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

                                    FORM 10-Q

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

                  For the quarterly period ended March 31, 1998

                                       or

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

      For the transition period from _______________ to __________________


                         Commission File Number 1-13089


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

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


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

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


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

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

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

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

As of May 8, 1998, there were 13,021,838  shares of Common Stock $.001 par value
outstanding.


                                  Page 1 of 16

<PAGE>


                        U.S. RESTAURANT PROPERTIES, INC.


PART I.       FINANCIAL INFORMATION

   Item 1. Financial Statements

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

           Consolidated Statements of Income for the Three
                  Months Ended March 31, 1998 and 1997 (Unaudited)........... 4

           Consolidated Statements of Stockholders' Equity for the
                  Three Months Ended March 31, 1998 (Unaudited).............. 5

           Consolidated Statements of Cash Flows for the Three
                  Months Ended March 31, 1998 and 1997 (Unaudited)........... 6

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

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

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


PART II.      OTHER INFORMATION

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

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

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

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

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

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


                                  Page 2 of 16

<PAGE>


                          PART I. FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS

                                         U.S. RESTAURANT PROPERTIES, INC.
                                            CONSOLIDATED BALANCE SHEETS
                                                  (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                March 31,         December 31,
                                                                  1998               1997
                                                           -----------------   ----------------
                                                              (Unaudited)
<S>                                                        <C>                 <C>
                             ASSETS
Property, net
    Land                                                    $      125,912      $     109,515
    Building and leasehold improvements                            238,350            211,200
    Machinery and equipment                                          5,549              4,813
                                                            ----------------    ---------------
                                                                   369,811            325,528
    Less: Accumulated depreciation                                 (16,582)           (13,438)
                                                            ----------------    ---------------
                                                                   353,229            312,090

Cash and cash equivalents                                           13,018              1,104
Restricted cash                                                        700                 --
Rent and other receivables, net
   (includes $533 and $523 from related parties)                     5,534              4,791
Prepaid expenses and purchase deposits                               2,088              1,967
Notes receivable
   (includes $10,867 and $5,406 from related parties)               15,203              8,518
Mortgage loan receivable                                             5,905              5,947
Net investment in direct financing leases                           13,181             13,764
Intangibles and other assets, net                                   12,109             10,968
                                                            ----------------    ---------------
                                           TOTAL ASSETS     $      420,967      $     359,149
                                                            ================    ===============

         LIABILITIES AND STOCKHOLDERS' EQUITY

Accounts payable and accrued liabilities
   (includes $0 and $121 due to related parties)            $        4,257      $       4,193
Deferred gain on sale of property                                      642                642
Lines of credit                                                    150,200             89,196
Notes payable                                                       40,000             40,000
Capitalized lease obligations                                          144                170
                                                            ----------------    ---------------
                                      TOTAL LIABILITIES            195,243            134,201

Minority interest in operating partnership                          19,345             19,536
Stockholders' Equity
Preferred stock, $.001 par value per share;
   50,000 shares authorized, Series A - 3,680 
   shares issued and outstanding as of
   March 31, 1998 and December 31, 1997
   (aggregate liquidation value $92,000)                                 4                  4 
Common  stock, $.001 par value per share;
   100,000 shares authorized,  13,022 and 12,698
   hares issued and outstanding as of March 31,
   1998 and December 31, 1997, respectively                             13                 13
Additional paid in capital                                         229,860            226,140
Excess stock, $.001 par value per share,
   15,000 shares authorized, no shares issued                           --                 --
Distributions in excess of net income                              (23,498)           (20,745)
                                                            ----------------    ---------------
                             TOTAL STOCKHOLDERS' EQUITY            206,379            205,412
                                                            ----------------    ---------------
          TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY        $      420,967      $     359,149
                                                            ================    ===============
</TABLE>


See Notes to Consolidated Financial Statements


                                  Page 3 of 16
<PAGE>


                        U.S. RESTAURANT PROPERTIES, INC.
                        CONSOLIDATED STATEMENTS OF INCOME
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                   (UNAUDITED)



                                             Three Months Ended March 31,
                                          ----------------------------------
                                               1998                1997
                                          ---------------     --------------
Revenues:
   Rental income                          $      12,308       $      5,709
   Interest income                                  596               112
   Amortization of unearned
    income on direct financing leases               317               444
                                          ---------------     --------------
                       Total revenues            13,221             6,265

Expenses:
   Rent                                             742               589
   Depreciation and amortization                  3,370             1,566
   Taxes, general and administrative              1,020               706
   Interest expense                               3,261             1,452
                                          ---------------     -------------
                      Total expenses              8,393             4,313
                                          ---------------     -------------
Income before minority interests
   and extraordinary item                         4,828             1,952

Minority interest in operating
   partnership                                     (234)               --
                                          ---------------     -------------
Income before extraordinary item                  4,594             1,952

Loss on early extinguishment
   of debt                                         (190)               --
                                          ---------------     -------------
Net income                                        4,404             1,952

Dividends on Preferred Stock/
   General Partner's interest                    (1,776)              (39)
                                          ---------------     -------------
Net income allocable to Common
   Stockholders                           $       2,628       $     1,913
                                          ===============     =============

Weighted average shares outstanding
   Basic                                         12,852            10,370
   Diluted                                       13,017            10,616

Net income per share
   Basic                                          $0.20             $0.18
   Diluted                                        $0.20             $0.18


See Notes to Consolidated Financial Statements


                                  Page 4 of 16

<PAGE>



                        U.S. RESTAURANT PROPERTIES, INC.
           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
                    FOR THE THREE MONTHS ENDED MARCH 31, 1998
                                 (IN THOUSANDS)

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

Proceeds from exercised
  stock options                                        300                        3,099                                  3,099
  
Stock issued for Purchase
  of ownership interest
  in another entity                                     24                          621                                    621

Net income                                                                                              4,404            4,404
Dividends on preferred                                                                                   
  stock                                                                                                (2,348)          (2,348)
Dividends on common                                                                              
  stock                                                                                                (4,809)          (4,809)
                           --------  ----------  ----------  ----------  ----------------  ---------------------  --------------
Balance March 31, 1998       3,680    $      4      13,022    $     13    $     229,860     $         (23,498)     $   206,379
                           ========  ==========  ==========  ==========  ================  =====================  ==============
</TABLE>


See Notes to Consolidated Financial Statements


                                  Page 5 of 16

<PAGE>



                        U.S. RESTAURANT PROPERTIES, INC.
                CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                   Three Months ended
                                                                         March 31,
                                                            ----------------------------------
                                                                  1998               1997
                                                            ----------------   ---------------
<S>                                                         <C>                <C>
Cash flows from operating activities:
Net Income                                                   $        4,404     $      1,952
Adjustments to reconcile net income to net
    cash from operating activities:
         Depreciation and amortization                                3,370            1,566
         Amortization of deferred financing costs                       141               56
         Minority interest in operating partnership                     234               --
         Loss on early extinguishment of debt                           190               --
         Increase in restricted cash                                   (700)              --
         Decrease (Increase) in rent and other 
            receivables, net                                           (743)             434
         Increase in prepaid expenses                                  (357)            (874)
         Reduction in net investment in direct 
            financing leases                                            583              555
         Increase (Decrease) in accounts payable and
            accrued liabilities                                          64             (796)
                                                            -----------------  ---------------
                                                                      2,782              941
                                                            -----------------  ---------------
              Cash provided by operating activities                   7,186            2,893

Cash flows used in investing activities:
         Purchase of property                                       (43,547)         (17,457)
         Purchase of machines and equipment                            (736)              (3)
         Purchase deposits paid (used)                                  236           (2,697)
         Decrease in mortgage loan receivable                            42               --
         Increase in notes receivable                                (6,685)            (213)
                                                            -----------------  ---------------
              Cash used in investing activities                     (50,690)         (20,370)


Cash flows from financing activities:
         Loan origination costs and other intangibles                (1,077)            (678)
         Payments on capitalized lease obligations                      (26)             (50)
         Proceeds from line of credit                               139,786           22,934
         Payments on line of credit                                 (78,782)         (39,640)
         Proceeds from notes payable                                     --           40,000
         Proceeds from sale of common stock                           3,099               --
         Preferred stock dividends paid                              (2,348)              --
         Cash distributions to stockholders/partners                 (4,809)          (3,517)
         Distributions to minority interest                            (425)              --
                                                            -----------------  ---------------
              Cash flows provided by financing activities            55,418           19,049
                                                            -----------------  ---------------
Increase in cash and cash equivalents                                11,914            1,572
Cash and cash equivalents at beginning of period                      1,104              381
                                                            -----------------  ---------------
Cash and cash equivalents at end of period                   $       13,018     $      1,953
                                                            =================  ===============

Supplemental disclosure:
         Interest paid during the period                     $        2,572     $      1,087

Non-cash investing activities:
         Fair value of stock issued for ownership 
              interest in another entity                     $          621     $         --
         Fair value of stock issued for property             $           --     $      3,320

</TABLE>


See Notes to Consolidated Financial Statements


                                  Page 6 of 16

<PAGE>


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

1.  INTERIM UNAUDITED FINANCIAL INFORMATION

U.S.  Restaurant  Properties,  Inc. (the "Company") is a  self-administered  and
self-managed  real  estate  investment  trust  ("REIT"),  as  defined  under the
Internal  Revenue Code of 1986,  as amended.  As noted in the  Company's  Annual
Report on Form 10-K for the year ended December 31, 1997, the Company became the
successor entity to U.S.  Restaurant  Properties Master L.P.  (collectively with
its  subsidiaries,  "USRP").  The  business  and  operations  of the Company are
conducted primarily through U.S. Restaurant Properties Operating L.P. ("OP"). At
March 31, 1998,  the Company owns 91.98% of and controls the OP. As of March 31,
1998, the Company owned 635 restaurant and other properties in 46 states.

The accompanying consolidated financial statements should be read in conjunction
with the  consolidated  financial  statements and notes thereto  included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997, which
was filed with the Securities and Exchange  Commission  ("SEC").  The results of
operations  for the three  months  ended  March 31,  1998,  are not  necessarily
indicative of the results to be expected for the year ending  December 31, 1998.
Certain  information  and footnote  disclosures  normally  included in financial
statements prepared in accordance with generally accepted accounting  principles
have been condensed or omitted in this report on Form 10-Q pursuant to the Rules
and  Regulations  of the SEC.  In the  opinion of  management,  the  disclosures
contained  in this report are  adequate to make the  information  presented  not
misleading.

The accompanying  consolidated  balance sheet as of March 31, 1998 and the other
consolidated financial information for the three months ended March 31, 1998 and
1997, are unaudited, but management of the Company believes that all adjustments
(consisting only of normal recurring accruals) necessary for a fair presentation
of the Company's  consolidated  financial  statements for the periods  presented
have been included therein.

The Company had 13,021,838 and 12,698,113  shares of Common Stock outstanding as
of March 31,1998 and December 31, 1997 respectively.

2.  NET INCOME PER SHARE OF COMMON STOCK

Effective  December  31,  1997,  the  Company  adopted  Statement  of  Financial
Accounting  Standards No. 128,  Earnings per share (SFAS No. 128).  Earnings per
share  amounts  presented  for the period  March 31, 1997 have been  restated to
comply with the provisions of SFAS No. 128.

The following table reflects the  calculation of basic and diluted  earnings per
share for the period ended March 31, 1998 and 1997.


                                  Page 7 of 16

<PAGE>


<TABLE>
<CAPTION>
                                                           Three Months Ended
                                                                 March 31,
                                                   --------------------------------------
(In thousands, except per share amounts)                 1998                 1997
                                                   -----------------     ----------------
<S>                                                <C>                   <C>           
Net income before extraordinary item                $        4,594        $       1,952
    Loss on early extinguishment of debt                      (190)                  --
                                                   -----------------     ----------------
Net income                                                   4,404                1,952
    Dividends on preferred stock/General 
      partner interest                                      (1,776)                 (39)
                                                   -----------------     ----------------
Net income allocable to shareholders                $        2,628        $       1,913
                                                   =================     ================
Net income per share - Basic           
    Before extraordinary item less
      preferred stock dividends/general                                                                      
      partner interest                                     $  0.22              $  0.18
    Extraordinary loss on extinguishment
      of debt                                                (0.02)                  --
                                                   -----------------     ----------------
Net income allocable to common stockholders                $  0.20              $  0.18
                                                   =================     ================

Net income per share - Diluted
    Before extraordinary item, less
      preferred stock dividends/general                                                        
      partner interest                                     $  0.22              $  0.18
    Extraordinary loss on extinguishment
      of debt                                                (0.02)                  --
                                                   -----------------     ----------------
Net income allocable to common stockholders                $  0.20              $  0.18
                                                   =================     ================

Weighted average shares outstanding (a)
    Basic                                                   12,852               10,370
      Dilutive effect of outstanding options                   165                  246
      Dilutive effect of guaranteed stock                       --                   --
                                                   -----------------     ----------------
    Diluted                                                 13,017               10,616
                                                   =================     ================

</TABLE>

         (a)  Excludes   3,680,000   shares  of  convertible   preferred  stock,
              913,563 shares of guaranteed stock and 1,148,418 OP units, which
              are anti-dilutive.

Comprehensive  income is the same as net income for the three months ended March
31, 1998 and 1997.

3.  PROPERTY ACQUISITIONS

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

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

On March 31, 1998, earnest money purchase deposits amounting to $285,000 were on
deposit  for  the  purchase  of  12  Shoney's  restaurants,  three  Burger  King
restaurants, two Arby's and six other restaurant and gas station properties.

4.  REVOLVING CREDIT FACILITIES

On January 17, 1998 the Company entered into a credit agreement with a syndicate
of banks for an unsecured  revolving  credit line of $175  million.  This credit
agreement  replaced the Company's then existing line of credit.  As of March 31,
1998, the Company has  approximately  $36 million available under the new credit
agreement.  The Company  may request  advances  under this credit  agreement  to
finance  the  acquisition  of  restaurant  properties,   to  repair  and  update
restaurant properties and for working capital. The banks will also issue standby
letters of credit for the  account of the Company  under this credit  agreement.
This credit  agreement  expires on January 15, 2001 and provides that borrowings
thereunder  bear  interest  at the then  current  LIBOR plus a margin  spread of
either 1.05%, 1.20% or 1.35%, dependent on a leverage ratio formula.


                                  Page 8 of 16

<PAGE>


As of March 31,  1998 the margin  spread was 1.05%.  There is an unused  line of
credit fee of 0.25% per annum on the unused portion of the credit agreement.

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

On August 15,  1997,  a wholly owned  subsidiary  of the Company  entered into a
short term  borrowing  facility (the "Pacific  Mutual  Facility") of $30 million
which  matures on May 20, 1998 and  provides  that  borrowings  thereunder  bear
interest at LIBOR plus 2.30% per annum.  There is a fee of 1.0% per annum on the
unused  commitment.  The  Pacific  Mutual  Facility  is secured by the pledge of
1,351,618 shares of unissued Common Stock of the Company. During the three month
period ended March 31, 1998,  the Company  repaid  $15,000,000 on this revolving
credit facility.  At March 31, 1998 the outstanding balance was $11,200,000.  On
April 24, 1998 the $11,200,000 balance was repaid and the borrowing facility was
terminated.

5.  NOTES PAYABLE

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

6.  RELATED PARTY TRANSACTIONS

Prior to October 15, 1997, QSV Properties,  Inc, the Managing General Partner of
USRP ("QSV") was responsible for managing the business and affairs of USRP. USRP
paid QSV a  non-accountable  annual  allowance  (adjusted  annually  to  reflect
increases in the Consumer Price Index and additions to the property  portfolio),
plus reimbursement of out-of-pocket costs incurred to other parties for services
rendered to USRP.  The  allowance  for the three months ended March 31, 1997 was
$380,000.  The Company's  accounts  payable balance  includes  $121,000 for this
allowance  as of  December  31,  1997.  In  addition  QSV  was  paid a  one-time
acquisition  fee equal to one  percent  of the  purchase  price  for  additional
property  purchases  which amounted to $199,000 for the three months ended March
31, 1997.  This  contract  was  terminated  in  conjunction  with the  Company's
conversion to a REIT on October 15, 1997.

A note receivable of $277,000 and $261,000 is due from Arkansas  Restaurants #10
L.P.  ("ARLP") at March 31, 1998 and December 31, 1997,  respectively.  The note
receivable  is due on  September 1, 1998,  and has an interest  rate of 9.0% per
annum.  At March 31, 1998 and December 31,  1997,  tenant and other  receivables
from ARLP were $160,000 and $158,000, respectively. The managing general partner
of ARLP is owned by an officer of the Company,  who receives no compensation for
this role.

As of March 31, 1998 and December 31, 1997,  notes receivable of $1,070,000 were
due from Southeast Fast Food Partners,  L.P.  ("SFF").  The notes receivable are
due on July 1, 1998  ($207,000) and July 1, 1999 ($863,000) and have an interest
rate of 9.0%  per  annum.  At  March  31,  1998  and  December  31,  1997 a note
receivable  of $136,000 is due from the owners of SFF.  This note is due on July
1, 1999,  and has an interest  rate of 9.0% per annum.  As of March 31, 1998 and
December  31,  1997,  tenant and other  receivables  from SFF were  $306,000 and
$362,000,  respectively.  The  Managing  General  Partner of SFF, is owned by an
officer of the Company, who receives no compensation for this role.

During 1996, the Company agreed to make available to USRP Development  Company a
revolving  line of credit in the  principal  amount  of  $5,000,000,  to be used
solely for paying for the acquisition  and development of restaurant  properties
which will be purchased by the Company upon completion of development.  The line
of credit is secured by certain development  properties and bears interest at an
annual  rate of 9.0%.  The line of credit  was  increased  to  $15,000,000  with
interest only payments due on November 1, 1998, and on each anniversary  thereof
throughout the term of the note with all  outstanding  principal and accrued but
unpaid interest due on October 31, 2001, when it matures. At March 31, 1998, the
outstanding balance was $9,374,000.


                                  Page 9 of 16

<PAGE>


7.  STOCKHOLDERS' EQUITY AND MINORITY INTEREST

COMMON STOCK

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

MINORITY INTEREST

As reported in the Company's Annual Report on Form 10-K as of December 31, 1997,
the  management  contract  between  QSV and USRP was  terminated.  The  contract
termination  and QSV's  partnership  interests in USRP were converted to 126,582
shares of Common  Stock of the  Company  and  1,148,418  units of the OP. The OP
units  represent  a  minority  interest  in the OP of the  REIT.  Each  OP  unit
participates  in any income  (loss) of the OP based on the percent  ownership in
the OP and the OP  units  held  by QSV  receive  a cash  dividend  in an  amount
equivalent to a share of Common Stock. Each OP unit held by QSV may be exchanged
for one share of Common Stock of the Company.  With each exchange of outstanding
OP units for Common Stock, the Company's  percentage  ownership  interest in the
OP,  directly or  indirectly,  will  increase.  An additional  825,000 shares of
Common Stock of the Company or its  equivalent  in OP units may be issued to QSV
if certain earnings targets are met by the Company by the year 2000.
As of March 31, 1998 these earnings targets have not been met.

Minority  interest  in the OP consists  of the  following  at March 31, 1998 (in
thousands):


                Balance December 31, 1997                $      19,536
                Distributions                                     (425)
                Income allocated to minority interest              234
                                                         ---------------
                Balance at March 31, 1998                $      19,345
                                                         ===============


8.  SUBSEQUENT EVENTS

As of the  April 29,  1998,  two  affiliates  of the  Company , U.S.  Restaurant
Lending GP, Inc. (the "General  Partner") and U.S.  Restaurant  Lending LP, Inc.
(the  "Limited  Partner")  entered  into joint  venture and limited  partnership
agreements  with MLQ Investors,  L.P., an affiliate of Goldman,  Sachs & Co., to
form two  limited  partnerships.  The two  limited  partnerships  will engage in
lending  activities to owners and operators of quick service  franchises and gas
station/convenience  store outlets. The Company has indirect ownership interests
(through  the  General  Partner  and  Limited  Partner)  of  71.25%  and  47.5%,
respectively,  in these two partnerships. As of April 30, 1998, the partnerships
had originated one mortgage loan in the amount of $2.3 million.

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


                                 Page 10 of 16

<PAGE>


9.  PRO FORMA (UNAUDITED)

The  following  pro forma  information  was  prepared  by  adjusting  the actual
consolidated  results of the Company for the three month periods ended March 31,
1998 and 1997 for the effects of:

a.   the purchase of 44 properties on various dates from January 1, 1998 through
     March 31, 1998 for an aggregate  purchase price of $44,160,000  and related
     financing transactions; and

b.   the purchase of 277 restaurant  properties on various dates during 1997 for
     an aggregate purchase price of $182,396,000  including the value of 680,696
     shares of Common  Stock  issued to  sellers;  the loan of  $6,000,000  on a
     secured  mortgage;   and  the  sale  of  eight  restaurant  properties  for
     $5,822,000;  the Preferred  Stock  dividends  required and the reduction of
     interest expense as a result of the Preferred Stock offering  proceeds used
     to reduce the total debt  outstanding  by  $87,622,000;  the  three-for-two
     stock split on October 30, 1997; and other related financing  transactions,
     including the sale of 1,434,831 shares of Common Stock for $25,000,000.

These pro forma  operating  results are not  necessarily  indicative of what the
actual  results of operations of the Company would have been assuming all of the
properties  were  acquired as of January 1, 1997 and do not purport to represent
the results of operations for future periods.

                                               Three Months Ended March 31,
                                              -----------------------------
(In thousands, except per share amounts)         1998              1997
                                              ------------    -------------
Total Revenues                                $   13,686      $    13,221
                                              ============    =============
Net Income                                         4,546            4,576

Dividends on Preferred Stock                      (1,776)          (1,776)
                                              ------------    -------------
Net income allocable to Common Shareholders   $    2,770      $     2,800
                                              ============    =============
Weighted average shares outstanding
         Basic                                    12,852           12,607
         Diluted                                  13,017           12,852

Net income per share
         Basic                                     $0.22            $0.22
         Diluted                                   $0.21            $0.22


                                 Page 11 of 16

<PAGE>


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

RESULTS OF OPERATIONS.

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

On October  15, 1997 the  Company  changed  its form of  business  from a master
limited  partnership to a REIT. U. S.  Restaurant  Properties,  Inc.  became the
successor  entity to U.S.  Restaurant  Properties  Master  L.P.  The  results of
operations  for the three  months  ended  March 31,  1998 are  presented  as the
continuation of the operations of the predecessor entity.

The results of operations of the Company,  together with its  predecessors,  for
the periods discussed below have been affected by the growth in the total number
of  Properties  owned by the Company,  as well as by increases in rental  income
across the portfolio, over such time periods. The following discussion considers
the specific  impact of such factors on the results of operations of the Company
for the following periods.

Comparison  of the three  months  ended March 31, 1998 to the three months ended
March 31, 1997

The Company owned 322 properties  prior to January 1, 1997. The Company acquired
277 properties  and sold 8 properties  from January 1, 1997 to December 31, 1997
and the Company  acquired 44 properties  from January 1, 1998 to March 31, 1998,
the  operations  of which are  included  in the  periods  presented  from  their
respective dates of acquisition.

Revenues for the three months  ended March 31, 1998 totaled  $13,221,000  up 111
percent from the $6,265,000  recorded for the three months ended March 31, 1997.
The  increase  in  revenues  is  primarily  due to  increases  in the  number of
properties  owned  during the  period as  compared  to the same  period in 1997.
Through  March 31, 1998,  approximately  13% of the  Company's  rental  revenues
resulted  from  percentage  rents (rents  determined  as a percentage  of tenant
sales),  down from 21% for the three months  ended March 31, 1997.  As a result,
the  impact  of  restaurant  sales  had a  diminishing  impact  on total  rental
revenues.  Also included in revenues is interest  income  relating  primarily to
secured notes and mortgage receivable from tenants and related parties. Interest
income was  $596,000 for the three  months  ended March 31, 1998  compared  with
$112,000 for the three months ended March 31, 1997.

Rent  expense for the three  months  ended March 31,  1998  totaled  $742,000 an
increase  of 26% when  compared  to the  three  months  ended  March  31,  1997.
Depreciation and amortization  expenses in the three months ended March 31, 1998
totaled $3,370,000,  an increase of 115% when compared to the three months ended
March 31, 1997. The increase in rent expense and  depreciation  and amortization
expenses directly relates to the property acquisitions.

Taxes, general and administrative  expenses for the three months ended March 31,
1998  totaled  $1,020,000  an increase of 44% when  compared to the three months
ended March 31, 1997.  The  increase was a result of the costs of the  increased
infrastructure,  including  additional  employees,  required  by the  Company to
manage and maintain the Company's rate of growth.

Interest  expense for the three months ended March 31, 1998 totaled  $3,261,000,
an increase of 125%, when compared to the three months ended March 31, 1997. The
increase in interest  expense directly relates to the additional debt associated
with the acquisitions.

Minority interest in net income of the OP of $234,000 for the three months ended
March 31, 1998 related to OP units held by QSV.

                                 Page 12 of 16

<PAGE>


Loss on debt  extinguishment  of $190,000  for the three  months ended March 31,
1998 related to the termination of the Company's previous line of credit.

LIQUIDITY OF CAPITAL RESOURCES.

The Company's  principal source of cash to meet its short term cash requirements
is rental revenues generated by the Company's properties.  Cash generated by the
portfolio in excess of  operating  needs is used to reduce  amounts  outstanding
under the Company's credit agreements.  Currently,  the Company's primary source
of funding  for  acquisitions  is its  existing  revolving  line of credit.  The
Company  anticipates  meeting its future  long-term  capital  needs  through the
issuance of additional  debt or equity,  including the issuance of additional OP
units,  along with cash  generated  from internal  operations.  During the three
months ended March 31, 1998 the Company paid dividends of $0.37 per share, or an
aggregate  of  $5,234,000  to common  stockholders  and minority  interests.  In
addition,  the Company  paid  dividends  of $0.6380 per share,  or an  aggregate
$2,348,000 to preferred  stockholders  covering the period  November 17, 1997 to
March 15, 1998.

On January 17, 1998 the Company entered into a credit agreement with a syndicate
of banks for an unsecured  revolving  credit line of $175  million.  This credit
agreement  replaced the Company's then existing line of credit.  As of March 31,
1998, the Company has  approximately  $36 million available under the new credit
agreement.  The Company  may request  advances  under this credit  agreement  to
finance  the  acquisition  of  restaurant  properties,   to  repair  and  update
restaurant  properties and for working capital.  This credit agreement  provides
that borrowings thereunder bear interest at LIBOR plus a margin spread which was
1.05% per annum at March 31, 1998.

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

Management believes that the existing debt facilities,  along with the Company's
ability  to raise  additional  equity,  including  the  issuance  of OP units in
exchange for properties,  will provide the Company with sufficient  liquidity to
meet operating and growth requirements.

FUNDS FROM OPERATIONS (FFO)

FFO is computed as net income (loss) available to common stockholders  (computed
in  accordance  with GAAP),  excluding the effects of direct  financing  leases,
minority interest, unusual charges and gains (or losses) from debt restructuring
and sales of property,  plus real estate related  depreciation and amortization.
The Company believes FFO is helpful to investors as a measure of the performance
of an equity REIT because,  along with cash flows from operating,  financing and
investing activities, it provides investors with an understanding of the ability
of the  Company to incur and service  debt and make  capital  expenditures.  The
Company  believes  that  it  computes  FFO  in  accordance  with  the  standards
established  by the  National  Association  of  Real  Estate  Investment  Trusts
("NAREIT"),  which may differ from the  methodology for calculating FFO utilized
by other equity  REITs,  and,  accordingly,  may not be comparable to such other
REITs.  Further,  FFO does not  represent  amounts  available  for  management's
discretionary  use because of needed  capital  replacement  or  expansion,  debt
service obligations,  or other commitments and uncertainties.  FFO should not be
considered as an alternative to net income  (determined in accordance with GAAP)
as an indication of the Company's  financial  performance  or to cash flows from
operating  activities  (determined in accordance  with GAAP) as a measure of the
Company's  liquidity,  nor is it  indicative  of  funds  available  to fund  the
Company's cash needs, including its ability to make distributions.

The  following  table sets forth,  for the three months ended March 31, 1998 and
1997, the calculation of FFO:

                                 Page 13 of 16

<PAGE>



(in thousands)                                       Three Months Ended
                                                           March 31,
                                                ----------------------------
Funds From Operations                               1998             1997
                                                ------------   -------------
Net income allocable to common stockholders     $   2,628      $     1,913

    Direct financing lease payments                   582              555
    Capital lease principal payments                  (26)             (50)
    Depreciation and amortization                   3,353            1,566
    Income allocable to minority interest             234               --
    Income allocable to general partner                --               39
    Distributions to general partner                   --              (70)
    Loss on early extinguishment of debt              190               --
                                                ------------   --------------
Funds from operations (FFO)                     $   6,961      $     3,953
                                                ============   ==============
Total shares applicable to FFO                     14,165           10,616
                                                ============   ==============


INFLATION

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

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

SEASONALITY

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


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Not applicable


                                 Page 14 of 16

<PAGE>


                           PART II. OTHER INFORMATION


ITEM 1   LEGAL PROCEEDINGS

         None

ITEM 2   CHANGES IN SECURITIES

         None

ITEM 3   DEFAULTS UPON SENIOR SECURITIES

         None

ITEM 4   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         None

ITEM 5   OTHER INFORMATION

         None

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         A)   EXHIBITS

              1)   Exhibit 27 - Financial data schedule

         B)   REPORTS ON FORM 8-K


              1)   A report on Form 8-K/A  dated  November  26, 1997 was
                   filed with the Securities and Exchange  Commission on
                   January 23,  1998,  reporting  financial  information
                   regarding the acquisition of restaurant properties.

              2)   A report on Form 8-K dated January 21, 1998 was filed
                   with  the  Securities  and  Exchange   Commission  on
                   February  4, 1998,  reporting  financial  information
                   regarding the acquisition of restaurant properties.

              3)   A report on Form 8-K/A  dated  January  21,  1998 was
                   filed with the Securities and Exchange  Commission on
                   March  20,  1998,  reporting  financial   information
                   regarding the acquisition of restaurant properties.



                                 Page 15 of 16
<PAGE>


                                    SIGNATURE


         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
the  Registrant  has duly  caused  this report to be signed on its behalf by the
undersigned thereunto duly authorized.



                                   U.S. RESTAURANT PROPERTIES, INC.




Dated:  May 14, 1998               By    /s/ Robert J. Stetson
                                     ---------------------------------------
                                       Robert J. Stetson
                                       President and Chief Executive Officer



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


                                 Page 16 of 16