961 )          (35,259 )
        Distributions to preferred stockholders                                      (12,088 )               --
                                                                              ---------------    ---------------
               Net cash provided by/(used in) financing activities                   439,016               (480 )
                                                                              ---------------    ---------------

  Net increase (decrease) in cash and cash equivalents                                 5,543            (25,443 )

  Cash and cash equivalents at beginning of period                                    22,744             36,955
                                                                              ---------------    ---------------

  Cash and cash equivalents at end of period                                     $    28,287       $     11,512
                                                                              ===============    ===============

  Supplemental disclosures of cash flow information:

        Interest paid                                                            $    33,745       $     22,268
                                                                              ===============    ===============

        Interest capitalized                                                        $      --         $       16
                                                                              ===============    ===============

        Income taxes paid                                                        $     2,899        $     2,180
                                                                              ===============    ===============

  Supplemental disclosures of non-cash investing and financing activities:

        Redemption of minority interest in lieu of payment on accounts
           receivable                                                            $     1,798         $      894
                                                                              ===============    ===============

        Foreclosure on notes receivable and acceptance of underlying real
           estate collateral                                                        $      --         $      452
                                                                              ===============    ===============

        Distributions declared and unpaid at June 30                             $     6,371          $       --
                                                                              ===============    ===============


       Refer to Note 4 to the condensed consolidated financial statements for the allocation of assets acquired and
       liabilities assumed as part of the Merger in February 2005.
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

<PAGE>


                           TRUSTREET PROPERTIES, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
              Quarters and six months ended June 30, 2005 and 2004
                                   (UNAUDITED)


1.       Organization and Nature of Business:

         Trustreet Properties, Inc. (the "Company") is the new name adopted upon
         the merger (the "Merger") of CNL Restaurant Properties,  Inc. ("CNLRP")
         and eighteen CNL Income Fund partnerships ("the Income Funds") with and
         into U.S.  Restaurant  Properties,  Inc. ("USRP") on February 25, 2005.


         The Company is a Maryland corporation organized to operate as an equity
         real estate  investment  trust, or REIT. The Company manages,  operates
         and reports its business by dividing it into two distinct  segments,  a
         real estate segment and a specialty  finance  segment.  The real estate
         segment's assets include  properties  subject to triple-net  leases and
         mortgage,  equipment and other loans to third parties.  The real estate
         segment's  earnings are from rental income,  interest  income on loans,
         proceeds from  dispositions of properties sold to manage portfolio risk
         and  income  from  retained  interests  in  the  Company's  prior  loan
         securitizations.

         The  specialty  finance  segment  includes  the  Company's   investment
         property sales program and investment  banking services to national and
         regional restaurant operators. The specialty finance segment's earnings
         are from  lease  income  prior to sale and net  gains  from  investment
         property sales and to a lesser extent,  advisory services and servicing
         revenues.

2.       Basis of Presentation:

         The accompanying  unaudited condensed consolidated financial statements
         have been prepared in accordance with the instructions to Form 10-Q and
         do not include all of the information and note disclosures  required by
         generally  accepted  accounting  principles.  The financial  statements
         reflect all  adjustments  consisting  of normal  recurring  adjustments
         which, in the opinion of management,  are necessary to a fair statement
         of the results for the interim  periods  presented.  As a result of the
         Merger, operating results for the quarter and six months ended June 30,
         2005 include the results of CNLRP from January 1, 2005 through February
         24, 2005 and include the operating  results of the merged  Company from
         February  25, 2005 through  June 30,  2005.  Operating  results for the
         quarter and six months ended June 30, 2005 may not be indicative of the
         results  that may be expected  for the year ending  December  31, 2005.
         CNLRP was treated as the acquiror for accounting  purposes.  Amounts as
         of December 31, 2004 included in the financial  statements are those of
         CNLRP and have been derived from audited financial  statements of CNLRP
         as of that date. Operating results for the quarter and six months ended
         June 30,  2004 are the  historical  amounts of CNLRP.  These  unaudited
         financial  statements  should be read in conjunction with the financial
         statements  and notes  thereto  for the year ended  December  31,  2004
         included in the Company's Form 8-K/A, filed on June 13, 2005.

         Prior to the Merger,  CNLRP  stockholders  owned 45.2 million shares of
         CNLRP  common  stock.  As a result of the  Merger,  CNLRP  stockholders
         received  0.7742 shares of USRP common stock.  The Company has restated
         the weighted  average shares  outstanding  calculation  for all periods
         presented  to show the effect of the exchange of the shares as a result
         of the Merger.


<PAGE>
                           TRUSTREET PROPERTIES, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
              Quarters and six months ended June 30, 2005 and 2004
                                   (UNAUDITED)


2.       Basis of Presentation - Continued:

         The Company  reports both basic and diluted  earnings per share.  Basic
         earnings per common share is computed by dividing net income  available
         to common  stockholders by the weighted average number of common shares
         outstanding  during the  period.  Diluted  earnings  per  common  share
         reflects the dilutive effect of stock options and convertible preferred
         stock.  Diluted  earnings  per common share is computed by dividing net
         income available to common  stockholders by the weighted average number
         of common shares and common share  equivalents  outstanding  during the
         period,  which  are  computed  using  the  treasury  stock  method  for
         outstanding  stock options.  Common share equivalents are excluded from
         the computations in periods in which they have an anti-dilutive effect.

3.       Adoption of New Accounting Standards:

         In December 2004, the Financial Accounting Standards Board (the "FASB")
         issued Statement of Financial  Accounting  Standards No. 153, "Exchange
         of Non-Monetary  Assets" ("FAS 153"). FAS 153 addresses the measurement
         of exchanges of non-monetary  assets.  It eliminates the exception from
         fair value measurement for non-monetary  exchange of similar productive
         assets  under  APB  Opinion  No.  29,   "Accounting  for   Non-Monetary
         Transactions",  and replaces it with an exception for exchanges that do
         not have commercial  substance.  A non-monetary exchange has commercial
         substance   if  the   entity's   future  cash  flows  are  expected  to
         significantly  change as a result of the  exchange.  The  provisions of
         this statement are effective for non-monetary asset exchanges occurring
         in fiscal periods beginning after June 15, 2005.

4.       Merger:

         On  August  9,  2004,  CNLRP  announced  that  it  had  entered  into a
         definitive  agreement  and plan of merger with USRP, a publicly  traded
         real estate investment  trust, and on February 25, 2005,  completed the
         transactions  contemplated  by the  agreement,  including the Merger of
         CNLRP into USRP and the change of USRP's name to Trustreet  Properties,
         Inc. On the same day,  each of the Income  Funds merged with a separate
         wholly   owned   subsidiary   of  the  combined   company's   operating
         partnership.   The  Merger  was   structured  to  be  tax-free  to  the
         stockholders  of CNLRP and USRP but taxable  with respect to the Income
         Funds. In order to effect the Merger,  the Company entered into several
         new  financing  transactions.  As a result of the  merger,  the Company
         became the largest  publicly  traded REIT in the United States  focused
         primarily  on the  restaurant  industry  and  further  diversified  the
         Company's real estate portfolio.

         The Merger of CNLRP into USRP  through an exchange of equity  interests
         was accounted for using the purchase  method of  accounting,  and CNLRP
         was treated as the acquiror for  accounting  purposes  since the former
         common  stockholders of CNLRP owned  approximately 60.7% and the former
         common  stockholders of USRP own approximately 39.3% of the outstanding
         common  stock of the  combined  company on a fully  diluted  basis.  In
         addition,  the former  directors  of CNLRP  make up a  majority  of the
         current board of directors and the former  executive  officers of CNLRP
         manage the Company.  As a result of CNLRP being treated as the acquiror
         for accounting  purposes,  the assets and liabilities of CNLRP continue
         to be recorded at historical values. The assets and liabilities of USRP
         and the Income Funds were  recorded at their  estimated  fair values at
         the date of the merger,  with the excess of the purchase  price of USRP
         over the sum of tangible  and  identifiable  intangible  fair values of
         USRP recorded as goodwill.



<PAGE>
                           TRUSTREET PROPERTIES, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
              Quarters and six months ended June 30, 2005 and 2004
                                   (UNAUDITED)


4.       Merger - Continued:

         The  purchase  price was  allocated  between  assets,  liabilities  and
         intangible  assets  based  on the  initial  estimates  of  fair  value.
         Management   continues   to  evaluate  the   existence  of   pre-merger
         contingencies and the value of certain real estate based on third party
         analysis and anticipates  finalizing these allocations during the third
         quarter  of  2005.  A  change  in the  final  allocation  from  what is
         presented   may  result  in  an  increase  or  decrease  in  identified
         intangible  assets and changes in  depreciation,  amortization or other
         expenses.

         In connection with the allocation of the purchase price to real estate,
         the following methodology was utilized:

            o    The fair value of land and  buildings  was  estimated as if the
                 properties  were vacant.  The land value was  estimated and the
                 buildings  were  valued  at  estimated  replacement  cost  less
                 depreciation.
            o    For properties currently under lease, an analysis was performed
                 to  determine  whether  the  current  lease terms were above or
                 below market rate and an asset or liability,  respectively, was
                 determined using discounted cash flows.
            o    For properties currently under lease, the value associated with
                 having a lease in place was estimated by evaluating the present
                 value of the lost  rents  for each  property  that  would  have
                 resulted if the properties had to be constructed  and the costs
                 related to executing the lease.
            o    The benefit of having a tenant in each specific property with a
                 high likelihood of renewing the lease at the end of the current
                 term was evaluated and a value was determined using the present
                 value of rents during a standard re-lease period.

         The purchase price  relating to the exchange of interests  between USRP
         and CNLRP was based  upon the  market  capitalization  of USRP using an
         average  trading  price  of USRP  common  stock  and  traded  Series  A
         Preferred  Stock for the day before and the day of the  announcement of
         the proposed merger on August 9, 2004, as well as the estimated  market
         values for the Series B  Convertible  Preferred  Stock  ("the  Series B
         Preferred Stock") of USRP plus certain merger related costs incurred by
         CNLRP.

<TABLE>
<CAPTION>

 <c>
                                                                                                Total Market
                                                             Shares                                 Value
                         Equity Interest                 (in thousands)          Price         (in thousands)
              --------------------------------------    -----------------    --------------    ----------------

              Series A Preferred Stock                             4,084         $   23.53          $   96,099
              Series B Preferred Stock                                25          1,300.00              32,500  (a)
              Common Stock                                        22,599             15.24             344,411
                                                                                               ----------------
                                                                                                       473,010
              Transaction costs                                                                         14,414
                                                                                               ----------------
                   Total                                                                           $   487,424
                                                                                               ================

</TABLE>

                           TRUSTREET PROPERTIES, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
              Quarters and six months ended June 30, 2005 and 2004
                                   (UNAUDITED)


4.       Merger - Continued:

         (a)  Includes  a  $7.5  million  premium  as a  result  of  the  merger
         triggering the redemption provisions of the Series B Preferred Stock.

         As a result of the exchange of interests  between CNLRP and USRP,  45.2
         million  shares of CNLRP  common  shares were  converted  into (i) 35.2
         million USRP common  shares and (ii) 7.2 million newly issued shares of
         USRP's Series C Preferred  Stock,  using an exchange rate of (i) 0.7742
         for  common  shares and (ii) 0.16 per  preferred  shares.  The  Company
         recorded  goodwill of  approximately  $168.0  million  relating to this
         merger  which  represented  the  excess  of the fair  value of the USRP
         common  stock  over the fair  value of its  tangible  and  identifiable
         intangible net assets.

         The  acquisition  of  each  of the  Income  Funds  by  USRP  through  a
         combination  of cash and USRP Series A Preferred  Stock  interests  was
         also  accounted  for using the purchase  method of  accounting  and the
         assets and  liabilities  of the Income  Funds  were  recorded  at their
         estimated  fair values at the date of the mergers.  The purchase  price
         for the Income Funds was determined as follows:
<TABLE>
<CAPTION>

 <c>
                                                                                         (In thousands)

           Cash Consideration........................................................      $  449,997
           Preferred Share Consideration (3,749.9 million shares at $23.53 per share)          88,235
                                                                                       ---------------
           Purchase Price including transaction costs................................      $  538,232
                                                                                       ===============
</TABLE>
 <PAGE>


                           TRUSTREET PROPERTIES, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
              Quarters and six months ended June 30, 2005 and 2004
                                   (UNAUDITED)


4.       Merger - Continued:

         The following table shows the allocation of the purchase consideration:
<TABLE>
<CAPTION>

 <c>
                                                                         (In thousands)
         Consideration:
           Exchange of equity interests                                       $  473,010
           Transaction costs                                                      14,414
           Cash                                                                  449,997
           Series A Preferred Shares                                              88,235
                                                                         ----------------
              Total consideration                                              1,025,656
                                                                         ================

         Assets Acquired:
           Real estate investment properties                                     967,633
           Net investment in direct financing leases                              63,648
           Real estate held for sale                                              60,552
           Cash                                                                   43,473
           Restricted cash                                                         7,792
           Mortgage and equipment notes receivable                                15,235
           Accounts receivable                                                     4,029
         Other assets:
           Above market leases                                                    44,093
           Leases in place                                                        15,214
           Tenant relationships                                                    9,117
           Other                                                                  10,508
           Goodwill                                                              168,017  (1)
                                                                         ----------------
              Total                                                            1,409,311
                                                                         ----------------

         Liabilities Assumed:
           Revolver                                                               14,150
           Notes payable                                                         158,244
           Bonds payable                                                         143,505
           Due to related parties                                                    270
           Other payables:
              Below market leases                                                 27,584
              Environmental and exit costs liability                               4,775
              Distributions payable                                                4,506
              Other                                                               23,251
           Minority interests                                                      7,594
           Loan due from stockholder (reduction of equity)                          (224  )
                                                                         ----------------
              Total                                                              383,655
                                                                         ----------------

                Net assets acquired                                          $ 1,025,656
                                                                         ================

         (1)  The goodwill resulting from the Merger was assigned to the real estate segment.
</TABLE>


<PAGE>
                           TRUSTREET PROPERTIES, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
              Quarters and six months ended June 30, 2005 and 2004
                                   (UNAUDITED)


4.       Merger - Continued:

         In  order  to  gauge  the  estimated  cost  of  soil  and   groundwater
         contamination  from the accidental loss of petroleum and other solvents
         from the Company's  underground  storage tanks during the first quarter
         of 2005, the Company  performed a number of site  investigations of the
         acquired USRP properties. Based upon the most recent environmental site
         assessments by its environmental  consultants,  the Company accrued its
         best  estimate of $4.0  million,  on a  non-discounted  basis,  for the
         remediation and  post-monitoring  expenses.  This amount is included in
         environmental  and exit  costs  liability  in the  table  above.  It is
         reasonably  possible  that  the  Company's  recorded  estimate  of  its
         obligation may change in the near term.

         The following  unaudited  pro forma  condensed  consolidated  financial
         information  has  been  prepared  utilizing  the  historical  financial
         statements  of  CNLRP,  USRP  and  the  historical  combined  financial
         information  of the Income Funds.  The  unaudited  pro forma  condensed
         consolidated  statements  of  earnings  assume  that  the  mergers  had
         occurred as of the  beginning of each of the periods  presented,  after
         giving  effect  to  certain  adjustments  including  a)  rental  income
         adjustments  resulting  from  the  straight-lining  of  scheduled  rent
         increases  as if the real estate had been  acquired on January 1, 2004,
         b) the  amortization of the intangible  assets relating to above market
         leases  and  liabilities  relating  to  below  market  leases  over the
         remaining lease terms, c) elimination of intercompany fees and expenses
         between CNLRP and the Income Funds,  d) adjustments to depreciate  real
         estate assets over the  depreciable  lives and e) the  amortization  of
         identifiable  leases  in  place  intangibles  and  tenant  relationship
         intangibles over the remaining lease terms.  The following  information
         also gives effect to the additional  interest  expense and amortization
         of loan costs  resulting  from  entering into a series of financings as
         part  of  the  Merger   consisting   of  a  $275   million   net  lease
         securitization, the issuance of $250 million in senior unsecured notes,
         and a $175  million  term loan,  net of the effect of  eliminating  the
         interest  expense  and  amortization  of  loan  costs  relating  to the
         repayment  of $213  million of  indebtedness.  The  unaudited  proforma
         condensed  financial  information  is not  indicative of the results of
         operations  that would have been  achieved  had the  mergers  reflected
         herein been consummated on the dates indicated or that will be achieved
         in the future.

<PAGE>

                           TRUSTREET PROPERTIES, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
              Quarters and six months ended June 30, 2005 and 2004
                                   (UNAUDITED)


4.       Merger - Continued:
<TABLE>
<CAPTION>

 <c>
                                                                                Proforma
                                                      Quarter           Quarter        Six Months        Six Months
                                                       Ended             Ended           Ended             Ended
                                                      June 30,          June 30,        June 30,          June 30,
                                                        2005              2004            2005              2004
                                                    --------------    --------------   -------------    -------------

        Revenues                                        $  50,970         $  55,643       $ 104,827         $112,093
                                                    ==============    ==============   =============    =============

        Net income                                         17,429            15,536          15,454           34,941
        Dividends to preferred stockholders                (7,194  )         (7,194  )      (14,351  )       (14,351  )
                                                    --------------    --------------   -------------    -------------
        Net income allocable to common
          stockholders                                  $  10,235         $   8,342        $  1,103         $ 20,590
                                                    ==============    ==============   =============    =============

        Basic and diluted earnings per share            $    0.18          $   0.14        $   0.02          $  0.36
                                                    ==============    ==============   =============    =============

        Basic and diluted weighted average
          shares outstanding                               57,908            57,630          57,789           57,630
                                                    ==============    ==============   =============    =============
</TABLE>



         During the six months ended June 30, 2005,  USRP,  the Income Funds and
         the  Company  recorded a non-cash  tax charge of $2.7  million and $8.7
         million of Merger expenses.

5.       Intangible Lease Costs:

         Intangible  lease  costs  included  in other  assets  on the  condensed
         consolidated financial statements consisted of the following at:
<TABLE>
<CAPTION>

 <c>
                                                                       (in thousands)
                                                                June 30,         December 31,
                                                                  2005               2004
                                                              -------------     ---------------

           Intangible lease origination costs:
             Leases in place                                      $  25,137            $     --
             Tenant relationships                                    10,081                  --
                                                              -------------     ---------------
                                                                     35,218                  --
             Less accumulated amortization                           (2,671 )                --
                                                              -------------     ---------------
                                                                     32,547                  --
                                                              -------------     ---------------

             Above market lease values                               44,094                  --
             Less accumulated amortization                           (2,095 )                --
                                                              -------------     ---------------
                                                                     41,999                  --
                                                              -------------     ---------------

                  Total                                           $  74,546            $     --
                                                              =============     ===============
</TABLE>

         Above  market  lease  values are  amortized  to rental  income over the
         remaining  terms  of  the  leases  acquired  in  connection  with  each
         applicable property.

<PAGE>

                           TRUSTREET PROPERTIES, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
              Quarters and six months ended June 30, 2005 and 2004
                                   (UNAUDITED)


6.       Real Estate Investment Properties:

         Real estate investment properties consist of the following at:

<TABLE>
<CAPTION>

 <c>
                                                                           (In thousands)
                                                                  June 30,               December 31,
                                                                    2005                     2004
                                                              ------------------       -----------------

                Land                                               $    828,329             $   280,562
                Buildings                                               817,048                 314,984
                Equipment and other                                       3,370                   1,251
                                                              ------------------       -----------------
                                                                      1,648,747                 596,797
                Less accumulated depreciation                           (72,531 )               (61,634 )
                                                              ------------------       -----------------

                                                                  $   1,576,216            $    535,163
                                                              ==================       =================
</TABLE>

         In connection with the Merger described in Note 4, in February 2005 the
         Company acquired land, buildings and restaurant equipment.

         Future  minimum   contractual  lease  payments  to  be  received  under
         noncancellable operating leases at June 30, 2005 are as follows:

                                                  (In thousands)
                                                --------------------

                       2005                            $     77,071
                       2006                                 152,040
                       2007                                 150,024
                       2008                                 148,902
                       2009                                 147,817
                       Thereafter                         1,159,733
                                                --------------------

                                                     $    1,835,587
                                                ====================

<PAGE>


                           TRUSTREET PROPERTIES, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
              Quarters and six months ended June 30, 2005 and 2004
                                   (UNAUDITED)


7.       Net Investment in Direct Financing Leases:

         The components of net investment in direct  financing leases consist of
         the following at:
<TABLE>
<CAPTION>

 <c>
                                                                     (In thousands)
                                                              June 30,          December 31,
                                                                2005                2004
                                                            -------------      ---------------

                   Minimum lease payments
                       receivable                              $ 231,866          $   175,600
                   Estimated residual values                      43,223               25,006
                   Interest receivable from
                       secured equipment leases                        4                    7
                   Less unearned income                         (117,911 )           (102,545 )
                                                            -------------      ---------------

                   Net investment in direct financing
                       leases                                  $ 157,182           $   98,068
                                                            =============      ===============
</TABLE>

         The  following  is a schedule of future  minimum  lease  payments to be
         received on direct financing leases at June 30, 2005:

                                                     (In thousands)
                                                    ----------------

                       2005                             $     9,555
                       2006                                  19,158
                       2007                                  19,297
                       2008                                  19,427
                       2009                                  19,478
                       Thereafter                           144,951
                                                    ----------------

                                                        $   231,866
                                                    ================

8.       Real Estate, Retail and Other Assets Held for Sale:

         Real estate and other  assets held for sale  consists of the  following
         at:

                                                      (In thousands)
                                               June 30,         December 31,
                                                 2005               2004
                                             --------------    ----------------

                 Land and buildings             $  192,741         $   147,619
                 Inventory                           3,100                  --
                                             --------------    ----------------

                                                $  195,841         $   147,619
                                             ==============    ================

<PAGE>




                           TRUSTREET PROPERTIES, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
              Quarters and six months ended June 30, 2005 and 2004
                                   (UNAUDITED)


8.       Real Estate, Retail and Other Assets Held for Sale - Continued:

         The  specialty  finance  segment  actively  acquires real estate assets
         subject to leases with the intent to sell. Accordingly, the properties'
         operating   results  and  the  gains  or  losses   resulting  from  the
         disposition of properties are recorded as discontinued  operations.  In
         addition to its business of investing in restaurant  properties subject
         to triple-net  leases,  the real estate segment will divest  properties
         from time to time when it is  strategic  to the  Company's  longer-term
         goals.  When the real estate segment  establishes  its intent to sell a
         property,  all operating results and the gain or loss on disposition of
         the  property  is treated as  discontinued  operations  for all periods
         presented.  The results for 2004 reflect certain restaurant  operations
         purchased in 2002 and sold in December 2004.

         As part of the Merger,  the Company acquired several  convenience,  gas
         and restaurant  operations which the Company intends to sell before the
         end of 2005.  As of the date of the Merger,  eighteen gas station units
         and a 50 percent  interest in a bulk fuel loading  terminal  located in
         Hawaii were under contract to sell. In July 2005, the Company  received
         notice that the Federal Trade Commission ("FTC") had filed suit seeking
         injunctive relief to block the sale, see Note 15. The federal court has
         scheduled a hearing on the FTC's  motion for a  preliminary  injunction
         for August 23-24, 2005.

         Assuming the sales takes place, the Company expects to receive proceeds
         of approximately  $6.2 million in connection with this sale. As of June
         30, 2005, the Company had a liability of approximately $0.8 million for
         exit  costs  related  to the gas and  fuel  activities.  All  operating
         results  relating to all of these  retail  operations  are  recorded as
         discontinued operations for all periods presented.

         Operating results of discontinued operations are as follows:
<TABLE>
<CAPTION>

 <c>

                                                                            (In thousands)
                                                        Quarters ended June 30,      Six months ended June 30,
                                                          2005           2004           2005            2004
                                                       ------------  -------------  -------------   -------------

          Rental income                                   $  2,098      $   2,937      $   4,440       $   5,874
          Food, beverage and retail revenues                15,215          3,739         20,460           7,557
          Food, beverage and retail expenses               (14,963 )       (3,999 )      (19,597 )        (7,725 )
          Other property related expenses                     (336 )          180           (962 )          (509 )
          Interest expense                                  (1,249 )         (774 )       (2,076 )        (1,491 )
          Impairment provisions                                (12 )       (1,210 )         (204 )        (1,210 )
                                                       ------------  -------------  -------------   -------------

          Earnings from discontinued operations                753            873          2,061           2,496
                                                       ------------  -------------  -------------   -------------

          Sales of real estate                              84,036         75,566        141,270         127,742
          Cost of real estate sold                         (71,803 )      (66,577 )     (119,260 )      (111,818 )
                                                       ------------  -------------  -------------   -------------

          Gain on disposal of discontinued
               operations                                   12,233          8,989         22,010          15,924
                                                       ------------  -------------  -------------   -------------

          Income tax benefit/(provision)                       186         (1,999 )       (6,408 )        (3,233 )
                                                       ------------  -------------  -------------   -------------

          Income from discontinued operations,
               after income tax                           $ 13,172      $   7,863      $  17,663       $  15,187
                                                       ============  =============  =============   =============
</TABLE>



<PAGE>

                           TRUSTREET PROPERTIES, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
              Quarters and six months ended June 30, 2005 and 2004
                                   (UNAUDITED)


9.       Borrowings:

         Borrowings consist of the following at:
<TABLE>
<CAPTION>

 <c>
                                                June 30, 2005                                   December 31, 2004
                                            -----------------------                           -----------------------
                                                                                  Expected
                                               Amount                             maturity/     Amount
                                                (In      Average                 retirement       (In      Average
                                             thousands)    Rate       Capacity       date      thousands)    rate
                                            ----------------------- -------------------------------------------------

         Revolver                               $ 134,000  5.20%       $ 175,000  April 2008      $  21,000  4.04%
         Term loan                                175,000  4.95%         175,000  April 2010              --    --
         Senior unsecured notes                   250,000  7.50%         250,000  April 2015              --    --
         Notes payable (a)                        159,396  6.08%         159,396  2005-2011         162,810  5.83%
         Mortgage note payable (b)                    906  8.00%             906  June 2007               --    --
         Mortgage warehouse facilities            103,004  4.22%         260,000    Annual          101,394  2.78%
         Subordinated note payable                     --    --               --      --             21,875  7.00%
         Series 2000-A bonds payable              230,223  7.96%         230,223  2009-2017         239,165  7.96%
         Series 2001-A bonds payable (b)          138,332  3.37%         138,332  Aug. 2006              --    --
         Series 2001-4 bonds payable               27,437  8.90%          27,437  2009-2013          28,489  8.90%
         Series 2001 bonds payable                108,238  3.28%         108,238  Oct. 2006         111,577  1.89%
         Series 2003 bonds payable                 14,191  7.52%          14,191  2005-2011          26,190  6.02%
         Series 2005 bonds payable                271,627  4.66%         271,627  2011-2012              --    --
                                            --------------          -------------             --------------
                                               $1,612,354            $ 1,810,350                  $ 712,500
                                            ==============          =============             ==============
</TABLE>

         (a)  $157.7 million paid off in July 2005 - see Note 16.
         (b)  Assumed debt as a result of the Merger described in Note 4.

<PAGE>


                           TRUSTREET PROPERTIES, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
              Quarters and six months ended June 30, 2005 and 2004
                                   (UNAUDITED)


9.       Borrowings -  Continued:

         Revolver and Term Loan.  Through December 2004, CNLRP's short term debt
         consisted of a $40 million  revolving line of credit (the  "Revolver").
         In February  2005,  CNLRP amended the Revolver to increase the capacity
         from $40 million to $60 million.  In February 2005 the Company obtained
         bridge financing with the lender consisting of a senior  collateralized
         revolving   credit  facility  of  up  to  $125  million  and  a  senior
         collateralized  term  loan of up to  $650  million.  The new  revolving
         facility replaced the Company's  previous revolving line of credit. The
         bridge  financing  bore  interest  at a  floating  rate  of the  London
         Interbank Offer Rate, or LIBOR, plus three percent.  In March 2005, the
         Company   reduced  the   capacity   to  $385   million  on  the  senior
         collateralized  term  loan  when  it  paid  off  $265  million  of  the
         outstanding   balance  and  terminated   that  portion  of  the  bridge
         financing.  In April 2005,  the Company  entered  into a senior  credit
         facility (the "Facility") with available  capacity of $350 million with
         a syndicate of lenders.  The Company paid approximately $4.5 million in
         fees to the lenders for lending and administrative  services related to
         the  financing.  In April 2005, the Company drew on the Facility to pay
         off the outstanding  balance and terminate the bridge Revolver and term
         loan.  The  Facility  consists  of a  revolving  credit  facility in an
         initial  amount of $175 million and a term loan of $175  million.  This
         revolver bears  interest at LIBOR plus 2.25 percent per annum,  and the
         interest rate for the term loan facility is LIBOR plus 2.00 percent per
         annum. The initial maturity date of the revolver is April 2008, with an
         available one year extension, and the maturity date of the term loan is
         April 2010. The Company's obligations under the Facility are guaranteed
         by substantially all of the Company's  subsidiaries and is secured by a
         pledge of the ownership interests in certain of its direct and indirect
         subsidiaries.

         In May 2005, the Company  entered into an interest rate swap agreement,
         for notional  borrowings of $175 million which applies to the Term Loan
         described  above,  to protect the Company  against  fluctuation  in the
         LIBOR rate. Under the interest rate swap agreement,  the Company pays a
         fixed rate of 4.20 percent and receives a floating  rate.  The floating
         rate is based on a rate of LIBOR. This agreement matures April 1, 2010.
         The net  payments  or  receipts  are  recognized  as an  adjustment  to
         interest expense. The agreement was entered into with a major financial
         institution, and the Company anticipates that the financial institution
         will satisfy its obligations under the agreement.

         Senior  Unsecured Notes. In March 2005, the Company issued $250 million
         in senior  uncollateralized notes. The notes pay interest semi-annually
         in arrears at the rate of 7.5 percent per annum and are due April 2015.
         The notes are subordinated to all of the Company's  existing and future
         secured debt.  The Company can redeem the notes in whole or in part, at
         any time on or after April 1, 2010 at specified redemption prices.

         Mortgage Note Payable.  In February 2005, the Company  acquired through
         the Merger, a mortgage note payable that USRP had assumed as part of an
         office building  acquisition.  The mortgage bears interest at a rate of
         8.0  percent per annum with  payments of  principal  and  interest  due
         monthly  through  June 2007.  The Company is  currently  marketing  the
         office  building for sale and will repay this  obligation  upon sale of
         the building.

         Mortgage  Warehouse  Facilities.  As of December 31, 2004,  the Company
         maintained  a  $100  million  and a  $160  million  mortgage  warehouse
         facility.  In  February  2005,  the  $160  million  mortgage  warehouse
         facility was renewed with similar  terms until  February  2006.  In May
         2005, the $100 million  warehouse  facility was renewed until May 2006.
         The amended  agreement  increased  the  facility  advance rate for real
         estate  acquisitions  from 92 percent to 95 percent of the real  estate
         purchase  value and  changes the  interest  rate from LIBOR plus a 0.90
         percent  price   differential  to  LIBOR  plus  a  0.80  percent  price
         differential.


<PAGE>

                           TRUSTREET PROPERTIES, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
              Quarters and six months ended June 30, 2005 and 2004
                                   (UNAUDITED)


9.       Borrowings -  Continued:

         Subordinated Note Payable.  In April 2005, the Company paid in full the
         $21.875 million  subordinated  note payable using proceeds from the new
         senior credit facility described above.

         Bonds  Payable.  In February  2005,  the Company  acquired  through the
         Merger,  Triple Net Lease Mortgage Notes Series 2001-A.  The notes bear
         interest  at LIBOR plus 48 basis  points and other  associated  fees of
         approximately 50 basis points,  amortize over fifteen years and have an
         scheduled   final   maturity  date  of  August  2006.   The  notes  are
         collateralized  by 264 properties with a carrying value of $253 million
         at June 30, 2005.  The notes include  triggers  relating to delinquency
         percentages or debt service coverage. If certain ratios are exceeded or
         not  maintained,  then principal pay down on the  outstanding  bonds is
         accelerated.  The Company maintains an interest rate cap agreement with
         a strike rate of 6.0 percent to protect from future increases in LIBOR.

         In March 2005, the Company  completed a $275 million offering of Triple
         Net Lease Mortgage  Notes,  Series 2005 (the "Series 2005 Bonds").  The
         notes  bear  interest  at a fixed rate plus  other  associated  fees of
         approximately  39 basis  points,  amortize  over twenty  years and have
         expected final  maturity dates ranging  between 2011 to 2012. The notes
         are   collateralized  by  328  properties  with  a  carrying  value  of
         approximately $324 million at June 30, 2005. The notes include triggers
         relating  to  delinquency  percentages  or debt  service  coverage.  If
         certain ratios are exceeded or not maintained,  then principal pay down
         on the outstanding bonds is accelerated.

         During the six months  ended June 30,  2005,  the Company  entered into
         four interest rate swaps which were designated as hedges for the Series
         2005 Bonds and  recorded  other  comprehensive  income of $1.7  million
         relating  to these  instruments.  The  Company  terminated  these  four
         interest rate swaps in March 2005 when the Company completed the Series
         2005 Bonds and  received  $1.7  million in  proceeds.  The Company will
         amortize  the  $1.7  million  recorded  in  comprehensive  income  into
         earnings  over seven years,  the  expected  maturity of the Series 2005
         notes. The Company expects to recognize  approximately  $0.4 million of
         that amount in earnings during 2006.

         Series  B  Preferred   Stock.   The  Merger  triggered  the  redemption
         provisions  of the USRP  Series B  Preferred  Stock,  as a result,  the
         Company  recorded these  preferred  shares as an obligation on February
         25, 2005 in accordance with Statement of Financial Accounting Standards
         No.  150  -  "Accounting  for  Certain   Financial   Instruments   with
         Characteristics  of Both  Liabilities  and  Equity"  ("FAS  150").  The
         obligation  was  recorded at $32.5  million and  included a  redemption
         premium of $7.5  million.  The holders of these  convertible  preferred
         shares exercised their redemption  options and the Company redeemed the
         $32.5 million obligation in March 2005.


<PAGE>

                           TRUSTREET PROPERTIES, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
              Quarters and six months ended June 30, 2005 and 2004
                                   (UNAUDITED)


9.       Borrowings -  Continued:

         The following  schedule of maturities on outstanding  indebtedness does
         not reflect the annual extensions on the warehouse facilities,  assumes
         that bonds  payable  amortize  in  accordance  with  estimated  payment
         amounts,  and  includes  an early  payment  of $157.7  million of notes
         payable in July 2005, see Note 16.

                                                   (In thousands)
                                                  -----------------

                      2005                             $   175,390
                      2006                                 366,748
                      2007                                  27,547
                      2008                                 164,353
                      2009                                  34,031
                      Thereafter                           844,285
                                                  -----------------

                                                      $  1,612,354
                                                  =================

10.      Income Tax:

         The Company  elected to be taxed as a REIT under the  Internal  Revenue
         Code.  To  qualify  as a  REIT,  the  Company  must  meet a  number  of
         organizational  and  operational  requirements,   including  a  current
         requirement  that it  distribute  at least 90  percent  of its  taxable
         income to its  stockholders.  As a REIT,  the Company  generally is not
         subject  to  corporate  level  federal  income  tax  on net  income  it
         distributes  to its  stockholders,  except for taxes  applicable to its
         taxable REIT subsidiaries ("TRS").

         The Company has a TRS in which certain activities,  including primarily
         the purchase of real  properties with the intent to resell at a profit,
         have been conducted since 2001. A second, smaller TRS, in which certain
         activities involving the property improvement and redevelopment of real
         properties were conducted, was reorganized to join in the filing of the
         larger  consolidated  return effective  January 1, 2005. As a result of
         the Merger with USRP, a TRS organized by USRP was similarly reorganized
         such that the retail  convenience,  gas, and restaurant  operations are
         similarly consolidated into the primary TRS. These reorganizations have
         simplified the tax reporting structure into a single TRS.

         The purchase of real  properties  with an intent to resell at a profit,
         the property improvement and redevelopment of real properties,  and the
         operations  of  convenience  and gas stations and  restaurants,  all of
         which,  among  other  activities,  are  conducted  within the TRS,  are
         treated as discontinued operations.

         On March 31, 2005,  other  subsidiaries  within the REIT purchased from
         the TRS, a 100 percent  interest in a  partnership  that held a pool of
         mortgage loans collateralizing a $160.8 million note payable carrying a
         variable  interest  rate (the "Loan  Transfer").  A portion of variable
         interest was fixed through the initiation of a hedge transaction.  This
         hedge met the definition of a cash flow hedge, and as a result, changes
         in its value were reported in other comprehensive  income ("OCI"),  net
         of tax.  Valuation  changes in OCI are required to be reflected  net of
         applicable income taxes at the then applicable effective tax rate.


<PAGE>
                           TRUSTREET PROPERTIES, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
              Quarters and six months ended June 30, 2005 and 2004
                                   (UNAUDITED)


10.      Income Tax - Continued:

         Prior to 2003, a valuation allowance offset all deferred tax assets. In
         2003,  a reversal  of the  valuation  allowance  was  recorded  and the
         related tax benefit was reflected in net income.

         With the Loan Transfer, the items of income and expense associated with
         the mortgage loans and related note payable will no longer be reflected
         in the TRS income tax returns.  As a result,  any deferred tax asset or
         liability, and any tax effect of the hedge reflected in OCI will not be
         realized.

         During the quarter  ended March 31, 2005, a tax expense of $6.6 million
         was  recorded  in  discontinued  operations  which  reflected  the Loan
         Transfer  including the estimated  impact of the reversal of previously
         recorded  deferred tax accounts  related to the loans and the hedge and
         other tax liabilities.

         During the quarter ended June 30, 2005, the Company  recorded an income
         tax  benefit  of  approximately  $0.2  million  which  is  recorded  in
         discontinued  operations.  This  amount  is net of a  reduction  in the
         previously  estimated tax expense  associated with the Loan Transfer of
         approximately $2.3 million.

11.      Related Party Transactions:

         As a result of the  Merger,  the  Company  assumed  an  existing  lease
         between USRP and Tax Ease,  Inc., an affiliate of one of the members of
         the Board of  Directors.  The lease is  scheduled  to expire in October
         2007 and  requires  average  annual  rental  payments of  approximately
         $0.061 million.  During the six months ended June 30, 2005, the Company
         received  approximately  $0.012 million in rental payments  relating to
         this lease.

         In April 2005, the Company paid off the demand balloon  promissory note
         to CNL  Financial  Group,  Inc.,  an  affiliate  of the Chairman of the
         Board, for the amount of $36.4 million, including accrued interest.

         In May 2002, the Company purchased a combined five percent  partnership
         interest in CNL Plaza,  Ltd. and CNL Plaza Venture,  Ltd. ("the Plaza")
         for $0.2  million.  Affiliates  of James M.  Seneff,  Jr. and Robert A.
         Bourne,  each of which is a director of the Company,  own the remaining
         partnership  interests.  The  Company  has  severally  guaranteed  8.33
         percent or $1.3 million of a $15.5 million unsecured promissory note on
         behalf of the Plaza.  The guaranty  continues  through the loan through
         August 31, 2006.

<PAGE>
                           TRUSTREET PROPERTIES, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
              Quarters and six months ended June 30, 2005 and 2004
                                   (UNAUDITED)


12.      Stock Options and Restricted Shares:

         During 1999, the CNLRP  stockholders  approved a performance  incentive
         plan and through  February 25, 2005, the date of the Merger,  CNLRP did
         not make any awards  related to this plan.  As a result of the  Merger,
         this  performance  incentive  plan  ceased  to exist,  and the  Company
         adopted USRP's Flexible  Incentive Plan ("Incentive  Plan").  Under the
         Incentive Plan, the Company may grant shares of restricted common stock
         or stock options to purchase  common stock.  Pursuant to this Incentive
         Plan,  stock  options  may be  granted  at any time  and the  aggregate
         outstanding  options that can be granted shall be at an amount equal to
         or less than 4.9% of the  Company's  issued and  outstanding  shares of
         common  stock at the date of grant.  Options may be  exercised  through
         either the payment of cash or the  transfer of shares of the  Company's
         common stock owned by the optionee, at the Company's discretion.

         As of March 31, 2005,  the Company had early adopted the  provisions of
         Statement of Financial  Accounting  Standards No. 123(R),  "Share-Based
         Payments" ("FAS 123(R)"),  which establishes  accounting  standards for
         all  transactions in which an entity  exchanges its equity  instruments
         for goods and services.  FAS 123(R) focuses primarily on accounting for
         transactions  with employees,  and carries forward without change prior
         guidance for share-based  payments for transactions with non-employees.
         FAS 123(R) eliminates the intrinsic value measurement  objective in APB
         Opinion  No. 25 and  generally  requires  management  of the Company to
         measure the cost of employee services received in exchange for an award
         of equity  instruments based on the fair value of the award on the date
         of the  grant.  The  standard  requires  grant  date  fair  value to be
         estimated using either an option-pricing model which is consistent with
         the  terms of the  award or a market  observed  price,  if such a price
         exists.  Such cost must be  recognized  over the period during which an
         employee is required  to provide  service in exchange  for the award or
         the requisite service period (which is usually the vesting period). The
         standard also requires management of the Company to estimate the number
         of instruments  that will ultimately be issued,  rather than accounting
         for  forfeitures  as they  occur.  The  Company  elected  to adopt  the
         modified  prospective  application  method as  provided  by FAS 123(R).
         Under the modified prospective method,  compensation cost is recognized
         for all awards  granted  after  adoption of this  standard  and for the
         unvested  portion of previously  granted awards that are outstanding on
         that date.

         No stock options were issued during the six months ended June 30, 2005,
         and previously  granted options were fully vested as of the date of the
         Merger. As a result,  no compensation  cost was recognized  relating to
         stock options during the six months ended June 30, 2005. Early adoption
         of FAS 123(R), and the change from applying the original  provisions of
         Statement of Financial  Accounting  Standards  No. 123, did not have an
         impact on income from continuing operations, net income, cash flow from
         operations,  cash flow from financing activities, and basic and diluted
         earnings per share for the six months ended June 30, 2005.

         The following is a summary of options  outstanding by range of exercise
         price as of June 30, 2005:
<TABLE>
<CAPTION>

 <c>
                                                                                                   All
                                                             $11.00-                             Options
                                                              $12.23           $15.50        (in thousands)
                                                           -------------    -------------    ----------------

         Options outstanding                                     12,000            8,500                  21
         Average option price per share                        $  11.41         $  15.50            $  13.11
         Weighted average contractual life (years)                 1.46             1.33                1.41
         Options exercisable                                     12,000            8,500                  21
         Average option price per share                        $  11.41         $  15.50            $  13.11
</TABLE>

<PAGE>

                           TRUSTREET PROPERTIES, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
              Quarters and six months ended June 30, 2005 and 2004
                                   (UNAUDITED)


12.      Stock Options and Restricted Shares - (Continued):

         The following is a summary of stock option  activity for the six months
         ended June 30, 2005:
<TABLE>
<CAPTION>

 <c>
                                                                                              Weighted
                                                                        Number of             average
                                                                         Options           exercise price
                                                                      (in thousands)       at grant date
                                                                     -----------------    -----------------

         Options outstanding at beginning of period                              87          $    14.95
         Exercised                                                              (52 )             13.79
         Forfeited                                                               --                   --
         Expired                                                                (14 )             22.00
                                                                     -----------------    -----------------

         Options outstanding and exercisable at end of period                    21          $    13.11
                                                                     =================
</TABLE>

         In March 2005, the Company granted  approximately 0.1 million shares of
         non-vested  stock to  members  of its board of  directors  and  various
         employees.   The   non-vested   shares  had  a  fair  market  value  of
         approximately  $2.4 million based on the  Company's  stock price on the
         date of  grant.  The  Company  records  compensation  expense  over the
         vesting period.

         The  following is a summary of the status of the  Company's  non-vested
         shares as of June 30,  2005,  and changes  during the period ended June
         30, 2005:
<TABLE>
<CAPTION>

 <c>
                                                                                              Weighted
                                                                        Number of           average fair
                                                                          Shares           value at grant
                                                                      (in thousands)            date
                                                                     -----------------    -----------------

         Non-vested shares at beginning of period                                --           $      --
         Granted                                                                138               17.01
         Vested                                                                  --                  --
         Forfeited                                                              (14 )             17.20
                                                                     -----------------    -----------------

         Non-vested shares at end of period                                     124          $    16.99
                                                                     =================
</TABLE>

         As of June 30,  2005,  there  was $2.1  million  of total  unrecognized
         compensation  costs  related  to  non-vested  share-based  compensation
         arrangements  granted  under the  Plan.  That  cost is  expected  to be
         recognized over a weighted-average period of 4 years.

13.      Stockholders' Equity:

         On February 25, 2005, in accordance with the terms of the Merger,  45.2
         million  shares of CNLRP common stock were  converted into 35.2 million
         shares of the  Company's  common  stock and 7.2 million of newly issued
         shares of the Company's Series C Preferred Stock.

<PAGE>
                           TRUSTREET PROPERTIES, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
              Quarters and six months ended June 30, 2005 and 2004
                                   (UNAUDITED)


13.      Stockholders' Equity - (Continued):

         Series A Preferred Stock - On February 25, 2005, CNLRP acquired through
         the merger with USRP,  the Series A Preferred  Stock with a liquidation
         preference  of $25.00 per share.  On and after  November 15, 2002,  the
         Series A Preferred  Stock is  redeemable,  in whole or in part,  at the
         option of the Company,  (i) for such number of shares of Company common
         stock as are issuable at a conversion  rate of 0.9384 shares of Company
         common stock for each share of Series A Preferred Stock,  provided that
         for 20 trading days within any period of 30  consecutive  trading days,
         including the last trading day of such period, the closing price of the
         common  stock on the New York  Stock  Exchange  equals or  exceeds  the
         conversion price, subject to adjustment in certain circumstances,  plus
         cash in the amount of any  accrued  and unpaid  dividends,  or (ii) for
         cash at a  redemption  price  equal to  $25.00  per  share of  Series A
         Preferred Stock,  plus any accrued and unpaid  dividends.  The Series A
         Preferred  Stock has no stated maturity and is not subject to a sinking
         fund.  Shares of Series A Preferred Stock are convertible,  in whole or
         in part,  at the  option of the holder at any time,  unless  previously
         redeemed,  into shares of common stock at a conversion  price of $26.64
         per share of common stock  (equivalent  to a conversion  rate of 0.9384
         shares of common stock).  Distributions on Series A Preferred Stock are
         cumulative  and are equal to the greater of (i) $1.93 per annum or (ii)
         the cash distribution paid or payable on the number of shares of common
         stock into which a share of Series A  Preferred  Stock is  convertible.
         Holders of Series A Preferred  Stock are entitled to receive  dividends
         in parity with holders of Series C Preferred Stock and in preference to
         any  dividends to common  stockholders.  Upon  liquidation,  holders of
         Series A  Preferred  Stock are  entitled  to receive  distributions  in
         parity with holders of Series C Preferred  Stock and in  preference  to
         any distributions to common stockholders.

         Series C Preferred  Stock - As  described in Note 4, as a result of the
         Merger,  each share of CNLRP's  common stock was converted  into 0.7742
         shares of the  Company's  common stock and 0.16 newly issued  shares of
         the Company's 7.5 percent  Series C Preferred  Stock with a liquidation
         preference  of $25.00 per share.  The Series C  Preferred  Stock is not
         redeemable  prior to February 25,  2009,  unless the Board of Directors
         determines that such a redemption is necessary or advisable to preserve
         the status of the Company as a REIT.  On and after  February  25, 2009,
         and  with  appropriate   notice,   the  Series  C  Preferred  Stock  is
         redeemable,  in whole or in part, at the option of the Company for cash
         at a redemption price of $25.00 per share,  plus all accrued and unpaid
         dividends  thereon  to and  including  the date  fixed for  redemption,
         without interest. If fewer than all of the outstanding shares of Series
         C Preferred  Stock are to be redeemed,  the Series C Preferred Stock to
         be redeemed shall be redeemed pro rata (as nearly as may be practicable
         without creating  fractional  shares), by lot or by any other equitable
         method determined by the Company that will not result in a violation of
         the Ownership Limit, provided that such method satisfies any applicable
         requirements of any securities exchange on which the Series C Preferred
         Stock are then  listed or any  national  quotation  system on which the
         Series C Preferred  Stock are then quoted.  If such redemption is to be
         by lot and, as a result of such  redemption,  any holder of a number of
         shares of Series C Preferred Stock would become a holder of a number of
         shares of Series C  Preferred  Stock in excess of the  Ownership  Limit
         because  such  holder's of shares of Series C Preferred  Stock were not
         redeemed,  or were  redeemed  only in part,  then,  except as otherwise
         provided in the Articles of Incorporation,  the Company will redeem the
         requisite  number of Series C Preferred  Stock of such holder such that
         such holder will not violate the  Ownership  Limit  subsequent  to such
         redemption.  Shares of Series C  Preferred  Stock are  convertible,  in
         whole or in part,  at the  option of the  holder  at any  time,  unless
         previously  redeemed,  into  shares  of  common  stock  at  an  initial
         conversion price of $19.50  (equivalent to a conversion rate of 1.28205
         shares of common  stock for each  share of Series C  Preferred  Stock).
         Distributions  on Series C Preferred Stock are cumulative and are equal
         to $1.875 per share per annum.  Holders of Series C Preferred Stock are
         entitled  to  receive  dividends  in parity  with  holders  of Series A
         Preferred   Stock  and  in   preference  to  any  dividends  to  common
         stockholders. Upon liquidation, holders of Series C Preferred Stock are


<PAGE>

                           TRUSTREET PROPERTIES, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
              Quarters and six months ended June 30, 2005 and 2004
                                  (UNAUDITED)


13.      Stockholders' Equity - Continued:

         entitled to receive  distributions  in parity with  holders of Series A
         Preferred  Stock  and in  preference  to any  distributions  to  common
         stockholders.

         Computation  of Earnings  Per Common  Share - For the  quarters and six
         months  ended June 30, 2005 and 2004,  basic and diluted  earnings  per
         common share for income (loss) from continuing  operations available to
         common shareholders has been computed as follows:
<TABLE>
<CAPTION>

 <c>

                                                                          Quarter ended June 30, 2005
                                                            ---------------------------------------------------------
                                                                Income               Shares             Per-Share
                                                             (in thousands)       (in thousands)          Amount
                                                              (Numerator)         (Denominator)
                                                            -----------------    -----------------     --------------

         Income from continuing operations                         $   4,977
         Less:  Preferred stock dividends                             (7,176  )
                                                            -----------------

         Basic Earnings Per Share:
         Loss from continuing operations available
           to common stockholders                                     (2,199  )            57,908              (0.04  )
                                                            -----------------    -----------------     --------------

         Effect of dilutive securities:
           Stock options                                                  --  (1)              --  (1)
           Restricted stock                                               --  (1)              --  (1)
           Convertible Preferred Stock                                    --  (1)              --  (1)
                                                            -----------------    -----------------     --------------

         Diluted Earnings Per Share:
         Loss from continuing operations
           available to common shareholders                       $   (2,199  )            57,908          $   (0.04  )
                                                            =================    =================     ==============



                                                                          Quarter ended June 30, 2004
                                                            ---------------------------------------------------------
                                                                 Income               Shares             Per-Share
                                                             (in thousands)       (in thousands)          Amount
                                                              (Numerator)         (Denominator)
                                                            -----------------    -----------------     --------------

         Basic and Diluted Earnings Per Share:
         Income from continuing operations
           available to common stockholders                        $   1,357               35,032           $   0.04
                                                            =================    =================     ==============
</TABLE>

<PAGE>


                           TRUSTREET PROPERTIES, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
              Quarters and six months ended June 30, 2005 and 2004
                                   (UNAUDITED)


13.      Stockholders' Equity - Continued:
<TABLE>
<CAPTION>

 <c>
                                                                         Six months ended June 30, 2005
                                                            ---------------------------------------------------------
                                                                 Income               Shares             Per-Share
                                                             (in thousands)       (in thousands)          Amount
                                                              (Numerator)         (Denominator)
                                                            -----------------    -----------------     --------------

         Income from continuing operations                         $   3,936
         Less:  Preferred stock dividends                            (10,099  )
                                                            -----------------

         Basic Earnings Per Share:
         Loss from continuing operations available
           to common stockholders                                     (6,163  )            50,922          $   (0.12  )
                                                            -----------------    -----------------     --------------

         Effect of dilutive securities:
           Stock options                                                  --  (1)              --  (1)
           Restricted stock                                               --  (1)              --  (1)
           Convertible Preferred Stock                                    --  (1)              --  (1)
                                                            -----------------    -----------------     --------------

         Diluted Earnings Per Share:
         Loss from continuing operations
           available to common shareholders                       $   (6,163  )            50,922          $   (0.12  )
                                                            =================    =================     ==============



                                                                         Six months ended June 30, 2004
                                                            ---------------------------------------------------------
                                                                 Income               Shares             Per-Share
                                                             (in thousands)       (in thousands)          Amount
                                                              (Numerator)         (Denominator)
                                                            -----------------    -----------------     --------------

         Basic and Diluted Earnings Per Share:
         Income from continuing operations
           available to common stockholders                        $   4,882               35,032           $   0.14
                                                            =================    =================     ==============

</TABLE>



         (1)  For the quarter and six months ended June 30, 2005,  the potential
              dilution from the Company's  outstanding  Common Stock Equivalents
              was anti-dilutive to the loss from continuing operations per share
              calculation.  As such,  these  amounts were excluded from weighted
              average   shares  in  these  years.   Stock  options  to  purchase
              approximately  0.021  million  shares  of  common  stock,  and the
              conversion  of Series A and  Series C  Preferred  Stock  into 16.6
              million  shares of common stock was excluded from the  computation
              of diluted  earnings per share as these  Common Stock  Equivalents
              were anti-dilutive.

                           TRUSTREET PROPERTIES, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
              Quarters and six months ended June 30, 2005 and 2004
                                   (UNAUDITED)


13.      Stockholders' Equity - Continued:

         The following  presentation  assumes that the Series C Preferred  Stock
         issued to the CNLRP  stockholders  in  connection  with the  merger was
         outstanding for all periods presented.
<TABLE>
<CAPTION>

 <c>

                                                                            (In thousands)
                                                        Quarters ended June 30,      Six months ended June 30,
                                                          2005           2004           2005            2004
                                                       ------------  -------------  -------------   -------------

          Historical income (loss) from continuing
             operations less preferred stock
             dividends                                   $   (2,199 )  $   1,357     $   (6,163 )    $     4,882
          Proforma adjustment for Series C
             Preferred Stock dividends                          --        (3,396 )       (2,264 )         (6,792 )
                                                       ------------  -------------  -------------   -------------
          Proforma loss from continuing operations
             allocable to common stockholders            $   (2,199 )  $  (2,039 )   $   (8,427 )    $   (1,910 )
                                                       ------------  -------------  -------------   -------------

          Basic and diluted proforma earnings
             (loss) per share:

          From continuing operations                      $  (0.04 )    $    (0.06 )    $  (0.17 )    $  (0.05 )
          From discontinued operations                        0.23            0.22          0.35          0.43
                                                       ------------  -------------  -------------   -------------
                                                           $  0.19       $    0.16     $    0.18      $   0.38
                                                       ============  =============  =============   =============
</TABLE>

14.      Segment Information:

         The Company  has  established  separate  legal  entities to  separately
         operate and measure the real estate and specialty finance segments.

         The real estate  segment  acquires and holds real estate,  mortgage and
         equipment loans generally until maturity. The specialty finance segment
         offers financing,  servicing, advisory and other services to restaurant
         operators and acquires  restaurant  real estate  properties  subject to
         triple-net  leases,  utilizing  short-term  debt,  and then  sells them
         generally within one year.

<PAGE>
                           TRUSTREET PROPERTIES, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
              Quarters and six months ended June 30, 2005 and 2004
                                   (UNAUDITED)


14.      Segment Information - Continued:

         The following  tables summarize the results for the real estate segment
         and the  specialty  finance  segment.  Consolidating  eliminations  and
         results of the parent company are reflected in the "other" column.
<TABLE>
<CAPTION>

 <c>
                                                                        Quarter ended June 30, 2005
                                                                               (In thousands)
                                                                         Specialty
                                                      Real estate         finance                        Consolidated
                                                        segment           segment           Other           Totals
                                                      -------------    --------------    -------------   --------------

          Revenues                                       $  50,349         $   2,613        $  (1,561 )     $   51,401
                                                      -------------    --------------    -------------   --------------

          General operating and administrative               3,829             7,268           (1,105 )          9,992
          Interest expense                                  23,354             1,590              (76 )         24,868
          Property expenses, state and other taxes           2,186               170             (273 )          2,083
          Depreciation and amortization                      8,715               284               --            8,999
          Provision for (recovery of) loss on loans           (527 )              59               --             (468 )
          Impairments and provisions on assets                 222                49               --              271
          Minority interest net of equity in earnings           64               638               --              702
          Gain on sale of assets                               (23 )              --               --              (23 )
                                                      -------------    --------------    -------------   --------------
                                                            37,820            10,058           (1,454 )         46,424
                                                      -------------    --------------    -------------   --------------
          Discontinued operations:
             Income from discontinued
                 operations, net of income tax               1,300            11,872               --           13,172
                                                      -------------    --------------    -------------   --------------

          Net income/(loss)                              $  13,829         $   4,427          $  (107 )     $   18,149
                                                      =============    ==============    =============   ==============

</TABLE>
<PAGE>

                           TRUSTREET PROPERTIES, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
              Quarters and six months ended June 30, 2005 and 2004
                                   (UNAUDITED)


14.      Segment Information - (Continued):
<TABLE>
<CAPTION>

 <c>
                                                                         Quarter ended June 30, 2004
                                                                               (In thousands)
                                                                         Specialty
                                                      Real estate     finance segment                     Consolidated
                                                        segment                             Other            Totals
                                                      -------------   ----------------   ------------    ---------------

          Revenues                                       $  19,270         $    6,888       $   (662 )       $   25,496
                                                      -------------   ----------------   ------------    ---------------

          General operating and administrative               2,197              4,927           (465 )            6,659
          Interest expense                                   7,187              4,727             80             11,994
          Property expenses, state and other taxes             201                 --             --                201
          Depreciation and amortization                      2,692                240             --              2,932
          Loss on termination of cash flow hedge                --               585              --                585
          Impairments and provisions on assets                 418                 85             --                503
          Minority interest net of equity in earnings           23              1,242             --              1,265
                                                      -------------   ----------------   ------------    ---------------
                                                            12,718             11,806           (385 )           24,139
                                                      -------------   ----------------   ------------    ---------------
          Discontinued operations:
             Income/(loss) from discontinued
                 Operations, net of income tax                (232 )            8,095             --              7,863
                                                      -------------   ----------------   ------------    ---------------

          Net income/(loss)                              $   6,320         $    3,177       $   (277 )       $    9,220
                                                      =============   ================   ============    ===============

</TABLE>

<PAGE>
                           TRUSTREET PROPERTIES, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
              Quarters and six months ended June 30, 2005 and 2004
                                   (UNAUDITED)


14.      Segment Information - (Continued):
<TABLE>
<CAPTION>

 <c>
                                                                       Six months ended June 30, 2005
                                                                               (In thousands)
                                                                         Specialty
                                                      Real estate     finance segment                     Consolidated
                                                        segment                             Other            Totals
                                                      -------------   ----------------   ------------    ---------------

          Revenues                                       $  78,411          $   9,198      $  (2,179 )       $   85,430
                                                      -------------   ----------------   ------------    ---------------

          General operating and administrative               7,114             15,468         (1,649 )           20,933
          Interest expense                                  35,867              6,041           (149 )           41,759
          Property expenses, state and other taxes           3,346                307           (367 )            3,286
          Depreciation and amortization                     13,670                558             --             14,228
          Provision for (recovery of) loss on loans           (527 )               74             --               (453 )
          Impairments and provisions on assets                 222                 55             --                277
          Minority interest net of equity in earnings          100              1,387             --              1,487
          Gain on sale of assets                               (23 )               --             --                (23 )
                                                      -------------   ----------------   ------------    ---------------
                                                            59,769             23,890         (2,165 )           81,494
                                                      -------------   ----------------   ------------    ---------------
          Discontinued operations:
             Income from discontinued
                 operations, net of income tax               1,170             16,493             --             17,663
                                                      -------------   ----------------   ------------    ---------------

          Net income/(loss)                              $  19,812         $    1,801        $   (14 )       $   21,599
                                                      =============   ================   ============    ===============

          Assets at June 30, 2005                       $2,339,127        $   351,019      $ (18,444 )     $  2,671,702
                                                      =============   ================   ============    ===============

          Investments accounted for under the
             equity method at June 30, 2005              $   1,164          $      --      $      --         $    1,164
                                                      =============   ================   ============    ===============
</TABLE>
<PAGE>


                           TRUSTREET PROPERTIES, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
              Quarters and six months ended June 30, 2005 and 2004
                                   (UNAUDITED)


14.      Segment Information - (Continued):
<TABLE>
<CAPTION>

 <c>
                                                                       Six months ended June 30, 2004
                                                                               (In thousands)
                                                                         Specialty
                                                      Real estate     finance segment                     Consolidated
                                                        segment                             Other            Totals
                                                      -------------   ----------------   ------------    ---------------

          Revenues                                       $  39,091         $   13,928      $  (1,414 )       $   51,605
                                                      -------------   ----------------   ------------    ---------------

          General operating and administrative               4,374              9,626         (1,041 )           12,959
          Interest expense                                  14,363              9,410             51             23,824
          Property expenses, state and other taxes             337                 --             --                337
          Depreciation and amortization                      5,356                371             --              5,727
          Loss on termination of cash flow hedge                --                940             --                940
          Impairments and provisions on assets                 692                358             --              1,050
          Minority interest net of equity in earnings           30              1,862             --              1,892
          Loss on sale of assets                                (6 )               --             --                 (6 )
                                                      -------------   ----------------   ------------    ---------------
                                                            25,146             22,567           (990 )           46,723
                                                      -------------   ----------------   ------------    ---------------
          Discontinued operations:
             Income from discontinued
                 operations, net of income tax               1,409             13,778             --             15,187
                                                      -------------   ----------------   ------------    ---------------

          Net income/(loss)                              $  15,354         $    5,139       $   (424 )       $   20,069
                                                      =============   ================   ============    ===============

          Assets at June 30, 2004                        $ 805,256        $   516,002      $  (5,939 )     $  1,315,319
                                                      =============   ================   ============    ===============

          Investments accounted for under the
             equity method at June 30, 2004              $   1,017          $      --        $    --         $    1,017
                                                      =============   ================   ============    ===============

</TABLE>

<PAGE>


                           TRUSTREET PROPERTIES, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
              Quarters and six months ended June 30, 2005 and 2004
                                   (UNAUDITED)


15.      Commitments and Contingencies:

         During the six months ended June 30, 2005,  the Company  incurred  $1.1
         million in ground rent expense related to properties  acquired  through
         the Merger.  The remaining lease terms (excluding renewal option terms)
         expire between 2005 and 2014.  Minimum future lease obligations at June
         30, 2005 are as follows:

                                                (In thousands)
                                             ---------------------
                  2005                       $              2,011
                  2006                                      3,527
                  2007                                      3,077
                  2008                                      2,344
                  2009                                      1,605
                  Thereafter                                2,605
                                             ---------------------
                                             $             15,169
                                             =====================

         In the  ordinary  course  of  business,  the  Company  has  outstanding
         commitments  to qualified  borrowers  and tenants.  These  commitments,
         including  development   agreements,   if  accepted  by  the  potential
         borrowers,  obligate the Company to purchase sale leaseback properties.
         At June 30, 2005,  the Company had committed to purchase  $99.9 million
         in real estate properties at June 30, 2005.

         In June  2005,  the  Company  entered  into  over 40  operating  leases
         relating to real estate held for sale which  provide that, in the event
         the Company sells the leased  property before the fifth lease year, the
         annual rent will  increase to the fifth year annual rent  effective  on
         the day of the sale,  and that the Company will  compensate  the tenant
         for the increase.  Assuming the Company sells these  properties  within
         six months,  this will result in receiving  approximately  $2.6 million
         less in net sales proceeds from the sale of these properties.

         As part of the  Merger,  the Company  assumed  several  products  sales
         contracts  that commit the  Company to  purchase a minimum  quantity of
         fuel, at a  predetermined  margin over an index,  at terms ranging from
         one to three years  relating to certain gas station  properties and the
         fuel  terminal  operations  described  in Note  8.  The  contracts  are
         customary  in the  retail  petroleum  industry  and  secure  a  readily
         available  supply of fuel at  competitive  market  prices.  The Company
         intends  to  transfer  or  terminate,   where  possible,  any  purchase
         commitment  when it  relates  to  properties  or  operations  sold.  In
         addition,  in  connection  with  certain  gas station  properties,  the
         Company assumed  certain  agreements that obligate the Company to pay a
         release  price  should a gas station  property  change gas brands.  The
         agreements are customary in the retail  petroleum  industry.  Some, but
         not all, of the agreements  release the Company from the aforementioned
         obligation upon the sale of the property to a third party.

<PAGE>
                           TRUSTREET PROPERTIES, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
              Quarters and six months ended June 30, 2005 and 2004
                                   (UNAUDITED)


15.      Commitments and Contingencies - Continued:

         On January 18, 2005, Robert Lewis and Sutter Acquisition Fund, LLC, two
         limited partners in several Income Funds,  filed Plaintiffs'  Corrected
         Original Petition for Class Action,  Cause No. 05-00083-F,  a purported
         class  action  lawsuit on behalf of the limited  partners of the Income
         Funds  against  the  Company,  USRP,  the Income  Funds and the general
         partners (Mr.  Seneff,  Mr. Bourne and CNL Realty  Corporation)  of the
         Income Funds,  and subsidiaries of the Company in the District Court of
         Dallas  County,  Texas (the  "Court").  The complaint  alleged that the
         general partners of the Income Funds breached their fiduciary duties in
         connection with the proposed  mergers between the Income Funds and USRP
         and that the  Company,  subsidiaries  of the Company and USRP aided and
         abetted in the alleged  breaches of  fiduciary  duties.  The  complaint
         further  alleged  that  the  Income  Fund  general  partners   violated
         provisions of the Income Fund  partnership  agreements  and demanded an
         accounting as to the affairs of the Income Funds.  On April 26, 2005, a
         supplemental  plea  to  jurisdiction  was  held.  On May 2,  2005,  the
         plaintiffs filed their First Amended Petition for Class Action.  In the
         Amended Petition the plaintiffs did not add any parties or claims,  but
         they did add allegations that the general partners of the Income Funds,
         with CNLRP and USRP,  prepared and  distributed a false and  misleading
         final  proxy  statement  filing to the  limited  partners of the Income
         Funds  and the  shareholders  of CNLRP  and USRP.  The  plaintiffs  are
         seeking  unspecified  compensatory and exemplary  damages and equitable
         relief,  which also included an injunction  preventing  the  defendants
         from proceeding with the mergers.  On May 26, 2005, the Court entered a
         Final Order Dismissing Action for lack of subject matter  jurisdiction.
         On June 22, 2005, the plaintiffs  filed a Notice of Appeal of the Order
         of Dismissal. Management of the Company believes the claims against the
         Company are without merit and intend to defend vigorously  against such
         claims.

         During  2004,  Management  Strategies,  Inc.  ("MSI")  filed a  lawsuit
         against USRP. The complaint alleges that USRP is obligated to reimburse
         MSI  approximately $3 million related to sales and fuel tax liabilities
         MSI has to the State of Georgia.  In addition,  the Company has filed a
         counterclaim  for $2.0 million related to an unpaid note plus interest.
         Management of the Company  believes the claims  against the Company are
         without merit and intend to defend vigorously against such claims.

         On April 27,  2005,  the  Company was  informed by the Hawaii  Attorney
         General's  office that they,  along with the FTC,  were  conducting  an
         investigation  into whether the  proposed  sale of the gas stations and
         the 50%  interest in a fuel  loading  terminal  described in Note 8 may
         violate  state and federal  antitrust  laws.  Management of the Company
         fully   cooperated   with   the   investigation.   Subsequent   to  the
         investigation,  the FTC filed suit in federal court seeking  injunctive
         relief  to  block  the  sale.  The  Company  believes  that the sale is
         economically  desirable for its  shareholders  and poses no harm to the
         competitive  market in Hawaii. The federal court has schduled a hearing
         on the FTC's  motion for a  preliminary  injunction  for August  23-24,
         2005.

16.      Subsequent Events:

         On June 9, 2005,  the Company  received an  unsolicited  expression  of
         interest  from a third  party  to  purchase  mortgage  loans  held  for
         investment. When negotiations commenced, the Company discontinued hedge
         accounting  for a cash flow hedge  relating to variable  rate debt that
         would be repaid if the loans  were  sold.  Between  June 9 and June 30,
         2005,  the  change in the value of the  hedge of  approximately  $0.012
         million  was  reflected  in  earnings.  On  July  15,  2005,  upon  the
         satisfaction  of a number of conditions  required by the seller and the
         approval of the  Company's  Board of Directors a purchase  contract was
         entered  into to sell the  loans at a price  of $194  million  plus the
         actual  cost to  unwind  the  cash  flow  hedge.  The  transaction  was
         consummated  on July 18, 2005 and  resulted in a gain of  approximately
         $9.8  million.  Upon the sale of the  loans  and the  repayment  of the
         related  debt,  the Company  reflected  $10.6  million in hedge  losses
         previously recorded in other  comprehensive  income (loss) to earnings.
         In addition,  during the period from July 1, 2005 to July 18, 2005, the
         Company  recognized  a gain of  approximately  $2 million  relating  to
         decreases in the fair value hedge liability prior to the closing of the
         sale.

<PAGE>


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

The following information,  including,  without limitation, the Quantitative and
Qualitative  Disclosures About Market Risk that are not historical facts, may be
forward-looking  statements  within the meaning of Section 27A of the Securities
Act of 1933 and  Section  21E of the  Securities  Exchange  Act of  1934.  These
statements generally are characterized by the terms such as "believe," "expect,"
"may," "intend," "might," "plan," "estimate," "project," and "should".  Although
we believe expectations  reflected in such forward-looking  statements are based
upon  reasonable   assumptions,   the  Company's  actual  results  could  differ
materially from those set forth in the forward-looking statements.  Factors that
might cause such a difference include:

   o     changes in general economic conditions;
   o     general risks  affecting the real estate industry  (including,  without
         limitation,  the  inability  to enter into or renew leases on favorable
         terms, dependence on tenants' financial condition, and competition from
         other developers, owners and operators of real estate);
   o     general risks  affecting the restaurant  industry  (including,  without
         limitation, any disruption in the supply or quality of ingredients, the
         availability of labor, and the continued demand for restaurant dining);
   o     financing  may not be available  on favorable  terms or at all, and our
         cash flow from  operations  and  access to  attractive  capital  may be
         insufficient to fund existing operations, or growth in new acquisitions
         and developments;
   o     changes in interest rates;
   o     our ability to refinance  existing  financial  obligations at favorable
         terms;
   o     our ability to locate suitable tenants for our properties and similarly
         resolve any mortgage loan delinquencies;
   o     the  ability of tenants  and  borrowers  to make  payments  under their
         agreements with us;
   o     possible adverse changes in tax and environmental  laws, as well as the
         impact  of  newly  adopted  accounting  principles  on  our  accounting
         policies and on period-to-period comparisons of financial results;
   o     risks associated with our potential  failure to qualify as a REIT under
         the Internal Revenue Code of 1986, as amended;
   o     our ability to effect an integration of recently merged  properties and
         operations;
   o     our ability to re-lease or sell properties that are currently vacant or
         that may become vacant; and
   o     our  ability  to sell  mortgage  loans  or net  lease  properties  on a
         favorable and timely basis.

The risks set forth above are not exhaustive.  Other sections of this report may
include  additional  factors  that  could  adversely  affect  our  business  and
financial  performance.  Moreover,  we operate in a very competitive and rapidly
changing  environment.  New risk factors  emerge from time to time and it is not
possible  for  management  to predict  all risk  factors,  nor can it assess the
impact of all risk factors on our business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained   in  any   forward-looking   statements.   Given   these   risks  and
uncertainties,  investors  should not place undue  reliance  on  forward-looking
statements as a prediction of actual results. Investors should also refer to our
annual  reports on Form 10-K and our  quarterly  reports on Form 10-Q for future
periods and current  reports on Form 8-K as we file them with the Securities and
Exchange Commission, or SEC, and to other materials we may furnish to the public
from time to time through  Forms 8-K or  otherwise.  We  expressly  disclaim any
responsibility  to update any  forward-looking  statements to reflect changes in
underlying assumptions or factors, new information, future events, or otherwise,
and you should not rely upon these forward-looking  statements after the date of
this report.

Business

Trustreet  Properties,  Inc.  is the new name we adopted  upon the merger of CNL
Restaurant Properties,  Inc. ("CNLRP") and eighteen CNL Income Fund partnerships
("the Income Funds") with and into U.S. Restaurant Properties,  Inc. ("USRP") on
February  25,  2005.  We are a Maryland  corporation  organized to operate as an
equity real estate investment trust, or REIT.

For the past twenty years,  we have  financed real estate  subject to triple-net
leases to national and regional  restaurant  operators like Burger King,  Golden
Corral, IHOP, Jack in the Box and Bennigan's. Our key customers are:

   1.    restaurant operators of major national and regional chains;
   2.    restaurant property investors; and
   3.    retail real estate developers.

Our  business  objective  is to maximize  stockholder  returns by pursuing  four
complementary  strategies that address the needs of our key customers.  The four
strategies are:

   1.    financing free-standing restaurant and retail real estate;
   2.    maximizing the potential of our real estate portfolio;
   3.    sale of real estate to investors; and
   4.    property improvement and redevelopment.

Strategy 1:  Financing Free-standing Restaurant and Retail Real Estate

We own  over  1,900  properties  at June 30,  2005  with an  investment  of $2.0
billion,  substantially all of which are leased to restaurant operators.  We are
the largest  provider of net-lease  financing to the restaurant  industry and we
also offer  investment  banking and advisory  services  through our  subsidiary,
Trustreet Investment Banking,  LLC. Beginning in 1995 through June 30, 2005, and
not taking into account the volume  generated by USRP, our  management  team has
provided financing solutions to restaurant operators in the form of:

   o     $2.1  billion  in  properties  purchased  under  sale  leaseback  terms
         including approximately $190.3 million during the six months ended June
         30, 2005 and $247 million throughout 2004; and
   o     $3.1 billion in mortgage  loans,  including  $2.0 billion more recently
         through our strategic alliance with Bank of America.

The  combination  of both  net-lease  and the  mortgage  financing,  through our
strategic alliance with Bank of America,  is attractive to restaurant  operators
because  we  provide  them with a single  source to assist in  optimizing  their
capital  structures.  We believe that the financial  returns  expected by equity
investors in the  restaurant  sector will drive public  restaurant  companies to
seriously  consider  monitizing all or a portion of their  on-balance sheet real
estate.  We believe we are well positioned to acquire the restaurant  operators'
real estate. We believe we have the following competitive advantages:

   o     consistent source of financing to the restaurant industry for more than
         twenty years;
   o     our ability to finance transactions in excess of $100 million;
   o     our strategic alliance with Bank of America;
   o     relationships   with  most  of  the  major   restaurant   concepts  and
         significant franchisees in those systems;
   o     the experience and expertise of our senior  marketing  representatives;
         and
   o     the  intellectual  capital  provided by an investment  banking services
         group.

Before we purchase a property and enter into a long-term triple-net lease with a
restaurant operator, the transaction undergoes a rigorous analysis. Our analysis
includes:

   o     credit underwriting of the restaurant concept;
   o     credit underwriting of the potential tenant;
   o     physical inspection of the real estate;
   o     assessment  of  whether  the  properties  should be held for  long-term
         investment or held for sale; and
   o     review and approval by our Investment  Committee  that includes  senior
         executives,  including  the CEO and CFO,  separate  from the  marketing
         function.

In 2005,  we expect the  properties  we purchase for  investment  purposes  will
average a lease rate in a range of 9.25 - 9.75 percent  including  the impact of
straight  lining  of  rents.  The term  "straight  lining  of rent"  refers to a
requirement by generally accepted  accounting  principles that we average tenant
rent  payments  over the life of the lease.  In  addition  to $190.3  million in
property  acquisitions  through  June 30,  2005,  we had  $174.4  million  under
commitment as of August 9, 2005 that we expect will close in 2005 and believe we
are well positioned for future growth. Based upon our signed commitments and our
pipeline of potential  transactions,  we expect to acquire 10 to 20 percent more
restaurant  and  convenience  and gas properties in 2005 versus the $272 million
CNLRP and USRP  collectively  acquired in 2004. We expect over time to hold more
of our new  acquisitions  than we sell  through the  Investment  Property  Sales
("IPS")  program.  While we will continue to make selected  acquisitions  in the
convenience and gas station sector, we expect the predominant  amount of our new
property  acquisitions  will  continue  to be in  the  restaurant  industry.  We
actively  survey the market  seeking to identify  other asset  classes  where we
believe we can compete  effectively.  Also,  while we do not  currently  own any
restaurants  outside of the United States,  we sometimes  examine  international
financing opportunities for established restaurant companies.

Strategy 2:  Maximizing the Potential of our Real Estate Portfolio

Our  portfolio  held  for  investment  consists  of  1,768  properties  with  an
investment  of $2.0 billion at June 30, 2005.  We employ  standard  processes to
evaluate  the real estate  within the  portfolio  and  actively  manage the risk
profile. We examine the concept, tenant and geographic concentrations. We review
the  leases  expiring  in  future  periods  to  proactively  manage  that  risk.
Periodically,  we will sell  properties to realize  appreciation on our original
investment.  In  addition,  we  examine  and  evaluate  alternatives  for vacant
properties.  Those  alternatives  include  re-leasing the property,  selling the
property and reinvesting the proceeds,  or possibly redeveloping the real estate
with a different  restaurant or other retail concept to either  continue to hold
for investment or list for sale.

We have 75 properties  with an investment of $51.2 million with leases  expiring
in the next year, and 104 properties  with an investment of $64 million that are
vacant with no lease. We intend to actively manage these properties,  and reduce
the  number  of vacant  properties  in the next 18  months  either  by  locating
suitable tenants to lease the properties from us or selling the vacant sites and
reinvesting the sales proceeds in replacement properties.

The following tables illustrate as of June 30, 2005 the  diversification  in our
held for investment  portfolio in terms of annualized base rent. The table shows
our top ten  concepts,  tenants,  and  states  ranked as a  percentage  of total
annualized  base rent.  We believe our  diversification  by concept,  tenant and
state  enhances the stability of our cash flow by reducing  exposure to a single
concept, tenant or geographic area.
<TABLE>
<CAPTION>

 <c>
                                                                                   Percentage         Average
                                                                 Percentage         of Total         Remaining
                                                 Number of        of Total         Annualized       Lease Term
                    Concept                     Properties       Properties        Base Rent          (Years)
     --------------------------------------    --------------   --------------    -------------    --------------

     Golden Corral                                        87        4.8%              8.2%                  6.69
     Burger King                                         166        9.2%              8.0%                  9.13
     Jack in the Box (*)                                 110        6.1%              7.1%                  9.11
     Arby's                                              116        6.4%              5.3%                 12.38
     International House of Pancakes                      63        3.5%              4.5%                 14.21
     Bennigan's                                           33        1.8%              4.1%                 11.55
     Captain D's                                         103        5.7%              3.8%                 17.46
     Wendy's                                              46        2.6%              2.8%                 13.88
     Denny's                                              43        2.4%              2.7%                  8.69
     Perkins                                              27        1.5%              2.6%                 18.57

       (*) Excludes four sites leased by Jack in the Box, Inc. but operated as a different concept.


                                                                                   Percentage          Average
                                                                  Percentage        of Total          Remaining
                                                 Number of         of Total        Annualized        Lease Term
                     Tenant                      Properties       Properties        Base Rent          (Years)
     ---------------------------------------    -------------    -------------    --------------    --------------

     Jack in the Box, Inc. and Jack in the
        Box Eastern Division L.P.                        114         6.3%             7.5%                  18.74
     Golden Corral Corporation                            72         4.0%             6.8%                   6.18
     IHOP Properties                                      60         3.3%             4.4%                  14.34
     S&A Properties Corp.                                 36         2.0%             3.9%                  12.97
     Captain D's, LLC                                     93         5.1%             3.6%                  17.95
     Sybra Inc.                                           73         4.0%             3.0%                  12.23
     The Restaurant Company                               22         1.2%             2.4%                  20.01
     Texas Taco Cabana, LP                                32         1.8%             2.4%                  11.99
     Carrols Corporation                                  38         2.1%             2.0%                  7..44


                                                                                   Percentage          Average
                                                                  Percentage        of Total          Remaining
                                                 Number of         of Total        Annualized        Lease Term
                     State                       Properties       Properties        Base Rent          (Years)
     ---------------------------------------    -------------    -------------    --------------    --------------

     Texas                                               390        21.6%             21.1%                  9.21
     Florida                                             171         9.5%             11.4%                 11.35
     Georgia                                              97         5.4%             4.7%                  12.99
     Illinois                                             66         3.7%             4.4%                  10.03
     California                                           60         3.3%             4.4%                  11.21
     Tennessee                                            88         4.9%             4.0%                  11.53
     Ohio                                                 90         5.0%             3.9%                   9.49
     Missouri                                             51         2.8%             3.1%                  11.37
     Arizona                                              43         2.4%             2.6%                   9.89
     Alabama                                              51         2.8%             2.4%                  13.29
</TABLE>

Approximately  53 percent of our leases  have terms that expire in 2015 or later
and the average remaining lease term of our portfolio is approximately 11 years.
Our leases  typically  provide for initial  terms of 15-20  years,  plus renewal
options.  The triple-net  lease is a long-term lease that requires the tenant to
pay  property  expenses.   This  form  of  lease  generally  insulates  us  from
significant  cash  outflows  for  maintenance,  repair,  real  estate  taxes  or
insurance.  At June 30, 2005, our total  annualized base rent on properties held
for investment was  approximately  $172.6 million,  without giving effect to any
rent escalations after 2005.

One  of the  risks  we  face  is  that  a  tenant's  financial  condition  could
deteriorate,  and rental payments could be interrupted. In the event of a tenant
bankruptcy,  we may be  required  to fund  certain  expenses  in order to retain
control or take possession of the property and its operations. This could expose
us to successor liabilities and further affect liquidity. Also, we may determine
that the property's value has been impaired leading to a charge to earnings.

Strategy 3:  Sale of Real Estate to Investors

Since 2001,  we have sold more than $989 million in properties  generating  more
than $114 million in real estate gains. We hold about 156 properties for sale to
investors with an investment of $185 million,  including 116 properties  with an
investment  of $161 million held by our  specialty  finance  segment at June 30,
2005. When we purchase a property,  we determine  whether we want to hold in our
portfolio or sell the property  through our IPS program.  When  determining if a
property is to be held for investment or held for sale, we consider our existing
portfolio  profile.  We examine attributes such as lease rate,  concept,  tenant
concentration,  geographic  concentration  and general  real estate and economic
market trends in the  property's  location.  We hold  properties we believe will
provide  appreciation  in  excess  of the  general  market  over  time and which
contribute favorably to the weighted average term and yield of the portfolio.

The  typical  buyers of our  properties  are those  motivated  to defer taxes on
commercial properties they have sold through the reinvestment of the proceeds in
a timely fashion as permitted under the Internal  Revenue Code. In addition,  we
have  buyers who are  attracted  to our real  estate  because  of its  location,
concept, tenant and income potential.  Our properties typically sell in the $1.5
million to $3.0  million-price  range.  We  primarily  employ  direct  marketing
efforts to sell our  properties  and our website  (Trustreet1031.com)  lists our
available properties for sale.

We expect our  percentage  net gain on the sale of real estate in 2005 to exceed
the level  achieved by CNLRP for the year 2004,  which was 15.8 percent.  In the
six  months  ended  June 30,  2005,  net gains  from the IPS  program  were 19.6
percent.  Flip gains have continued to perform in an above average manner due to
the continuing  high demand for real estate product by 1031 buyers.  This has in
turn, led to increased competition for real estate product that by its nature is
in limited supply.

Our IPS  program  complements  our sale  leaseback  financing  and we believe it
provides us with a competitive advantage in larger transactions.  Our ability to
commit to larger  transactions  significantly  reduces  competition.  Our strong
alliances and business relationships also distinguish us from our competitors.

Strategy 4:  Property Improvement and Redevelopment

Through our acquisition and due diligence process,  we actively seek to identify
properties that are suitable for  development as  restaurants.  When the highest
and best use of a parcel is outside of the  restaurant  industry,  other  retail
uses  are  considered.   Once  a  parcel  is  identified,  we  actively  explore
development opportunities including build-to-suit and leasing activities.  These
assets are then either held in the portfolio for long term  appreciation or sold
to enhance our profits.  We expect  these  activities  to generate  $5.0 to $6.0
million in real estate gains during 2005. As of June 30, 2005,  these activities
had generated $1 million in gains.

Overview of Management Discussion and Analysis

The financial  statements of Trustreet  Properties,  Inc.  reflect the merger of
CNLRP,  USRP and the Income Funds on February 25, 2005.  Our officers are former
CNLRP  officers,  and the  majority of the Board of  Directors  are former CNLRP
directors.  The financial statements therefore present CNLRP as the acquiror for
financial reporting purposes.  Therefore, the financial results included in this
Form 10-Q include the historical financial results of only CNLRP for the quarter
and six months ended June 30, 2004.  In addition,  the six months ended June 30,
2005 includes the  financial  results of only CNLRP from January 1, 2005 through
February  24, 2005 and the  financial  results of the all merged  entities  from
February 25, 2005 through June 30, 2005.

The assets and  liabilities  of CNLRP  continue  to be  recorded  at  historical
values.  The asset and liabilities of USRP and the Income Funds were recorded at
their  estimated  fair values on the date of the merger,  with the excess of the
purchase price over the aggregate fair value recorded as goodwill.  Our critical
accounting policies continue to be those from CNLRP.

Liquidity and Capital Resources

We intend to meet our  short-term  liquidity  requirements  through  cash  flows
provided by  operations,  our line of credit,  our  warehouse  lines,  and other
short-term borrowings. We expect our ability to generate cash will be sufficient
to meet our short-term liquidity needs which include:

   o     operating expenses;
   o     current debt service requirements;
   o     distributions on our common and preferred equity;
   o     initial funding of properties we intend to hold for investment; and
   o     federal income taxes.

We consider our  long-term  liquidity  requirements  to include the repayment of
maturing  debt,  including  borrowings  under  our line of  credit  used to fund
properties  held for  investment.  We  intend  to meet our  long-term  liquidity
requirements   through  the  use  of  equity  and  debt  capital,  and  property
dispositions.  We expect to use the proceeds from property  sales  predominantly
for  reinvestment  in new  acquisitions  or reduction of debt.  In June 2005, we
filed a  registration  statement  with the  Securities & Exchange  Commission to
issue  $700  million  in debt,  common or  preferred  shares  and were  declared
effective on this shelf registration in July 2005.

On June 9, 2005, we received an unsolicited  expression of interest from a third
party  to  purchase  mortgage  loans  held  for  investment.  When  negotiations
commenced,  we discontinued  hedge  accounting for a cash flow hedge relating to
variable  rate debt that would be repaid if the loans were sold.  Between June 9
and June 30,  2005,  the change in the value of the hedge of  approximately  $12
thousand was reflected in earnings. On July 15, 2005, upon the satisfaction of a
number of  conditions  required  by the seller and the  approval of our Board of
Directors,  a purchase contract was entered into to sell the loans at a price of
$194 million plus the actual cost to unwind the cash flow hedge. The transaction
was  consummated  on July 18,  2005 when we  received  sales  proceeds of $203.8
million.  We used the net proceeds  from the sale to pay down $157.7  million in
debt (due June 2007) that was  collateralized  by the mortgage loans receivable.
We also used the  proceeds  to pay $8.6  million to our swap  counterparty  as a
result of  terminating  the swap on the debt. We used the remaining  proceeds of
approximately  $35 million to pay down a portion of the  outstanding  balance on
our Revolver.

Financial Structure

Our current  capitalization  structure is a combination of secured debt,  senior
unsecured debt,  convertible preferred stock and common stock. The cash paid for
the Income Funds increased our total debt to total assets ratio at June 30, 2005
to  approximately  60  percent,   and  our  secured  debt  to  total  assets  to
approximately  39 percent.  While we believe the revenues from long-term  triple
net leases provide  sufficient  margin and stability at our current debt levels,
we intend to reduce  those  levels  over the next  forty-eight  to sixty  months
through selective equity issuances and the sale of certain non-core assets.

Merger Financing

On February 25, 2005, we completed the mergers and CNLRP  stockholders  received
0.7742  shares of USRP common  stock and 0.16  shares of newly  issued USRP 7.5%
Series C Redeemable Convertible Preferred Stock ("Preferred-C"). The Preferred-C
has a liquidation  preference of $25.00 per share. The aggregate dollar value of
merger  consideration  received by CNLRP  stockholders  was  approximately  $788
million based on the closing stock price of USRP common on February 24, 2005 and
the  liquidation  value of  Preferred-C.  CNLRP was  considered the acquiror for
accounting  purposes,  the  purchase  price used to account for the  exchange of
interests  between USRP and CNLRP was $473  million  before  transaction  costs.
Income  Fund  limited  partners  received  approximately  84  percent  of  their
consideration  in cash and the  remainder  in existing  USRP Series A Cumulative
Convertible Stock ("Preferred-A").  The Preferred-A has a liquidation preference
of $25.00 per share.  Total  consideration  received by the Income Fund partners
was  approximately  $545 million based on the February 24, 2005 trading price of
the Preferred-A.  The Income Fund  acquisitions were accounted for as a purchase
with a price of $538  million.  The USRP common,  Preferred-A,  and  Preferred-C
shares  are all  traded on the New York  Stock  Exchange  using  our new  ticker
symbol, TSY.

We restructured our debt in the six weeks  immediately  following the merger. We
initially  entered into bridge  facilities with an aggregate  capacity of $775.0
million  to fund the cash  portion  of the merger  and  address  impending  debt
maturities.  Between  February  25 and  April 8,  2005,  we  obtained  permanent
financings to pay down the bridge  facilities.  Those  included a $275.0 million
net lease  securitization  due in 2012, $250.0 million in senior unsecured notes
due in 2015,  a $175.0  million  five-year  term  loan  and a  revolving  credit
facility  with a  maximum  capacity  of  $175  million.  As of  June  30,  2005,
approximately  $155  million of the $175 million  capacity on the Revolver  were
available to us based on certain covenants and borrowing base requirements.


Our debt structure at June 30, 2005 is as follows:
<TABLE>
<CAPTION>

 <c>
                                                                                            Expected
                                          Balance                 Approximate               Maturity
                Debt                   (in millions)            Interest Rates                Date            Type
                                       ---------------    ----------------------------    -------------    ------------

Mortgage Warehouse Facility                 $    72.0            LIBOR + .90%                Feb-06          Secured
Mortgage Warehouse Facility                      31.0            LIBOR + .80%                May-06          Secured
Series 2001-A Bonds (b)                         138.3            LIBOR + .98%                Aug-06          Secured
Series 2001 Bonds (b)                           108.2            LIBOR + .94%                Oct-06          Secured
Notes Payable (a)(b)                            160.3      Commercial Paper + 1.25%        2005-2011         Secured
Revolver (a)                                    134.0            LIBOR + 2.25%              April-08        Unsecured
Five Year Term Loan (b)                         175.0            LIBOR + 2.00%              April-10        Unsecured
Series 2003 Bonds (b)                            14.2            LIBOR + 5.00%             2005-2011         Secured
Series 2001-4 Bonds                              27.4                8.90%                 2009-2013         Secured
Series 2005 Bonds                               271.6                4.39%                 2011-2012         Secured
Senior Unsecured Notes Debt                     250.0                7.50%                   Apr-15         Unsecured
Series 2000-A Bonds                             230.2                7.96%                 2009-2017         Secured
                                       ---------------

                  Total Debt               $  1,612.4
                                       ===============
</TABLE>

(a)  As described  above,  in July 2005, we repaid  $157.7  million in debt that
     originally matured in June 2007 and repaid $35 million of the Revolver from
     the proceeds from the sale of a portfolio of mortgage notes receivable.

(b)  We have entered into hedging  transactions  to minimize the  sensitivity of
     floating  rate  debt in the form of swaps and caps,  as  described  further
     under "Market Risk".

Our weighted  average expected  maturity of debt,  excluding our line of credit,
short-term  warehouse credit  facilities,  related party loans and the debt paid
off in July 2005 as described  above, was  approximately  5.33 years at June 30,
2005 and 6.47 years at June 30, 2004. We have two secured  financings that total
$246.6 million that mature in 2006. The 2006  maturities are  collateralized  by
properties  with a book value of $421.2  million at June 30, 2005.  We intend to
evaluate a variety of  alternatives to refinance  these  maturating  obligations
based on market conditions, including the potential use of unsecured debt.

Cash Flows
<TABLE>
<CAPTION>

 <c>
                                                                  Six Months ended      Six Months ended
                                                                    June 30, 2005         June 30, 2004
                                                                  ------------------    ------------------
                                                                               (in millions)

   Cash flows provided by/(used in) operating activities          $          51.5       $        (46.1)
   Cash flows provided by/(used in) investing activities                   (484.9)                 21.1
   Cash flows provided by/(used in) financing activities                    439.0                  (0.4)
                                                                  ------------------    ------------------

   Net increase (decrease) in cash and cash equivalents                        5.6               (25.4)
   Cash and cash equivalents at beginning of year                             22.7                36.9
                                                                  ------------------    ------------------

   Cash and cash equivalents at end of period                      $         28.3       $        11.5
                                                                  ==================    ==================
</TABLE>

The abbreviated  information from the condensed consolidated  statements of cash
flows provided above illustrates the impact of the $450.0 million in Income Fund
properties acquired through the various merger and merger-related financings. It
also reflects a larger amount of cash used for investing  activities as some $80
million in properties purchased were designated as held for long term investment
during the six months ended June 30, 2005 while properties  purchased throughout
2004 were  virtually  all  designated  as held for sale,  and thus treated as an
operating  cash flow.  The change in net cash  provided  by (used in)  operating
activities from a net use of $46.1 million in the six months ended June 30, 2004
to a net provision of $51.5 million,  was largely the result of having sold more
properties  than were  purchased  with an intent to resell in the current period
compared to having purchased more similarly designated properties than were sold
in the first half of 2004.

Off-Balance Sheet Transactions

We currently  hold  residual  interests in two  securitizations,  the assets and
liabilities of which are not  consolidated  into our financial  statements.  The
carrying value of our  investment in the residual  interests was $0.1 million at
June 30,  2005 and we also  hold  certain  of the bonds  outstanding  with a net
carrying  value of  $16.0  million.  Both are  recorded  as  investments  in the
consolidated financial statements.  The following table shows the assets and the
related bonds outstanding in each securitization pool at June 30, 2005:
<TABLE>
<CAPTION>

 <c>
                                                                Mortgage loans       Bonds outstanding
                                                                in pool at par         at face value
                                                              -------------------    -------------------
                                                                           (in millions)

       Loans and debt supporting 1998-1 Certificates            $         147.9        $         147.9
       Loans and debt supporting 1999-1 Certificates            $         209.6        $         209.6
                                                              -------------------    -------------------

                                                                $         357.5        $         357.5
                                                              ===================    ===================
</TABLE>



Contractual Obligations, Contingent Liabilities and Commitments.

The following table presents  contractual  cash  obligations and related payment
periods as of June 30, 2005:
<TABLE>
<CAPTION>

 <c>
                                                               Payments due by period (in millions)
                                                               2006          2008
                                                  thru          to            to
Contractual cash obligations:                     2005         2007          2009        Thereafter         Total
-------------------------------------------    ----------     ---------    ----------    ------------     -----------

Borrowings (1)                                   $ 175.4       $ 394.3       $ 198.4        $  844.3       $ 1,612.4
Ground leases                                        2.0           6.6           4.0             2.6            15.2
Leased office space (2)                              0.8           2.4           2.5             6.8            12.5
                                               ----------     ---------    ----------    ------------     -----------
Total contractual cash obligations               $ 178.2       $ 403.3       $ 204.9        $  853.7       $1,640.10
                                               ==========     =========    ==========    ============     ===========
</TABLE>


The following  table  presents  commitments,  contingencies  and  guarantees and
related expiration periods as of June 30, 2005:
<TABLE>
<CAPTION>

 <c>
                                                         Estimated payments due by period (in millions)
                                                               2006           2008
Commitments, contingencies                      thru            to             to
and guarantees                                  2005           2007           2009        Thereafter        Total
----------------------------------------     ----------     -----------    -----------    ------------     ---------

Guaranty of unsecured promissory
     note (2)                                   $  1.3           $   --        $   --          $   --         $ 1.3
Property purchase commitments (3)                 99.8               --            --              --          99.8
Fuel purchase commitments (4)                       --               --            --              --            --
Litigation (5)                                      --               --            --              --            --
Capital improvements (6)                            --               --            --              --            --
                                             ----------     -----------    -----------    ------------     ---------
Total commitments, contingencies
     and guarantees                             $101.1           $   --        $   --          $   --        $101.1
                                             ==========     ===========    ===========    ============     =========
</TABLE>

(1)  The maturities on outstanding indebtedness assumes loan repayments are made
     on the mortgage  warehouse  facilities in accordance  with the  contractual
     obligation  even though these  warehouses are typically  renewed each year.
     The maturities on outstanding  indebtedness also assumes that bonds payable
     amortize in accordance with estimated  payment amounts.  As a result of new
     financing  obtained in April 2005,  $189 million of debt with maturities of
     less than one year were repaid, using $80 million from a new revolver.

(2)  We own an interest in two limited partnerships and affiliates of two of our
     directors  own the  remaining  partnership  interests.  We  have  severally
     guaranteed  $1.3  million  of  the  limited   partnerships'  $15.5  million
     unsecured  promissory notes. The guaranty continues through August 31, 2006
     when the note  matures.  We lease  our  office  space  from  these  limited
     partnerships  at  approximately  $1.5 million per year, with scheduled rent
     increases. Our lease expires in 2014.

(3)  Represents  opportunities  for net lease  property  purchases  approved for
     funding and accepted by the client at June 30,  2005.  Between July 1, 2005
     and August 9, 2005 we also entered into additional  commitments worth $74.6
     million subject to a leaseback,  bringing our commitments to  approximately
     $174.4 million as of August 9, 2005.

(4)  As part of the Merger,  we assumed  several  products sales  contracts that
     commit us to purchase a minimum quantity of fuel, at a predetermined margin
     over an index, at terms ranging from one to three years relating to certain
     gas station properties and the fuel terminal operations.  The contracts are
     customary in the retail petroleum  industry and secure a readily  available
     supply of fuel at  competitive  market  prices.  We intend to  transfer  or
     terminate,  where  possible,  any  purchase  commitment  when it relates to
     properties or operations sold. In addition,  in connection with certain gas
     station properties, we assumed certain agreements that obligate us to pay a
     release  price  should  a gas  station  property  change  gas  brands.  The
     agreements are customary in the retail  petroleum  industry.  Some, but not
     all, of the agreements release us from the  aforementioned  obligation upon
     the sale of the property to a third party.

(5)  We are subject to various  legal  proceedings  and claims that arise in the
     ordinary  course of  business.  These  matters  are  generally  covered  by
     insurance.  While the  resolution of these matters cannot be predicted with
     certainty,  we believe that the final outcome of such matters will not have
     a material  adverse effect on our  consolidated  financial  statements.  In
     addition:

          a.  On January 18,  2005,  Robert Lewis and Sutter  Acquisition  Fund,
              LLC, two limited partners in several of the Income Funds,  filed a
              purported  class action lawsuit on behalf of the limited  partners
              against the general partners of the Income Funds,  CNLRP and USRP.
              The complaint  alleges that the general  partners  breached  their
              fiduciary  duties  in  connection  with the  mergers  and that the
              parties to the merger aided and abetted in the alleged breaches of
              fiduciary  duties.  The complaint further alleges that the general
              partners  violated  provisions  of  the  Income  Fund  partnership
              agreements  and  demands an  accounting  as to the  affairs of the
              Income Funds. The plaintiffs are seeking unspecified  compensatory
              and exemplary damages and equitable relief, which also included an
              injunction  preventing the  defendants  from  proceeding  with the
              mergers, which was unsuccessful. On April 26, 2005, a supplemental
              plea  to  jurisdiction  hearing  was  held.  On May 2,  2005,  the
              plaintiffs  amended  their  lawsuit  to add  allegations  that the
              general  partners  of the  Income  Funds,  with  CNLRP  and  USRP,
              prepared  and  distributed  a false  and  misleading  final  proxy
              statement  filing to the limited  partners of the Income Funds and
              the  shareholders  of CNLRP and USRP.  On May 26, 2005,  the Court
              entered a Final Order Dismissing Action for lack of subject matter
              jurisdiction.  On June 22, 2005, the plaintiffs  filed a Notice of
              Appeal  of  the  Order  of  Dismissal.  We  believe  the  lawsuit,
              including  the request  for  certification,  is without  merit and
              intend to defend vigorously against its claims.

          b.  During 2004, Management  Strategies,  Inc. filed a lawsuit against
              USRP. The complaint  alleges that we owe  approximately $3 million
              in sales and fuel tax liabilities to the State of Georgia. We have
              filed a counterclaim for $2 million related to an unpaid note plus
              interest.  We believe  the claims  against the Company are without
              merit and intend to defend vigorously against such claims.

(6)  We assumed, through the Merger, obligations to make capital improvements to
     certain   properties.   The  cost  of  the  capital   improvements  is  not
     quantifiable  at this time and is not expected to have a material impact on
     our financial condition.

Dividend Policy

We intend to make  distributions  to  shareholders  in order to comply with REIT
qualification  requirements  under  the  federal  tax code.  Preferred-A  pays a
quarterly dividend at an annualized rate of $1.93 per share and Preferred-C pays
a quarterly  dividend at an  annualized  rate of $1.875 per share.  Common stock
dividends  are  declared  and paid  monthly,  currently at $0.11 cents per share
annualized  at $1.32 per share.  We intend to  maintain  a dividend  rate on our
common stock that is less than our funds from operations allocable to our common
stockholders,  in accordance with our debt  agreements.  We expect to pay common
and preferred dividends of approximately $105.2 million over the next year.

Market Risk

We use fixed and floating  rate debt to finance  acquisitions,  development  and
maturing debt. These transactions expose us to market risk related to changes in
interest  rates.  A summary of our debt  obligations at June 30 are set forth in
Note 9 to the financial  statements included in Item 1. We review our borrowings
and attempt to mitigate interest rate exposure through the use of long-term debt
maturities and derivative instruments,  where appropriate.  As of June 30, 2005,
we had the following derivative instruments outstanding:
<TABLE>
<CAPTION>

 <c>
                                                                                                   Estimated
                                                                                                     Value
                                                    Cap Strike                                    (Liability)
        Type of Hedge                Notional        Price or       Trade         Maturity             at
       ($ in millions)                Amount        Swap Rate         Date           Date        June 30, 2005
------------------------------     -------------   -------------    ----------    -----------    ---------------

Interest Rate Swap                     $  122.6    6.590%           6/14/02       3/15/22              $   (10.7 )
Interest Rate Swap                     $  175.0    4.202%           5/16/05       4/1/10               $    (1.7 )
Interest Rate Cap                      $  147.4    6.000%           8/13/01       8/26/06               $     --
Interest Rate Cap                      $  109.9    4.500%           9/28/01       10/25/06              $    0.1
Interest Rate Cap                       $  24.1    3.500%           12/17/03      2/1/11                $    0.4
</TABLE>

In May 2005,  we entered  into an interest  rate swap to hedge the $175  million
five year term loan.  In July 2005, as described  above,  we sold a portfolio of
mortgage loans receivable, paid off $157.7 million in debt and paid $8.6 million
to the swap  counterparty  for early  termination of the interest rate swap that
originally matured in March 2022.

At June 30, 2005,  we had fixed rate debt of $779 million and floating rate debt
of $833  million.  At June 30, 2005,  the weighted  average rate on the floating
rate debt is 4.84 percent. We have entered into hedging transactions in response
to the sensitivity  that is inherent in floating rate debt, but certain of those
hedging transactions have caps that cause the rate sensitivity to be reduced but
not eliminated. The impact on net income available to common shareholders and on
cash flows over the next twelve  months that would result from a one  percentage
point  variance in interest  rates on floating rate debt would be  approximately
$6.8 million, holding all other variables constant.

Results of Operations

Financial Reporting

Over the last  couple of years,  we have  managed,  operated  and  reported  our
business  in two  distinct  segments.  Due to the recent  merger,  we are in the
process of  re-evaluating  the way we manage and  monitor our  business  and are
evaluating  the need to realign our segments.  For the six months ended June 30,
2005,  the results of each segment are discussed on a  stand-alone  basis below.
Our  consolidated  financial  statements  reflect  both  segments,  less amounts
eliminated relating to transactions between segments.

         Real  estate  segment:  Generally,  the  majority of our  earnings  are
         derived from this segment,  the assets of which include our  properties
         subject to triple-net leases and mortgage, equipment and other loans to
         third parties. The segment's earnings are from rental income,  interest
         income on loans,  proceeds  from  dispositions  of  properties  sold to
         manage  portfolio risk and income from retained  interests in our prior
         loan securitizations.

         Specialty  finance  segment:  This segment includes our IPS program and
         our  subsidiary  Trustreet  Investment  Banking,  LLC where we  provide
         services to national and regional restaurant operators.  This segment's
         earnings  are  from  lease  income  prior to sale  and net  gains  from
         investment  property sales and to a lesser extent,  investment  banking
         and other service revenues. This segment historically has earnings from
         interest  income on mortgage loans as well. The majority of these loans
         were  transferred to the real estate  segment on March 31, 2005.  These
         loans were sold to an unrelated third party in July 2005.

The following  table presents  components of net income,  including  income from
continuing  and  discontinued  operations,  by  segment.  It also  reflects  the
elimination of transactions  between  segments used to prepare the  consolidated
financial statements.
<TABLE>
<CAPTION>

 <c>
                                                                                         Quarter ended
                                                                                            June 30,
                                                                                         (in thousands)
                                                                                    2005                 2004
                                                                               ---------------       -------------
   Revenues:
       Real estate                                                                $    50,349          $   19,270
       Specialty finance                                                                2,613               6,888
       Other*                                                                          (1,561 )              (662 )
                                                                              ----------------      --------------
          Total revenues                                                               51,401              25,496
                                                                              ----------------      --------------

   Expenses:
   Operating expenses excluding interest, depreciation, and amortization:**
       Real estate                                                                      5,751               2,839
       Specialty finance                                                                8,184               6,839
       Other*                                                                          (1,378 )              (465 )
                                                                              ----------------      --------------
          Total operating expenses excluding interest, depreciation, and
              amortization**                                                           12,557               9,213
                                                                              ----------------      --------------

   Depreciation and amortization expense:
       Real estate                                                                      8,715               2,692
       Specialty finance                                                                  284                 240
                                                                              ----------------      --------------
          Total depreciation and amortization expense                                   8,999               2,932
                                                                              ----------------      --------------

   Interest expense:
       Real estate                                                                     23,354               7,187
       Specialty finance                                                                1,590               4,727
       Other*                                                                             (76 )                 80
                                                                              ----------------      ---------------
          Total interest expense                                                       24,868               11,994
                                                                              ----------------      ---------------

          Total expenses                                                               46,424               24,139
                                                                              ----------------      ---------------

   Income from continuing operations, net                                               4,977                1,357

   Income (loss) from discontinued operations, after income taxes:
       Real estate                                                                      1,300                 (232 )
       Specialty finance                                                               11,872                8,095
                                                                              ----------------      ---------------
          Total income from discontinued operations, after income taxes                13,172                7,863
                                                                              ----------------      ---------------

   Net income                                                                     $    18,149           $    9,220
                                                                              ================      ===============
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

 <c>
                                                                                        Six months ended
                                                                                            June 30,
                                                                                         (in thousands)
                                                                                    2005                 2004
                                                                               ---------------       -------------
   Revenues:
       Real estate                                                                $    78,411          $   39,091
       Specialty finance                                                                9,198              13,928
       Other*                                                                          (2,179 )            (1,414 )
                                                                              ----------------      --------------
          Total revenues                                                               85,430              51,605
                                                                              ----------------      --------------

   Expenses:
   Operating expenses excluding interest, depreciation, and amortization:**
       Real estate                                                                     10,232               5,427
       Specialty finance                                                               17,291              12,786
       Other*                                                                          (2,016 )            (1,041 )
                                                                              ----------------      --------------
          Total operating expenses excluding interest, depreciation, and
              amortization**                                                           25,507              17,172
                                                                              ----------------      --------------

   Depreciation and amortization expense:
       Real estate                                                                     13,670               5,356
       Specialty finance                                                                  558                 371
                                                                              ----------------      --------------
          Total depreciation and amortization expense                                  14,228               5,727
                                                                              ----------------      --------------

   Interest expense:
       Real estate                                                                     35,867              14,363
       Specialty finance                                                                6,041               9,410
       Other*                                                                            (149 )                 51
                                                                              ----------------      ---------------
          Total interest expense                                                       41,759               23,824
                                                                              ----------------      ---------------

          Total expenses                                                               81,494               46,723
                                                                              ----------------      ---------------

   Income from continuing operations, net                                               3,936                4,882

   Income from discontinued operations, after income taxes:
       Real estate                                                                      1,170                1,409
       Specialty finance                                                               16,493               13,778
                                                                              ----------------      ---------------
          Total income from discontinued operations, after income taxes                17,663               15,187
                                                                              ----------------      ---------------

   Net income                                                                     $    21,599           $   20,069
                                                                              ================      ===============
</TABLE>


*    relates primarily to eliminations of transactions between segments
**   also  includes  the  minority  interest in earnings of  consolidated  joint
     ventures net of the equity in earnings of unconsolidated subsidiaries
<PAGE>
Revenues:

Revenues in the real estate segment were comprised of the following:
<TABLE>
<CAPTION>

 <c>
                              Quarter Ended June 30,                            Six Months Ended June 30,
                                  (in thousands)                                     (in thousands)
                    --------------------------------------------      ----------------------------------------------
                      2005    % of total    2004     % of total          2005     % of total    2004    % of total
                               segment                segment                      segment                segment
                               revenues               revenues                     revenues              revenues
                    --------------------- ---------- -----------      ----------- ----------------------------------
Rental income        $ 43,103     86%      $ 16,696      87%            $ 69,244      88%      $ 33,603      86%
Interest income         5,575     11%         1,170       6%               6,657        8%        2,445       6%
Other                   1,671      3%         1,404       7%               2,510        4%        3,043       8%
                    --------------------- ---------- -----------      ----------- ----------------------------------
   Total Revenues    $ 50,349    100%      $ 19,270     100%            $ 78,411     100%      $ 39,091    100%
                    ===================== ========== ===========      =========== ==================================
</TABLE>


Real estate segment  revenues  include  primarily rental income on operating and
capital leases which increased in the quarter and six months ended June 30, 2005
as  a  result  of  the  merger   transaction  on  February  25,  2005  in  which
approximately  $1 billion of new properties were added,  increasing the property
portfolio  to $1.7  billion.  Rental  income in the quarter and six months ended
June 30, 2005 increased 158 percent and 106 percent,  respectively,  as compared
to the same periods in the prior year.  The weighted  average  lease rate on the
portfolio  was 10.0  percent and 10.5  percent in the six months  ended June 30,
2005 and  2004,  respectively.  The  portfolio  as of June  30,  2005 has a more
significant  number of  properties  subject to ground leases that reduce the net
lease  rate.  The  portfolio  from  USRP had  certain  ground  leases  that they
subleased to tenants but remained legally  responsible for those  liabilities in
the event the tenant did not pay.  The sublease  rents  received are recorded as
rental revenues and the payments are recorded in property expenses.

Interest  income in the real estate  segment of $5.6 million and $1.2 million in
the quarters  ended June 30, 2005 and 2004,  respectively,  and $6.7 million and
$2.4  million in the six months ended June 30, 2005 and 2004,  respectively,  is
generated by our  portfolio of mortgage,  equipment  and other notes  receivable
held by this  segment.  These  increases  were a result of adding $15 million in
former USRP loans to this  segment  and $198.2  million in loans that were moved
from the specialty finance segment to the real estate segment on March 31, 2005.
As described below, the real estate segment sold these loans in July 2005 and as
a result of the sale, interest income is expected to decrease during the rest of
2005.

On July 18, 2005, the real estate segment sold the mortgage loans receivable, as
described  above in "Liquidity  and Capital  Resources"  for $203.8  million and
recorded a gain on sale of loans of  approximately  $9.8 million.  In July 2005,
the real estate  segment  recognized  as income  approximately  $1.1  million in
deferred loan  origination fees that were being recorded as income over the term
of the mortgage loans  receivable.  Upon the sale of the loans and the repayment
of the related debt,  the real estate segment  reflected  $10.6 million in hedge
losses previously recorded in other comprehensive income (loss) to earnings.  In
addition,  during the period from July 1, 2005 to July 18, 2005, the real estate
segment  recognized a gain of  approximately $2 million relating to decreases in
the fair value hedge liability prior to the closing of the sale.

Other  income  increased  slightly  during the  quarter  ended June 30,  2005 as
compared  to the same  quarter in the prior year as a result of an  increase  in
lease termination income.  Other income in the real estate segment also includes
investment income earned on bonds held in mortgage loan  securitizations.  Other
income  decreased  approximately  $0.5 million and $1 million during the quarter
and six months  ended  June 30,  2005,  respectively,  as  compared  to the same
periods  in the prior  year,  as a result of our sale of $11.2  million of these
bonds to third parties and the extinguishments in September 2004 of $4.0 million
in bonds issued by our specialty finance segment.

Specialty  finance  segment  revenues  were $2.6 million and $9.2 million in the
quarter and six months ended June 30,  2005,  respectively,  compared  with $6.9
million and $13.9  million in the quarter  and six months  ended June 30,  2004,
respectively.  This revenue consists primarily of interest income on a portfolio
of mortgage loans receivable held by this segment. Most of the loans held by the
specialty  finance  segment  were moved to the real estate  segment on March 31,
2005,  causing a  significant  decrease in specialty  finance  segment  revenues
during the quarter.  These loans were sold to an  unrelated  third party in July
2005.

Operating expenses, excluding depreciation, amortization and interest:

Operating  expenses,  excluding  interest,  depreciation  and  amortization  are
presented in the following  charts that detail the results by segment.  The real
estate segment portion of these costs consisted of the following:
<TABLE>
<CAPTION>

 <C>
                              Quarter Ended June 30,                            Six Months Ended June 30,
                                  (in thousands)                                     (in thousands)
                    --------------------------------------------      ----------------------------------------------

                               % of total             % of total                  % of total             % of total
                                segment                segment                      segment                segment
                      2005      revenues     2004      revenues           2005      revenues     2004      revenues
                    ---------- ----------- ---------- -----------      ----------- ----------- ---------- -----------

General operating
   and
   administrative     $ 3,829     8%        $ 2,197      11%            $  7,114       9%      $  4,374       11%
Property expenses,
   state and other
   taxes                2,186     4%            201       1%               3,346       4%           337        1%
Other                    (264)   (1)%           441       3%                (228)     --            716        2%
                    ----------- ---------- ---------- -----------      ----------- ------------ ----------- -----------
                      $ 5,751    11%        $ 2,839      15%            $ 10,232      13%      $  5,427       14%
                    =========== ========== ========== ===========      =========== ============ =========== ===========
</TABLE>


General  operating and  administrative  expenses in the real estate segment have
increased  74  percent in the  current  quarter  and 63  percent in the  current
six-month  period.  Costs are higher in the current quarter and six-month period
as a result of having  increased  the rental  portfolio to $1.7 billion upon the
February 25, 2005  merger.  These  expenses  include $0.7 million in the current
six-month period allocated to this segment as a result of the grant of stock and
related cash compensation to members of our Board of Directors and employees. In
addition,  reflected in the  specialty  finance  segment  discussion  of general
operating and  administrative  below,  various issues have increased the overall
costs that are, in turn, allocated between segments. This increase was offset by
a decrease in expenses  resulting from the fact that in January 2005, we shifted
the  internal  reporting  of  certain  property  improvement  and  redevelopment
activities previously reported through the real estate segment, as we view those
activities as more  appropriately  aligned with the specialty  finance  segment.
Direct  and  indirect  payroll  relating  to  these  property   improvement  and
redevelopment  activities  approximated  $0.7  million  and $1.0  million in the
quarter and six months ended June 30, 2004, respectively.

Property  expenses,  state and other taxes  increased  compared to prior periods
primarily as a result of having  increased the rental  portfolio upon the merger
as discussed  above.  Included in property  expenses,  state and other taxes are
approximately  $0.3  million in ground rents each month that we are able to bill
to our tenants, with such billings included in rental revenues. Also included in
property expenses,  state and other taxes are amounts for property taxes that we
pay,  but are able to bill the  tenant,  with such  billings  included in rental
revenues.  Activity  relating to these ground rent  payments and property  taxes
resulted from the merged properties.

Other  expenses  decreased  slightly  during the current  quarter and  six-month
period due to the partial recovery of a loan that was previously  considered not
collectible and a decrease in property  impairments  related to properties whose
related activities are not included in discontinued operations.

Operating expenses,  excluding interest,  depreciation,  and amortization in the
specialty finance segment consisted of the following:
<TABLE>
<CAPTION>
<S> <C>
                                                   Quarter Ended June 30,               Six Months Ended June 30,
                                                       (in thousands)                        (in thousands)
                                               --------------------------------       ------------------------------
                                                    2005               2004                 2005            2004
                                               ----------------- ---------------       -------------- ---------------
General operating and administrative                $    7,268      $    4,927            $  15,468       $   9,626
Property expenses, state and other taxes                   170              --                  307              --
Other                                                      746           1,912                1,516           3,160
                                               ----------------  ---------------       --------------  ---------------
                                                    $    8,184      $    6,839            $  17,291       $  12,786
                                               ================  ===============       ==============  ===============
</TABLE>


General operating and  administrative  expenses in the specialty finance segment
have  increased 48 percent and 61 percent in the current  quarter and  six-month
period,  respectively.  There  are a number  of items  that  have  impacted  the
comparability between current and prior periods that are summarized as follows:

   o Our expenses in this segment  include a $2.0 million  charge in the current
     six-month period allocated to this segment  resulting from a grant of stock
     and related  cash  compensation  to members of our Board of  Directors  and
     employees.

   o The specialty finance segment provides lease and loan servicing to our real
     estate  segment and to third  parties.  As  servicer,  we utilize  property
     management  software  to account for  leasing  transactions  and to capture
     other  tenant and lease  information.  More than a year ago,  we decided to
     upgrade our  technology  platform  supporting  this  function.  We incurred
     certain costs during the current quarter and six month period  necessary to
     assure a successful  transition to the new  application and the integration
     of USRP and Income Fund assets.

   o We have incurred  additional  expenses with the  integration  of the merged
     portfolios.  While  our  servicing  fee  income  in  this  segment  for the
     management of the larger portfolio was increased for the four-month  period
     after the  merger,  we  incurred  various  one-time  setup  expenses in the
     current  quarter  and six month  period to add new  properties  creating an
     excess of new  expenses  over new  revenues  that should  stabilize  in the
     future.  The Income  Fund  portfolio  had been  previously  serviced by the
     specialty  finance  segment,  and did  not  create  significant  additional
     integration costs.

   o Prior to 2005 certain services were purchased from affiliates of two of our
     board members. These included human resources, tax planning and compliance,
     computer systems support, investor relations and other services. Throughout
     the six months ended June 30, 2005, we brought  substantially  all of these
     functions  internal in an initiative  that began in November  2004.  During
     this process, we incurred certain expenses such as recruitment and training
     of new employees and the separate  licensure  and  maintenance  of software
     previously leveraged among a wider enterprise by our affiliates.

   o We have shifted the internal reporting of certain property  improvement and
     redevelopment  activities  previously  reported  through  the  real  estate
     segment,  as we view  those  expanding  activities  as  more  appropriately
     aligned with the specialty  finance  segment.  Direct and indirect  payroll
     relating  to  the  property   improvement  and   redevelopment   activities
     approximated  $0.8  million and $1.6  million in the quarter and six months
     ended June 30, 2005, respectively.

Property expenses in this segment represent  activities in property  improvement
and  redevelopment  transitions from the real estate segment this year and costs
associated with  activities  merged into this segment from USRP. The decrease in
the line item for other  expenses  relates to  impairments  and losses  from the
termination  of cash flow hedges in the quarter and six-month  period ended June
30, 2004 and a decrease in the minority interest in income of consolidated joint
ventures  during the quarter and  six-month  period  ended June 30,  2005.  This
decrease was due to a decrease in net income of the  consolidated  joint venture
from a decline in the number of properties  available for sale. We sold the last
remaining  properties in the current  quarter and dissolved the joint venture in
July 2005.

Interest Expense

Interest expenses for each segment is illustrated in the following table:

<TABLE>
<CAPTION>

 <c>
                                            Quarter Ended                 Six Months Ended
                                               June 30,                       June 30,
                                            (in thousands)                 (in thousands)
                                         2005           2004            2005           2004
                                     -------------- --------------  ------------- ---------------
       Real estate                       $  23,354      $   7,187      $  35,867      $   14,363
       Specialty finance                     1,590          4,727          6,041           9,410
       Other                                   (76)            80           (149)             51
                                     -------------- --------------  ------------- ---------------
                                         $  24,868      $  11,994      $  41,759      $   23,824
                                     ============== ==============  ============= ===============
</TABLE>

Interest  expense  in the real  estate  segment  increased  approximately  $16.2
million and $21.5  million,  or 225 percent and 150 percent,  during the quarter
and  six-month  period ended June 30, 2005,  respectively,  due to the increased
level of debt.  Total debt at the real estate segment  increased to $1.5 billion
at June 30, 2005 versus $0.4 billion at June 30, 2004. The increase was a result
of debt assumed in the merger and from the merger financings  completed by April
2005. This increase also included the movement on March 31, 2005 of $161 million
in debt that financed a pool of mortgage  loans that  together were  transferred
from the specialty  finance segment into the real estate segment.  In July 2005,
the real estate segment sold the mortgage loans  receivable,  as described above
in  "Liquidity  and Capital  Resources",  and used a portion of the  proceeds to
repay  the debt  collateralized  by these  loans.  As a result  of the pay down,
interest  expense will be lower in future quarters  relating to these loans. The
weighted  average  interest rate on borrowings  was 5.7 percent at June 30, 2005
versus 5.9 percent at June 30,  2004.  Included in interest  expense  within the
real estate segment is amortization of deferred  financing costs of $2.5 million
and $1.1  million for the quarters  ended June 30, 2005 and 2004,  respectively,
and $4.1  million and $2.1  million  for the six months  ended June 30, 2005 and
2004, respectively.  The increase in deferred financing costs in 2005 was due to
incurring  costs to put the new merger  financing in place between  February and
April 2005.

Interest  expense at the specialty  finance  segment  decreased $3.1 million and
$3.4  million  during the  quarter and  six-month  period  ended June 30,  2005.
Specialty finance segment debt is primarily the warehouse credit facilities that
provide  short-term  financing of properties in the  investment  property  sales
program,  with a floating  interest  rate  based on LIBOR.  The  decreases  were
primarily  due to the  transfer of the pool of mortgage  loans and related  $161
million of debt to the real  estate  segment  on March 31,  2005.  The  weighted
average  cost of the  warehouse  credit  facilities  was 4.85  percent  and 2.55
percent in the  quarters  ended June 30, 2005 and 2004,  respectively,  and 4.22
percent  and 2.58  percent  in the six  months  ended  June 30,  2005 and  2004,
respectively, reflecting the increase in short term financing rates.

Depreciation and Amortization

Depreciation  and  amortization  expenses for each segment is illustrated in the
following table:

<TABLE>
<CAPTION>

 <c>
                                          Quarter Ended                 Six Months Ended
                                             June 30,                       June 30,
                                          (in thousands)                 (in thousands)
                                       2005           2004            2005           2004
                                   -------------- --------------  ------------- ---------------
       Real estate                     $   8,715      $   2,692      $  13,670       $   5,356
       Specialty finance                     284            240            558             371
                                   -------------- --------------  ------------- ---------------
                                       $   8,999      $   2,932     $   14,228       $   5,727
                                   ============== ==============  ============= ===============
</TABLE>

The real estate segment experienced an increase in depreciation and amortization
expense of $6 million  and $8.3  million or 224  percent  and 155 percent in the
quarter and six-months ended June 30, 2005,  respectively,  when compared to the
same periods in 2004.  This increase is the result of the merger  increasing the
rental   portfolio  to  $1.7  billion.   After   adjusting  for  the  additional
amortization of intangible assets identified at the time of merger, there remain
increases  of 151  percent  and 106  percent in  depreciation  and  amortization
expense in the quarter and six-month  period ended June 30, 2005,  respectively,
that  correlate to  increases  of 162 percent and 101 percent in this  segment's
rental revenues.

Discontinued Operations

We break discontinued operations into two categories, real estate and retail. In
the  real  estate  category,  under  generally  accepted  accounting  principles
("GAAP"),  when a property is  designated  as held for sale,  such as all of the
properties  purchased under our IPS program, all income and expenses relating to
the property and the ultimate  gain or loss realized  upon its  disposition  are
treated as  discontinued  operations for all periods  presented.  If an existing
investment  property is so designated,  depreciation is generally  discontinued.
Revenues  associated  with these  properties is not reflected in the  "Revenues"
line item in our income statement, but instead, along with expenses and any gain
or loss from its sale,  are presented  separately  under the "Income (loss) from
discontinued  operations".   In  addition,  only  operating  and  administrative
expenses that are directly attributable to acquiring or selling these properties
are allocated to the "Income (loss) from discontinued  operations" and all other
general and  operating  and  administrative  expenses  are  allocated to "Income
(loss) from continuing operations".

<TABLE>
<CAPTION>

 <c>
                                                                Quarter Ended June 30,
                                                                    (in thousands)
                                           2005               2005                2004                2004
                                     -----------------  ------------------ ------------------- -------------------
                                       Real Estate       Specialty Finance     Real Estate       Specialty Finance
                                         Segment            Segment              Segment            Segment
                                     -----------------  ------------------ ------------------- -------------------

Sale of real estate                       $    13,197        $     70,838         $     8,038        $     67,528
Cost of real estate sold                       12,369              59,434               7,718              58,859
                                     -----------------  ------------------ ------------------- -------------------
   Gain on sale of real estate                    828              11,404                 320               8,669
Net other income (expense)                        472                  30                (292)              1,425
                                     -----------------  ------------------ ------------------- -------------------

   Earnings from real estate
     discontinued operations
     before tax                                  1,300              11,434                  28              10,094
Retail operations revenue                           --              15,215               3,739                   --
Retail cost of sales                                --              14,963               3,999                   --
                                     -----------------  ------------------ ------------------- -------------------
   Earnings (loss) from retail
     discontinued operations before
     tax                                            --                 252                (260)                  --
Income tax (benefit) provision                      --                (186)                  --               1,999
                                     -----------------  ------------------ ------------------- -------------------

Income (loss) from discontinued
   operations, after income taxes         $     1,300        $     11,872         $      (232)        $     8,095
                                     =================  ================== =================== ===================
</TABLE>

<TABLE>
<CAPTION>

 <c>
                                                              Six Months Ended June 30,
                                                                    (in thousands)
                                           2005               2005                2004                2004
                                     -----------------  ------------------ ------------------- -------------------
                                       Real Estate       Specialty Finance     Real Estate      Specialty Finance
                                         Segment            Segment              Segment            Segment
                                     -----------------  ------------------ ------------------- -------------------

Sale of real estate                       $    13,477        $    127,792        $     20,246        $    107,496
Cost of real estate sold                       12,649             106,610              18,285              93,533
                                     -----------------  ------------------ ------------------- -------------------
   Gain on sale of real estate                    828              21,182               1,961              13,963
Net other income (expense)                        342                 856                (384)              3,048
                                     -----------------  ------------------ ------------------- -------------------

   Earnings from real estate
     discontinued operations
     before tax                                  1,170              22,038               1,577              17,011
Retail operations revenue                           --              20,460               7,557                  --
Retail cost of sales                                --              19,597               7,725                  --
                                     -----------------  ------------------ ------------------- -------------------
   Earnings (loss) from retail                      --                 863                (168)                 --
     discontinued operations before
     tax

Income tax provision                                --               6,408                  --               3,233
                                     -----------------  ------------------ ------------------- -------------------


Income from discontinued
   operations, after income taxes          $     1,170        $     16,493         $     1,409        $     13,778
                                     =================  ================== =================== ===================
</TABLE>


Our real estate  segment  periodically  sells  properties in the  portfolio.  We
believe the best strategy to resolve certain vacant  properties is to sell them.
Or, we may have a performing  property and believe it to be an opportune time to
sell the asset and  realize  value.  We sold  $13.2  million  and $8  million in
properties during the second quarters of 2005 and 2004, respectively, generating
gains of $0.8  million  and $0.3  million,  respectively.  During the six months
ended  June  30,  2005 and 2004 we sold  $13.5  million  and  $20.2  million  in
properties,  respectively,  generating  gains of $0.8 million and $2.0  million,
respectively.  The decrease in sales of real estate was due to transferring  the
reporting of certain property  improvement and  redevelopment  activities to the
specialty finance segment in January 2005.

While GAAP requires us to disclose our  investment  property  sales program as a
discontinued  operation,  we do not  manage  it in  that  manner.  It is a vital
business operation that was developed over the last five years that allows us to
compete  on large  transactions  and  appropriately  mitigate  risk  and  manage
concentrations.  Since 2001,  in our  specialty  finance  segment,  we have sold
approximately  $994 million in  restaurant  properties  generating  net gains of
$115.7  million.  In the  second  quarter  of 2005,  we sold  $70.8  million  in
properties generating a 19.2 percent margin or $11.4 million gain. In the second
quarter of 2004, we sold $67.5  million in properties  generating a 14.7 percent
margin or $8.7 million  gain.  In the six  month-period  ended June 30, 2005, we
sold $127.8  million in  properties  generating a 19.9  percent  margin or $21.2
million  gain.  In the  six-month  period  ended June 30,  2004,  we sold $107.5
million in properties generating a 14.9 percent margin or $14.0 million gain. At
June 30, 2005, we had approximately  $167.3 million in real estate held for sale
in our specialty finance segment.

Our specialty finance segment  currently  operates 18 convenience and gas stores
in Hawaii.  This business was  previously  acquired and operated by USRP and was
acquired in the merger. On February 24, 2005, a definitive agreement to sell the
business to Aloha  Petroleum,  Ltd.  ("Aloha")  was  reached.  The terms of that
agreement  result  in us  maintaining  ownership  of the real  estate  on eleven
convenience  and gas  properties,  which would be leased to Aloha.  On April 27,
2005 we were informed by the Hawaii Attorney General's office,  that they, along
with the Federal Trade Commission ("FTC"), were conducting an investigation into
whether the proposed  transaction may violate state and federal  antitrust laws.
In July, the FTC filed suit in federal court seeking  injunctive relief to block
the  consummation of the planned sale. The federal court has scheduled a hearing
on the FTC's motion for a  preliminary  injunction  for August  23-24,  2005. We
intend to oppose the relief sought by the FTC.  During the quarter and six-month
period ended June 30, 2005, the Hawaiian  operations  produced pre-tax income of
approximately $0.3 million and $0.9 million, respectively,  before consideration
of indirect corporate overhead.

In 2004, our real estate  segment  operated  twelve  restaurants in a subsidiary
that was sold in the fourth quarter of 2004. While not our core expertise,  if a
franchisee is experiencing financial difficulties,  we will examine our options,
one of which may be the  acquisition of the operations of the  franchisee.  This
may help preserve the value of our real estate investment.  Currently, we do not
have significant restaurant operations.

The Company is primarily treated as a REIT and generally records no tax expense.
However,  we have a taxable REIT  subsidiary  ("TRS"),  where  various  business
operations take place including the IPS program.  The TRS recorded an income tax
benefit of $0.2  million for the  quarter  ended June 30, 2005 and an income tax
provision of $2.0 million for the quarter ended June 30, 2004.  The TRS recorded
an income tax provision of  approximately  $6.4 million and $3.2 million for the
six months ended June 30, 2005 and 2004, respectively.  The small benefit in the
current quarter  reflects the recurring tax expense for ongoing  earnings of the
TRS, as well as other increases relating to the estimated effective tax rate for
the year,  offset by a $2.3  million  reduction in the  non-recurring,  non-cash
charge resulting from the transfer of loans described below.

The $6.4 million income tax provision at June 30, 2005 includes a  nonrecurring,
non-cash $2.7 million  deferred tax charge  resulting from the transfer of loans
from the TRS to the REIT. The mortgage loans, with a principal balance of $185.7
million,  were  transferred  to more  appropriately  align the  holding of those
mortgage loans with our objective of holding real estate properties as long-term
investments.  The  transfer  was  executed by way of a purchase of a 100 percent
interest in the subsidiary that held the mortgage  loans.  We initially  entered
into an  interest  rate swap in 2002 to  mitigate a portion  of the  variability
related to the interest  costs on our  borrowings  that financed the loans.  The
hedge met the definition of a cash flow hedge,  and as a result,  changes in its
value  period to period are  reported  in other  comprehensive  income  ("OCI").
Valuation  changes in the swap are  required to be reflected  net of  applicable
income taxes at the then  applicable tax rate. The hedge  liability  generated a
deferred tax asset in 2002 that was offset by a valuation allowance. In 2003, we
met the criteria  under GAAP to reverse the valuation  allowance,  and in effect
realized the tax benefit  through net income and not OCI.  With this  accounting
treatment,  all future valuation  adjustments to the hedge liability impact both
earnings  and OCI. Had we not  transferred  the pool of loans to the real estate
segment,  the $2.7  million  charge in the six months  ended June 30, 2005 would
have  continued  to be  amortized  as a charge to earnings  over the life of the
hedge contract.

As of June  30,  2005,  we had  early  adopted  the  provisions  of FAS  123(R),
"Share-Based   Payments"  which   establishes   accounting   standards  for  all
transactions in which an entity  exchanges its equity  instruments for goods and
services.  FAS 123(R)  focuses  primarily on accounting  for  transactions  with
employees,  and carries  forward  without change prior guidance for  share-based
payments  for  transactions  with  non-employees.   FAS  123(R)  eliminates  the
intrinsic  value  measurement  objective  in APB  Opinion  No. 25 and  generally
requires us to measure the cost of employee services received in exchange for an
award of equity  instruments based on the fair value of the award on the date of
the grant.  The standard  requires  grant date fair value to be estimated  using
either an  option-pricing  model which is consistent with the terms of the award
or a market observed price, if such a price exists. Such cost must be recognized
over the period  during  which an employee  is  required  to provide  service in
exchange for the award or the  requisite  service  period  (which is usually the
vesting  period).  The  standard  also  requires  us to  estimate  the number of
instruments  that  will  ultimately  be  issued,   rather  than  accounting  for
forfeitures  as they  occur.  We  elected  to  adopt  the  modified  prospective
application  method as provided by FAS 123(R).  Under the  modified  prospective
method, compensation cost is recognized for all awards granted after adoption of
this standard and for the unvested portion of previously granted awards that are
outstanding  on that date.  Early  adoption of FAS  123(R),  and the change from
applying  the original  provisions  of FAS 123, did not have an impact on income
from continuing  operations,  net income,  cash flow from operations,  cash flow
from  financing  activities,  and basic and diluted  earnings  per share for the
quarter and six months  ended June 30, 2005 as all  previously  granted  options
were vested.

In December 2004, the Financial  Accounting  Standards Board (the "FASB") issued
Statement of Financial  Accounting  Standards No. 153, "Exchange of Non-Monetary
Assets"  ("FAS  153").  FAS  153  addresses  the  measurement  of  exchanges  of
non-monetary assets. It eliminates the exception from fair value measurement for
non-monetary  exchange of similar  productive  assets  under APB Opinion No. 29,
"Accounting for  Non-Monetary  Transactions",  and replaces it with an exception
for exchanges that do not have commercial substance. A non-monetary exchange has
commercial  substance  if  the  entity's  future  cash  flows  are  expected  to
significantly  change  as a  result  of the  exchange.  The  provisions  of this
statement are effective for  non-monetary  asset  exchanges  occurring in fiscal
periods beginning after June 15, 2005.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

Information regarding the Company's market risk at December 31, 2004 is included
in its Annual  Report on Form 10-K for the year ended  December  31,  2004.  The
material  changes in the  Company's  market risk are  discussed in Item 2 above.
Information  regarding the Company's market risk relating to changes in interest
rates is incorporated  herein by reference to Item 2,  "Management's  Discussion
and Analysis of Financial  Condition  and Results of  Operations - Interest Rate
Risk" herein.

Item 4.  Controls and Procedures.

Quarterly  Evaluation.  Management  updated its key controls related to internal
control  over  financial  reporting  as of June  30,  2005  and  carried  out an
evaluation as of June 30, 2005 of the  effectiveness of the design and operation
of the Company's disclosure controls and procedures.  This update and evaluation
were done  under  the  supervision  and with the  participation  of  management,
including the Company's  Chief Executive  Officer and Chief  Financial  Officer.
Rules adopted by the SEC require that management  present the conclusions of the
Chief Executive  Officer and Chief Financial  Officer about the effectiveness of
the  Company's  disclosure  controls and  procedures as of the end of the period
covered by this quarterly report.

CEO and CFO Certifications. Included as Exhibits 31.1 and 31.2 to this Quarterly
Report  on Form  10-Q  are  forms  of  "Certification"  of the  Company's  Chief
Executive  Officer and Chief Financial  Officer.  The forms of Certification are
required in accordance with Section 302 of the  Sarbanes-Oxley Act of 2002. This
section of the Quarterly  Report on Form 10-Q that you are currently  reading is
the  information  concerning  the  evaluation  referred  to in the  Section  302
certifications.  This information should be read in conjunction with the Section
302 certifications for a more complete understanding of the topics presented.

Disclosure   Controls  and  Procedures  and  Internal   Control  over  Financial
Reporting.  Management is responsible for establishing and maintaining  adequate
disclosure   controls  and  procedures  and  internal   control  over  financial
reporting. Disclosure controls and procedures are designed with the objective of
ensuring  that  information  required to be disclosed in the  Company's  reports
filed or  submitted  under the  Securities  Exchange  Act of 1934,  such as this
Quarterly Report on Form 10-Q, is recorded,  processed,  summarized and reported
within the time  periods  specified  in the SEC's  rules and  forms.  Disclosure
controls and  procedures  are also  designed with the objective of ensuring that
such  information is accumulated and  communicated to the Company's  management,
including the Company's Chief Executive Officer and Chief Financial Officer,  as
appropriate, to allow timely decisions regarding required disclosure.

Internal control over financial reporting is a process designed by, or under the
supervision  of, the  Company's  Chief  Executive  Officer  and Chief  Financial
Officer, and effected by the Company's Board of Directors,  management and other
personnel,   to  provide  reasonable  assurance  regarding  the  reliability  of
financial  reporting and the  preparation  of financial  statements for external
purposes  in  accordance  with  generally  accepted  accounting  principles  and
includes those policies and procedures that:

   o pertain to the maintenance of records that in reasonable  detail accurately
     and fairly  reflect the  transactions  and  dispositions  of the  Company's
     assets;

   o provide reasonable assurance that transactions are recorded as necessary to
     permit  preparation  of financial  statements in accordance  with generally
     accepted  accounting  principles,  and  that  the  Company's  receipts  and
     expenditures  are being  made only in  accordance  with  authorizations  of
     management or the Company's Board of Directors; and

   o provide reasonable  assurance  regarding  prevention or timely detection of
     unauthorized  acquisition,  use or disposition of the Company's assets that
     could have a material adverse effect on the Company's financial statements.

Limitations  on  the  Effectiveness  of  Controls.  Management,   including  the
Company's Chief Executive  Officer and Chief  Financial  Officer,  do not expect
that the Company's  disclosure controls and procedures or the Company's internal
control  over  financial  reporting  will  prevent  all errors and all fraud.  A
control  system,  no matter how well  conceived and  operated,  can provide only
reasonable,  not absolute,  assurance  that the objectives of the control system
are met.  Further,  the design of a control  system  must  reflect the fact that
there are resource constraints,  and the benefits of controls must be considered
relative to their  costs.  Because of the  inherent  limitations  in all control
systems,  no  evaluation  of controls can provide  absolute  assurance  that all
control  issues and  instances  of fraud,  if any,  within the Company have been
detected.  These  inherent  limitations  include the realities that judgments in
decision-making  can be faulty,  and that breakdowns can occur because of simple
error or mistake.  Additionally,  controls can be circumvented by the individual
acts of some  persons,  by collusion of two or more people,  or by  management's
override of the control.  The design of any system of controls  also is based in
part upon certain  assumptions about the likelihood of future events,  and there
can be no assurance  that any design will succeed in achieving  its stated goals
under all potential future conditions; over time, controls may become inadequate
because of changes in conditions,  or the degree of compliance with the policies
or  procedures  may  deteriorate.  Because  of  the  inherent  limitations  in a
cost-effective control system, misstatements due to error or fraud may occur and
not be detected.

Scope of the  Assessments.  The  assessment  by the  Company's  Chief  Executive
Officer and the Company's  Chief Financial  Officer of the Company's  disclosure
controls and  procedures  included a review of procedures and  discussions  with
other employees in the Company's organization. In the course of the assessments,
management sought to identify data errors, control problems or acts of fraud and
to confirm that appropriate  corrective action,  including process improvements,
were being undertaken.  The assessments of the Company's disclosure controls and
procedures is done on a quarterly  basis so that the conclusions can be reported
in the  Company's  Quarterly  Reports on Form 10-Q.  The  Company's key controls
related to its  internal  control  over  financial  reporting  are  updated on a
quarterly  basis by management and other  personnel in the Company's  accounting
department.

The Company considers the results of these various assessment  activities as the
Company monitors its disclosure controls and procedures and its internal control
over financial  reporting and when deciding to make  modifications as necessary.
The  Company's  intent  in this  regard  is that  the  disclosure  controls  and
procedures and the internal control over financial  reporting will be maintained
and updated (including with improvements and corrections) as conditions warrant.
Among  other  matters,  the  Company's  management  sought in its  update of key
controls  to  determine  whether  there were any  "material  weaknesses"  in the
Company's internal control over financial  reporting,  or whether management had
identified any acts of fraud involving  senior  management,  management or other
personnel who have a significant  role in the  Company's  internal  control over
financial  reporting.  This  information  was  important  both  for  the  update
generally and because the Section 302 certifications require the Company's Chief
Executive Officer and Chief Financial  Officer disclose that information,  along
with any  "significant  deficiencies,"  to the Audit  Committee of the Company's
Board of Directors  and to the  Company's  independent  auditors.  In the Public
Company  Accounting  Oversight  Board's  Auditing  Standard  No. 2, a  "material
weakness"  is  defined  as  a  significant  deficiency,   or  a  combination  of
significant  deficiencies,  that results in more than a remote likelihood that a
material  misstatement of the annual or interim financial statements will not be
prevented or detected. A "significant  deficiency" is a "control deficiency," or
a combination of control  deficiencies,  that  adversely  affects the ability to
initiate,  authorize, record, process or report external financial data reliably
in accordance with generally accepted  accounting  principles such that there is
more than a remote  likelihood  that a  misstatement  of the  annual or  interim
financial  statements that is more than inconsequential will not be prevented or
detected.  A  "control  deficiency"  exists  when the design or  operation  of a
control  does not  allow  management  or  employees,  in the  normal  course  of
performing  their assigned  functions,  to prevent or detect  misstatements on a
timely basis.

Evaluation of the  Effectiveness  of Disclosure  Controls and Procedures.  Based
upon the evaluation,  the Company's Chief Executive  Officer and Chief Financial
Officer have  concluded  that,  as of June 30, 2005,  the  Company's  disclosure
controls and procedures were effective.

Changes in Internal Control over Financial  Reporting.  During the quarter ended
June 30,  2005,  there were no changes in the  Company's  internal  control over
financial reporting that have materially  affected,  or are reasonably likely to
materially  affect,  the Company's  internal  control over financial  reporting,
including  changes  that  would have  resulted  from the merger of CNLRP and the
Income Funds with and into USRP on February 25, 2005.

<PAGE>
                           PART II. OTHER INFORMATION



Item 1.  Legal Proceedings.

The Company is not  presently  involved in any material  litigation,  nor to its
knowledge  is any  material  litigation  threatened  against  the Company or its
properties,  other than routine  litigation  arising in the  ordinary  course of
business.  At this time,  management  does not believe  there will be a material
impact from the legal proceedings discussed below.

On January 18, 2005, Robert Lewis and Sutter  Acquisition Fund, LLC, two limited
partners  in the Income  Funds,  filed a class  action  lawsuit on behalf of the
limited  partners of the Income  Funds  against the Company,  CNLRP,  the Income
Funds,  the general  partners of the Income Funds,  CNL Restaurant  Investments,
Inc. and CNL  Restaurant  Capital Corp. in the District  Court of Dallas County,
Texas (Cause No.  05-00083).  The complaint alleged that the general partners of
the Income Funds breached their fiduciary duties in connection with the proposed
mergers between the Income Funds and  subsidiaries of the operating  partnership
of the Company and that the  Company  and CNLRP aided and abetted  such  alleged
breaches of fiduciary  duties.  The  complaint  further  alleged that the Income
Funds' general  partners  violated  provisions of the Income Funds'  partnership
agreements and demanded an accounting as to the affairs of the Income Funds. The
plaintiffs  are  seeking  unspecified  compensatory  and  exemplary  damages and
equitable relief,  including an injunction of the mergers.  On April 26, 2005, a
supplemental  plea to  jurisdiction  hearing was held with a ruling expected May
13,  2005.  On  May  2,  2005,  the  plaintiffs  amended  their  lawsuit  to add
allegations that the general partners of the Income Funds,  with CNLRP and USRP,
prepared and distributed a false and misleading  final proxy statement filing to
the limited partners of the Income Funds and the shareholders of CNLRP and USRP.
On May 26, 2005, the Court entered a Final Order  Dismissing  Action for lack of
subject matter jurisdiction.  On June 22, 2005, the plaintiffs filed a Notice of
Appeal of the Order of  Dismissal.  The  management of the Company is evaluating
the lawsuit,  but believes that the likelihood of a material unfavorable outcome
is remote.  The  management of the Company  believes that the claims against the
Company are without merit and intends to defend vigorously against such claims.

Item 2. Unregistered Sale of Equity Securities and Use of Proceeds. Inapplicable

Item 3. Defaults Upon Senior Securities.  Inapplicable.

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

The regular annual meeting of  stockholders  of the Company was held in Orlando,
Florida on June 23, 2005 for the purpose of electing the board of directors.

Holders of record of the  Company's  common  stock at the close of  business  on
April 29, 2005, the record date, were entitled to notice of, and to vote at, the
meeting. One proposal was submitted to a vote of stockholders as follows:

         The  stockholders  approved  the election of the  following  persons as
         directors of the Company:

                           Name                      For             Against (*)

                     Robert A. Bourne             47,779,646          625,547
                     G. Steven Dawson             47,860,668          544,525
                     G. Richard Hostetter. Esq.   47,715,388          689,805
                     Richard C. Huseman           47,568,480          836,713
                     James H. Kropp               47,814,566          590,627
                     J. Joseph Kruse              47,623,557          781,635
                     Curtis B. McWilliams         47,701,696          703,497
                     James M. Seneff, Jr.         47,780,840          624,353
                     Robert J. Stetson            47,828,833          576,359

                 (*)  Includes votes against, abstentions, and broker non-votes.


         No other business was considered at the meeting.

Item 5. Other Information.  Inapplicable.

Item 6. Exhibits.


Exhibits

         2.1      Agreement and Plan of Merger by and between the Registrant and
                  CNL Restaurant  Properties,  Inc.,  dated as of August 9, 2004
                  (previously  filed as Exhibit 2.1 to the Registrant's  current
                  report on Form 8-K filed on August 10,  2004 and  incorporated
                  herein by reference).

         2.2      Agreements and Plans of Merger by and among the Registrant,  a
                  separate, wholly-owned subsidiary of the operating partnership
                  of  the  Registrant  and  each  of the  18  CNL  Income  Funds
                  (previously  filed as Exhibits 2.2 - 2.19 to the  Registrant's
                  current  report  on Form 8-K  filed  on  August  10,  2004 and
                  incorporated herein by reference).

         3.1      Restated  Articles of  Incorporation  of the Registrant  dated
                  November 11, 1997,  as amended by the Articles of Amendment to
                  the Articles of Restatement  of the Registrant  dated February
                  24, 2005 and the  Articles  of  Amendment  to the  Articles of
                  Restatement  of  the   Registrant   dated  February  24,  2005
                  (previously filed as Exhibit 3.1 to the Registrant's quarterly
                  report on Form 10-Q for the  fiscal  quarter  ended  March 31,
                  2005 and incorporated herein by reference).

         3.2      Second  Amended  and  Restated  Bylaws  (previously  filed  as
                  Exhibit  3.2 on the  Company's  current  report on Form  8-K/A
                  filed on March 4, 2005 and incorporated herein by reference).

         4.1      Specimen  of Common  Stock  Certificate  (previously  filed as
                  Exhibit 4.1 to the Registrant's Registration Statement on Form
                  S-4  (File  No.   333-21403)   and   incorporated   herein  by
                  reference).

         4.2      Articles Supplementary Classifying and Designating a Series of
                  Preferred Stock as Series A Cumulative  Convertible  Preferred
                  Stock  (previously  filed as Exhibit  3.2 to the  Registrant's
                  current  report on Form 8-K  filed on  November  14,  1997 and
                  incorporated herein by reference).

         4.3      Amendment   to   Articles   Supplementary    Classifying   and
                  Designating a Series of Preferred Stock as Series A Cumulative
                  Convertible  Preferred Stock  (previously filed as Exhibit 3.2
                  to the  Registrant's  current  report  on Form  8-K  filed  on
                  February 25, 2005 and incorporated herein by reference).

         4.4      Articles Supplementary Classifying and Designating a Series of
                  Preferred  Stock as 8% Series B  Convertible  Preferred  Stock
                  (previously  filed as Exhibit  4.01 to the  Registrant's  Form
                  10-Q  for  the  fiscal   quarter   ended  June  30,  2003  and
                  incorporated herein by reference).

         4.5      Articles Supplementary Classifying and Designating a Series of
                  Preferred Stock as 8% Series B-1  Convertible  Preferred Stock
                  (previously filed as Exhibit 99.5 to the Registrant's  current
                  report  on  Form  8-K  filed  on   September   16,   2004  and
                  incorporated herein by reference).

         4.6      Articles Supplementary  Establishing and Fixing The Rights and
                  Preferences of 7.5% Series C Redeemable  Convertible Preferred
                  Stock  (previously  filed as Exhibit  4.1 to the  Registrant's
                  registration  statement on Form 8-A (File No.  001-13089)  and
                  incorporated herein by reference).

         4.7      Specimen of 7.5%  Series C  Redeemable  Convertible  Preferred
                  Stock  Certificate  (previously  filed as  Exhibit  4.2 to the
                  Registrant's  registration  statement  on Form 8-A  (File  No.
                  001-13089) and incorporated herein by reference).

         4.8      Indenture  dated as of March 4, 2005,  among Net Lease Funding
                  2005,  LP, MBIA  Insurance  Corporation  and Wells Fargo Bank,
                  N.A., as indenture trustee relating to $275,000,000 Triple Net
                  Lease Mortgage Notes, Series 2005 (previously filed as Exhibit
                  99.1 to the  Registrant's  current report on Form 8-K filed on
                  March 10, 2005 and incorporated herein by reference).

         4.9      Securities   Purchase  Agreement  relating  to  the  Series  B
                  Preferred  Stock  (previously  filed  as  Exhibit  4.02 to the
                  Registrant's  Form 10-Q for the fiscal  quarter ended June 30,
                  2003 and incorporated herein by reference).

         4.10     Registration  Rights Agreement  relating to Series B Preferred
                  Stock  (previously  filed as Exhibit 4.03 to the  Registrant's
                  Form  10-Q for the  fiscal  quarter  ended  June 30,  2003 and
                  incorporated herein by reference).

         4.11     Stock  Purchase  Warrant - Omnicron  Master Trust  (previously
                  filed as Exhibit  4.04 to the  Registrant's  Form 10-Q for the
                  fiscal quarter ended June 30, 2003 and incorporated  herein by
                  reference).

         4.12     Stock Purchase  Warrant - The Riverview Group, LLC (previously
                  filed as Exhibit  4.05 to the  Registrant's  Form 10-Q for the
                  fiscal quarter ended June 30, 2003 and incorporated  herein by
                  reference).

         4.13     Registration  Rights  Agreement by and between the Registrant,
                  LSF3 Capital  Investments I, LLC and LSF3 Capital  Investments
                  II, LLC dated as of March 9, 2001 (previously filed as Exhibit
                  10.5 to the Schedule 13D filed by LSF3 Capital  Investments I,
                  LLC, and the other reporting  persons named therein,  on March
                  19, 2001 and incorporated herein by reference).

         4*       Pursuant to Regulation S-K Item 601(b)(4)(iii), the Registrant
                  by  this  filing  agrees,  upon  request,  to  furnish  to the
                  Securities  and  Exchange  Commission  a copy  of  instruments
                  defining  the  rights  of  holders  of  long-term  debt of the
                  Registrant.

         10.6     Registrant   Flexible  Incentive  Plan  (previously  filed  as
                  Exhibit  10.1 to the  Registrant's  Form  10-Q for the  fiscal
                  quarter  ended  March  31,  2003 and  incorporated  herein  by
                  reference).

         10.7     Bridge Credit  Agreement dated as of February 25, 2005, by and
                  among the Registrant, as borrower, certain subsidiaries of the
                  Registrant,   as  guarantors,   Bank  of  America,   N.A.,  as
                  Administrative  Agent,  L/C Issuer and Swing Line Lender,  and
                  certain  other  lenders  party  thereto,  and Banc of  America
                  Securities  LLC, as Sole Lead  Arranger  and Sole Book Manager
                  (previously filed as Exhibit 10.1 to the Registrant's  current
                  report  on Form 8-K  filed on March 3,  2005 and  incorporated
                  herein by reference).

         10.8     Bridge Credit  Agreement dated as of February 25, 2005, by and
                  among  Net  Lease  Funding  2005,  LP,  as  borrower,  Bank of
                  America,  as  Administrative  Agent, and certain other lenders
                  party  thereto,  and Banc of America  Securities  LLC, as Sole
                  Lead  Arranger  and Sole  Book  Manager  (previously  filed as
                  Exhibit 10.2 to the  Registrant's  current  report on Form 8-K
                  filed on March 3, 2005 and incorporated herein by reference).

         10.9     Credit Agreement,  dated as of April 8, 2005, by and among the
                  Registrant,   as  borrower,   certain   subsidiaries   of  the
                  Registrant,   as  guarantors,   Bank  of  America,   N.A.,  as
                  Administrative  Agent, L/C Issuer and Swing Line Lender,  Bank
                  of America Securities LLC, as Sole Lead Arranger and Sole Book
                  Manager, Key Bank, National Association, as Syndication Agent,
                  Credit Suisse First  Boston,  Societe  Generale,  and Wachovia
                  Bank National Association, as Co-Documentation Agents, and the
                  lenders party thereto (previously filed as Exhibit 10.1 to the
                  Registrant's  current  report  on Form 8-K  filed on April 13,
                  2005 and incorporated herein by reference).

         10.10    Pledge Agreement,  dated as of April 8, 2005, by substantially
                  all of the Borrower's domestic subsidiaries,  in favor of Bank
                  of America,  N.A.,  in its  capacity as  Administrative  Agent
                  (previously filed as Exhibit 10.2 to the Registrant's  current
                  report on Form 8-K filed on April  13,  2005 and  incorporated
                  herein by reference).

         31.1     Certification  of Chief  Executive  Officer  pursuant  to Rule
                  13a-14(a)   as  adopted   pursuant   to  Section  302  of  the
                  Sarbanes-Oxley Act of 2002 (filed herewith).

         31.2     Certification  of Chief  Financial  Officer  pursuant  to Rule
                  13a-14(a)   as  adopted   pursuant   to  Section  302  of  the
                  Sarbanes-Oxley Act of 2002 (filed herewith).

         32.1     Certification of Chief Executive Officer pursuant to 18 U.S.C.
                  Section  1350  as  adopted  pursuant  to  Section  906  of the
                  Sarbanes-Oxley Act of 2002 (filed herewith).

         32.2     Certification of Chief Financial Officer pursuant to 18 U.S.C.
                  Section  1350  as  adopted  pursuant  to  Section  906  of the
                  Sarbanes-Oxley Act of 2002 (filed herewith).




<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.


Date:  August 9, 2005                       TRUSTREET PROPERTIES, INC.

                                            By:

                                                     /s/ CURTIS B. MCWILLIAMS
                                                     --------------------------
                                                     Curtis B. McWilliams
                                                     Chief Executive Officer


                                            By:

                                                     /s/ STEVEN D. SHACKELFORD
                                                     --------------------------
                                                     Steven D. Shackelford
                                                     Chief Financial Officer

<PAGE>

                                  EXHIBIT INDEX




         2.1      Agreement and Plan of Merger by and between the Registrant and
                  CNL Restaurant  Properties,  Inc.,  dated as of August 9, 2004
                  (previously  filed as Exhibit 2.1 to the Registrant's  current
                  report on Form 8-K filed on August 10,  2004 and  incorporated
                  herein by reference).

         2.2      Agreements and Plans of Merger by and among the Registrant,  a
                  separate, wholly-owned subsidiary of the operating partnership
                  of  the  Registrant  and  each  of the  18  CNL  Income  Funds
                  (previously  filed as Exhibits 2.2 - 2.19 to the  Registrant's
                  current  report  on Form 8-K  filed  on  August  10,  2004 and
                  incorporated herein by reference).

         3.1      Restated  Articles of  Incorporation  of the Registrant  dated
                  November 11, 1997,  as amended by the Articles of Amendment to
                  the Articles of Restatement  of the Registrant  dated February
                  24, 2005 and the  Articles  of  Amendment  to the  Articles of
                  Restatement  of  the   Registrant   dated  February  24,  2005
                  (previously filed as Exhibit 3.1 to the Registrant's quarterly
                  report on Form 10-Q for the  fiscal  quarter  ended  March 31,
                  2005 and incorporated herein by reference).

         3.2      Second  Amended  and  Restated  Bylaws  (previously  filed  as
                  Exhibit  3.2 on the  Company's  current  report on Form  8-K/A
                  filed on March 4, 2005 and incorporated herein by reference).

         4.1      Specimen  of Common  Stock  Certificate  (previously  filed as
                  Exhibit 4.1 to the Registrant's Registration Statement on Form
                  S-4  (File  No.   333-21403)   and   incorporated   herein  by
                  reference).

         4.2      Articles Supplementary Classifying and Designating a Series of
                  Preferred Stock as Series A Cumulative  Convertible  Preferred
                  Stock  (previously  filed as Exhibit  3.2 to the  Registrant's
                  current  report on Form 8-K  filed on  November  14,  1997 and
                  incorporated herein by reference).

         4.3      Amendment   to   Articles   Supplementary    Classifying   and
                  Designating a Series of Preferred Stock as Series A Cumulative
                  Convertible  Preferred Stock  (previously filed as Exhibit 3.2
                  to the  Registrant's  current  report  on Form  8-K  filed  on
                  February 25, 2005 and incorporated herein by reference).

         4.4      Articles Supplementary Classifying and Designating a Series of
                  Preferred  Stock as 8% Series B  Convertible  Preferred  Stock
                  (previously  filed as Exhibit  4.01 to the  Registrant's  Form
                  10-Q  for  the  fiscal   quarter   ended  June  30,  2003  and
                  incorporated herein by reference).

         4.5      Articles Supplementary Classifying and Designating a Series of
                  Preferred Stock as 8% Series B-1  Convertible  Preferred Stock
                  (previously filed as Exhibit 99.5 to the Registrant's  current
                  report  on  Form  8-K  filed  on   September   16,   2004  and
                  incorporated herein by reference).

         4.6      Articles Supplementary  Establishing and Fixing The Rights and
                  Preferences of 7.5% Series C Redeemable  Convertible Preferred
                  Stock  (previously  filed as Exhibit  4.1 to the  Registrant's
                  registration  statement on Form 8-A (File No.  001-13089)  and
                  incorporated herein by reference).

         4.7      Specimen of 7.5%  Series C  Redeemable  Convertible  Preferred
                  Stock  Certificate  (previously  filed as  Exhibit  4.2 to the
                  Registrant's  registration  statement  on Form 8-A  (File  No.
                  001-13089) and incorporated herein by reference).

         4.8      Indenture  dated as of March 4, 2005,  among Net Lease Funding
                  2005,  LP, MBIA  Insurance  Corporation  and Wells Fargo Bank,
                  N.A., as indenture trustee relating to $275,000,000 Triple Net
                  Lease Mortgage Notes, Series 2005 (previously filed as Exhibit
                  99.1 to the  Registrant's  current report on Form 8-K filed on
                  March 10, 2005 and incorporated herein by reference).

         4.9      Securities   Purchase  Agreement  relating  to  the  Series  B
                  Preferred  Stock  (previously  filed  as  Exhibit  4.02 to the
                  Registrant's  Form 10-Q for the fiscal  quarter ended June 30,
                  2003 and incorporated herein by reference).

         4.10     Registration  Rights Agreement  relating to Series B Preferred
                  Stock  (previously  filed as Exhibit 4.03 to the  Registrant's
                  Form  10-Q for the  fiscal  quarter  ended  June 30,  2003 and
                  incorporated herein by reference).

         4.11     Stock  Purchase  Warrant - Omnicron  Master Trust  (previously
                  filed as Exhibit  4.04 to the  Registrant's  Form 10-Q for the
                  fiscal quarter ended June 30, 2003 and incorporated  herein by
                  reference).

         4.12     Stock Purchase  Warrant - The Riverview Group, LLC (previously
                  filed as Exhibit  4.05 to the  Registrant's  Form 10-Q for the
                  fiscal quarter ended June 30, 2003 and incorporated  herein by
                  reference).

         4.13     Registration  Rights  Agreement by and between the Registrant,
                  LSF3 Capital  Investments I, LLC and LSF3 Capital  Investments
                  II, LLC dated as of March 9, 2001 (previously filed as Exhibit
                  10.5 to the Schedule 13D filed by LSF3 Capital  Investments I,
                  LLC, and the other reporting  persons named therein,  on March
                  19, 2001 and incorporated herein by reference).

         4*       Pursuant to Regulation S-K Item 601(b)(4)(iii), the Registrant
                  by  this  filing  agrees,  upon  request,  to  furnish  to the
                  Securities  and  Exchange  Commission  a copy  of  instruments
                  defining  the  rights  of  holders  of  long-term  debt of the
                  Registrant.

         10.6     Registrant   Flexible  Incentive  Plan  (previously  filed  as
                  Exhibit  10.1 to the  Registrant's  Form  10-Q for the  fiscal
                  quarter  ended  March  31,  2003 and  incorporated  herein  by
                  reference).

         10.7     Bridge Credit  Agreement dated as of February 25, 2005, by and
                  among the Registrant, as borrower, certain subsidiaries of the
                  Registrant,   as  guarantors,   Bank  of  America,   N.A.,  as
                  Administrative  Agent,  L/C Issuer and Swing Line Lender,  and
                  certain  other  lenders  party  thereto,  and Banc of  America
                  Securities  LLC, as Sole Lead  Arranger  and Sole Book Manager
                  (previously filed as Exhibit 10.1 to the Registrant's  current
                  report  on Form 8-K  filed on March 3,  2005 and  incorporated
                  herein by reference).

         10.8     Bridge Credit  Agreement dated as of February 25, 2005, by and
                  among  Net  Lease  Funding  2005,  LP,  as  borrower,  Bank of
                  America,  as  Administrative  Agent, and certain other lenders
                  party  thereto,  and Banc of America  Securities  LLC, as Sole
                  Lead  Arranger  and Sole  Book  Manager  (previously  filed as
                  Exhibit 10.2 to the  Registrant's  current  report on Form 8-K
                  filed on March 3, 2005 and incorporated herein by reference).

         10.9     Credit Agreement,  dated as of April 8, 2005, by and among the
                  Registrant,   as  borrower,   certain   subsidiaries   of  the
                  Registrant,   as  guarantors,   Bank  of  America,   N.A.,  as
                  Administrative  Agent, L/C Issuer and Swing Line Lender,  Bank
                  of America Securities LLC, as Sole Lead Arranger and Sole Book
                  Manager, Key Bank, National Association, as Syndication Agent,
                  Credit Suisse First  Boston,  Societe  Generale,  and Wachovia
                  Bank National Association, as Co-Documentation Agents, and the
                  lenders party thereto (previously filed as Exhibit 10.1 to the
                  Registrant's  current  report  on Form 8-K  filed on April 13,
                  2005 and incorporated herein by reference).

         10.10    Pledge Agreement,  dated as of April 8, 2005, by substantially
                  all of the Borrower's domestic subsidiaries,  in favor of Bank
                  of America,  N.A.,  in its  capacity as  Administrative  Agent
                  (previously filed as Exhibit 10.2 to the Registrant's  current
                  report on Form 8-K filed on April  13,  2005 and  incorporated
                  herein by reference).

         31.1     Certification  of Chief  Executive  Officer  pursuant  to Rule
                  13a-14(a)   as  adopted   pursuant   to  Section  302  of  the
                  Sarbanes-Oxley Act of 2002 (filed herewith).

         31.2     Certification  of Chief  Financial  Officer  pursuant  to Rule
                  13a-14(a)   as  adopted   pursuant   to  Section  302  of  the
                  Sarbanes-Oxley Act of 2002 (filed herewith).

         32.1     Certification of Chief Executive Officer pursuant to 18 U.S.C.
                  Section  1350  as  adopted  pursuant  to  Section  906  of the
                  Sarbanes-Oxley Act of 2002 (filed herewith).

         32.2     Certification of Chief Financial Officer pursuant to 18 U.S.C.
                  Section  1350  as  adopted  pursuant  to  Section  906  of the
                  Sarbanes-Oxley Act of 2002 (filed herewith).




<PAGE>

                                  EXHIBIT 31.1

             RULE 13a-14(a) CERTIFICATION OF CHIEF EXECUTIVE OFFICER


<PAGE>



                                  EXHIBIT 31.2

             RULE 13a-14(a) CERTIFICATION OF CHIEF FINANCIAL OFFICER



<PAGE>
                                  EXHIBIT 32.1

              SECTION 1350 CERTIFICATION OF CHIEF EXECUTIVE OFFICER

<PAGE>


                                  EXHIBIT 32.2

              SECTION 1350 CERTIFICATION OF CHIEF FINANCIAL OFFICER

<PAGE>