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 March 31, 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___

         57,901,088 shares of common stock, $0.001 par value,  outstanding as of
May 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                                     10-32

    Item 2.Management's Discussion and Analysis of Financial
                Condition and Results of Operations                  33-49

    Item 3.Quantitative and Qualitative Disclosures About
                Market Risk                                          50

    Item 4.Controls and Procedures                                   50-51

Part II

    Other Information                                                52-55




<PAGE>



Item 1.  Financial Statements

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

<TABLE>
<CAPTION>


 <c>
                                                                           March 31,              December 31,
                                                                             2005                     2004
                                                                        ----------------         ----------------
ASSETS

Real estate investment properties                                          $   1,562,186             $    535,588
Net investment in direct financing leases                                        161,725                   98,972
Real estate and other assets held for sale                                       174,069                  146,136
Mortgage, equipment and other notes receivable, net of
    allowance of $7,391 and $7,261, respectively                                 300,151                  290,140
Other investments                                                                 16,282                   16,495
Cash and cash equivalents                                                         28,661                   22,744
Restricted cash                                                                   13,732                    7,402
Receivables, less allowance for doubtful accounts
    of $3,554 and $2,136, respectively                                             9,595                    7,391
Accrued rental income                                                             29,837                   28,546
Goodwill                                                                         183,711                   56,260
Other assets                                                                     120,570                   33,975
                                                                       ------------------       ------------------
                                                                           $   2,600,519            $   1,243,649
                                                                       ==================       ==================

LIABILITIES AND STOCKHOLDERS' EQUITY

Revolver and term loan                                                      $    189,000             $     21,000
Notes payable                                                                    411,697                  162,810
Mortgage warehouse facilities                                                     67,712                  101,394
Subordinated note payable                                                         21,875                   21,875
Bonds payable                                                                    803,617                  405,421
Due to related parties                                                            36,735                   37,172
Other payables                                                                    95,313                   33,736
                                                                       ------------------       ------------------
    Total liabilities                                                      $   1,625,949             $    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>
                                                                           March 31,              December 31,
                                                                             2005                     2004
                                                                        ----------------         ----------------

Minority interests, including redeemable  partnership interest
    in 2004                                                                     4,551                    6,819

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
       March 31, 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 March 31, 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 57,901 and 45,286 shares issued at March 31, 2005
       and December 31, 2004, respectively, and 57,901 and 45,249
       shares outstanding at March 31, 2005 and December 31, 2004,
       respectively                                                                58                      452
    Capital in excess of par value                                          1,358,931                  825,134
    Accumulated other comprehensive loss                                       (5,733 )                (12,434 )
    Accumulated distributions in excess of net income                        (383,252 )               (359,730 )
                                                                       ------------------       ------------------
           Total stockholders' equity                                         970,019                  453,422
                                                                       ------------------       ------------------

                                                                        $   2,600,519            $   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
                                                                                       March 31,
                                                                               2005                 2004
                                                                           --------------       --------------
Revenues:
    Rental income from operating leases                                      $    23,474           $   14,427
    Earned income from direct financing leases                                     2,762                2,575
    Interest income from mortgage, equipment and other
       notes receivables                                                           6,281                6,653
    Investment and interest income                                                   546                1,191
    Other income                                                                   1,061                1,356
                                                                          ---------------       --------------
                                                                                  34,124               26,202
                                                                          ---------------       --------------
Expenses:
    General operating and administrative                                          10,963                6,299
    Interest expense                                                              16,891               11,829
    Property expenses, state and other taxes                                       1,197                  135
    Depreciation and amortization                                                  5,230                2,784
    Loss on termination of cash flow hedge                                            --                  355
    Impairments and provisions on assets                                              --                  547
                                                                          ---------------       --------------
                                                                                  34,281               21,949
                                                                          ---------------       --------------
Income/(loss) from continuing operations before minority
    interest, equity in earnings of unconsolidated joint
    ventures and gain on sale of assets                                             (157 )              4,253

Minority interest                                                                   (815 )               (662 )

Equity in earnings of unconsolidated joint ventures                                   30                   34

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

Income/(loss) from continuing operations, net                                       (942 )              3,631

Income from discontinued operations, after income taxes                            4,391                7,217
                                                                          ---------------       --------------

Net income                                                                         3,449               10,848
     Dividends to preferred stockholders                                          (2,923 )                  --
                                                                          ---------------       --------------
Net income allocable to common stockholders                                    $     526           $   10,848
                                                                          ===============       ==============

Basic and diluted net income per share:
    Income/(loss) from continuing operations allocable to
       common stockholders                                                   $     (0.09 )          $    0.10
    Income from discontinued operations                                             0.10                 0.21
                                                                          ---------------       --------------

Basic and diluted net income per share                                        $     0.01            $    0.31
                                                                          ===============       ==============

Weighted average shares of common stock outstanding (Notes 2 and 13):
    Basic                                                                         43,858               35,032
                                                                          ===============       ==============
    Diluted                                                                       43,858               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)
                          Quarter ended March 31, 2005
                                   (UNAUDITED)
                    (In thousands except for per share data)


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

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

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

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

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




     See accompanying notes to condensed consolidated financial statements.

<PAGE>


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

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



     (224 )          --             --      440,286

       --            --

       --            --             --       88,235

       --         3,449             --        3,449      3,449




       --            --             96           96         96





       --            --          6,605        6,605      6,605
                                                      -----------
       --            --             --           --    $10,150
                                                       ===========


      224            --             --          224


       --       (21,701 )           --      (21,701 )


       --        (2,923 )           --       (2,923 )


       --            --             --        2,053










<PAGE>

                           TRUSTREET PROPERTIES, INC.
 CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME/(LOSS)
                          Quarter ended March 31, 2005
                                   (UNAUDITED)
                    (In thousands except for per share data)


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

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

Proceeds from exercised
    stock options                 --          --         --           --        19         --         273            --
                             ---------- ----------- -----------  ---------- --------- --------- -----------  ------------

Balance at March 31, 2005      7,834    $      8      7,244      $     7    57,901     $   58   $1,358,931   $   (2,347 )
                             ========== =========== ===========  ========== ========= ========= ===========  ============




     See accompanying notes to condensed consolidated financial statements.
<PAGE>


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



  $     --   $     --      $     --       $     --


        --         --            --            273
----------- -----------   -----------    ----------

  $     --  $(380,905 )    $ (5,733 )     $970,019
=========== ===========   ===========    ==========


</TABLE>

<PAGE>

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

<TABLE>
<CAPTION>

 <c>
                                                                                        Quarter ended
                                                                                          March 31,
                                                                                   2005                2004
                                                                               --------------       ------------
  Cash flows from operating activities:

     Net income                                                                  $     3,449         $   10,848
     Adjustments to reconcile net income to net cash
        provided by operating activities:
           Depreciation and amortization on real estate assets                         5,072              2,759
           Depreciation and amortization on non-real estate assets                       385                306
           Amortization of deferred financing costs                                    1,968                 --
           Impairments and provisions on assets                                          207                547
           Gain on sales of assets                                                      (180 )           (1,452 )
           Stock based compensation                                                    2,053                 --
           Increase in income tax payable                                              2,000              1,234
           Decrease in deferred tax asset                                              4,595                 --
           Increase in accrued rental income                                          (1,291 )           (1,033 )
           Amortization of investment in direct financing leases                         895                533
           Changes in inventories of real estate held for sale                        34,185            (28,997 )
           Changes in other operating assets and liabilities                           6,244             (3,430 )
                                                                              ---------------      -------------
        Net cash provided by /(used in) operating activities                          59,582            (18,685 )
                                                                              ---------------      -------------

  Cash flows from investing activities:
     Additions to real estate investment properties                                  (26,331 )               --
     Proceeds from sale of assets                                                         --              9,164
     Decrease in restricted cash                                                       1,462              3,873
     Acquisition of Income Funds                                                    (449,997 )               --
     Cash acquired through merger                                                     43,473                 --
     Payment of merger costs for USRP reverse merger                                 (11,927 )               --
     Collection on mortgage, equipment and other notes receivable                      2,887              3,112
                                                                              ---------------      -------------
        Net cash provided by/(used in) investing activities                         (440,433 )           16,149
                                                                              ---------------      -------------
</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>
                                                                                        Quarter Ended
                                                                                          March 31,
                                                                                   2005               2004
                                                                              ---------------    ---------------
     Cash flows from financing activities:
        Payment of stock issuance costs                                          $    (1,493 )     $     (1,493 )
        Proceeds from borrowings on revolver, term loan and note payable             762,000              8,500
        Payment on revolver and note payable                                        (767,507 )          (18,147 )
        Proceeds from borrowings on mortgage warehouse facilities                      7,892             49,957
        Payments on mortgage warehouse facilities                                    (41,574 )          (32,869 )
        Proceeds from borrowings on senior notes                                     250,000                 --
        Proceeds from issuance of bonds                                              275,000                 --
        Retirement of bonds payable                                                  (20,381 )           (5,206 )
        Payment of bond issuance and debt refinancing costs                          (22,456 )              (16 )
        Proceeds from termination of hedge                                             1,685                 --
        Proceeds from exercised stock options                                            273                 --
        Retirement of convertible preferred stock                                    (32,500 )               --
        Loan from stockholder                                                             --               5,700
        Acquisition of minority interest                                                (655 )               --
        Distributions to minority interest                                              (755 )             (513 )
        Distributions to common stockholders                                         (17,849 )          (18,009 )
        Distributions to preferred stockholders                                       (4,912 )               --
                                                                              ---------------    ---------------
               Net cash provided by/(used in) financing activities                   386,768            (12,096 )
                                                                              ---------------    ---------------

  Net increase (decrease) in cash and cash equivalents                                 5,917            (14,632 )

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

  Cash and cash equivalents at end of period                                     $    28,661       $     22,323
                                                                              ===============    ===============

  Supplemental disclosures of cash flow information:

        Interest paid                                                            $    14,813       $     11,188
                                                                              ===============    ===============

        Interest capitalized                                                        $      --        $       14
                                                                              ===============    ===============

        Income taxes paid                                                           $      --        $      545
                                                                              ===============    ===============

  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 March 31                            $     6,369        $       --
                                                                              ===============    ===============


       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 Ended March 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.  This segment  historically had earnings from interest income
         on mortgage loans as well. The majority of these loans were sold to the
         real  estate  segment  as of March 31,  2005  where  management  of the
         Company believes the loans are more aligned as long-term investments.

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  described in Note 4,  operating  results for the quarter  ended
         March 31,  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 March 31, 2005. Operating
         results for the three months ended March 31, 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 three
         months ended March 31, 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 March 8, 2005.

         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,  as described in Note
         4.



<PAGE>


                           TRUSTREET PROPERTIES, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                       Quarters Ended March 2005 and 2004
                                   (UNAUDITED)


2.       Basis of Presentation - Continued:

         The Company reports both basic and diluted  earnings per share amounts.
         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 for the Series A  Cumulative  Convertible
         Preferred  Stock (the  "Series A Preferred  Stock") and the 7.5 percent
         Series  C  Redeemable   Convertible  Preferred  Stock  (the  "Series  C
         Preferred Stock")  (collectively  "Common Stock Equivalents").  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, pursuant to merger agreements between each of the
         Income Funds and USRP,  each Income Fund 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 discussed further in Note 9. As a result of the merger,  the Company
         became the largest  publicly  traded REIT in the United States  focused
         primarily on the restaurant  industry.  The mergers further diversified
         the Company  portfolio and enhanced the Company's  leading  position in
         the restaurant industry.

         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 own  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 in  accordance  with  Statement of Financial
         Accounting Standards No. 141 "Business Combinations" ("FAS 141").


<PAGE>


                           TRUSTREET PROPERTIES, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                       Quarters Ended March 2005 and 2004
                                   (UNAUDITED)


4.       Merger - Continued:

         The  Company's  allocation  of the  amount to the assets  acquired  and
         liabilities  assumed is preliminary and subject to change. The purchase
         price has been allocated  between  assets,  liabilities  and intangible
         assets based on the initial estimates of fair value.  These allocations
         are  preliminary  and may not be indicative  of the final  allocations.
         Management  of the Company  continues  to  evaluate  the  existence  of
         pre-merger  contingencies  and the assumptions used in valuing the real
         estate.   Management  of  the  Company  anticipates   finalizing  these
         allocations  during  the  latter  part 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 the USRP and
         Income Fund 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 Eight Percent 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                                                                      13,058
                                                                                               ----------------
                   Total                                                                        $   486,068
                                                                                               ================

</TABLE>


<PAGE>


                           TRUSTREET PROPERTIES, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                       Quarters Ended March 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
         (see Note 9).

         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  $127.5  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 Ended March 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                                                   13,058
           Cash                                                               449,997
           Series A Preferred Shares                                           88,235
                                                                      ----------------
              Total consideration                                         $ 1,024,300
                                                                      ================

         Assets Acquired:
           Real estate investment properties                              $ 1,003,171
           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                             16,770
           Accounts receivable                                                  5,346
         Other assets:
           Above market leases                                                 47,638
           Leases in place                                                     15,675
           Tenant relationships                                                 9,539
           Other                                                                9,640
           Goodwill                                                           127,451 (1)
                                                                      ----------------
              Total                                                         1,410,695
                                                                      ----------------

         Liabilities Assumed:
           Revolver                                                            14,150
           Notes payable                                                      158,244
           Bonds payable                                                      143,505
           Due to related parties                                                 270
           Other payables:
              Below market leases                                              32,501
              Environmental and exit costs liability                            4,775
              Distributions payable                                             4,506
              Other                                                            21,074
           Minority interests                                                   7,594
           Loan due from stockholder (reduction of equity)                       (224 )
                                                                      ----------------
              Total                                                           386,395
                                                                      ----------------

                Net assets acquired                                       $ 1,024,300
                                                                      ================
</TABLE>

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

<PAGE>


                           TRUSTREET PROPERTIES, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                       Quarters Ended March 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. In addition,  the Company is
         currently in the process of a phase-one  environmental  assessment that
         is expected to be completed  during the second  quarter of 2005.  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 $140  million  term loan,  net of the effect of  eliminating  the
         interest  expense  and  amortization  of  loan  costs  relating  to the
         repayment  of $157  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 Ended March 2005 and 2004
                                   (UNAUDITED)


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

 <c>
                                                                           Three Months      Three Months
                                                                          Ended March 31,    Ended March 31,
                                                                               2005              2004
                                                                          --------------    -------------

              Revenues                                                        $  53,857        $ 56,450
                                                                          ==============    =============

              Net income/(loss)                                                $ (1,975 )      $ 19,405
              Dividends to preferred stockholders                                (7,157 )         (7,157 )
                                                                          --------------    -------------
              Net income allocable to common stockholders                        (9,132 )        12,248
                                                                          ==============    =============

              Basic and diluted earnings/(loss) per share                      $  (0.16 )      $   0.21
                                                                          ==============    =============

              Basic and diluted weighted average shares outstanding              57,668          57,630
                                                                          ==============    =============
</TABLE>

         During  the  quarter  ended  March  31,  2005,  the  Company   recorded
         non-recurring  charges of approximately  $13.7 million.  These one-time
         expenses  consisted  of a non-cash  tax  charge of $5 million  and $8.7
         million of expenses related to the Merger.

5.       Intangible Lease Costs:

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

 <c>
                                                                               2004             2003
                                                                            ------------    -------------

           Intangible lease origination costs:
             Leases in place                                                   $ 15,675            $   --
             Tenant relationships                                                 9,539                --
                                                                            ------------    -------------

             Less accumulated amortization                                         (682)               --
                                                                            ------------    -------------
                                                                                 24,532                --
                                                                            ------------    -------------
             Above market lease values                                           47,638                --
             Less accumulated amortization                                         (524)               --
                                                                            ------------    -------------
                                                                                 47,114                --
                                                                            ------------    -------------
                                                                               $ 71,646            $   --
                                                                            ============    =============
</TABLE>

         Above market  lease values and below 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 Ended March 2005 and 2004
                                   (UNAUDITED)


6.       Real Estate Investment Properties:

         Real estate investment properties consist of the following at:
<TABLE>
<CAPTION>

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

                Land                                    $    820,725             $   281,777
                Buildings                                    802,713                 313,928
                Equipment and other                            4,661                   1,251
                                                   ------------------       -----------------
                                                           1,628,099                 596,956
                Less accumulated depreciation                (65,913 )               (61,368 )
                                                   ------------------       -----------------

                                                       $   1,562,186            $    535,588
                                                   ==================       =================
</TABLE>

         In connection with the Merger described in Note 4, the Company acquired
         land, buildings and restaurant equipment during the quarter ended March
         31, 2005.

         Future  minimum   contractual  lease  payments  to  be  received  under
         noncancellable operating leases at March 31, 2005 are as follows:

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

                     2005                              $     114,279
                     2006                                    149,533
                     2007                                    147,254
                     2008                                    145,806
                     2009                                    144,330
                     Thereafter                            1,075,197
                                                 --------------------

                                                      $    1,776,399
                                                 ====================

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)
                                                             March 31,          December 31,
                                                                2005                2004
                                                            -------------      ---------------

              Minimum lease payments
                  receivable                                   $ 240,291          $   177,109
              Estimated residual values                           44,701               25,261
              Interest receivable from
                  secured equipment leases                             6                    7
              Less unearned income                              (123,273 )           (103,405 )
                                                            -------------      ---------------

              Net investment in direct financing
                  leases                                       $ 161,725           $   98,972
                                                            =============      ===============
</TABLE>


<PAGE>



                           TRUSTREET PROPERTIES, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                       Quarters Ended March 2005 and 2004
                                   (UNAUDITED)


7.       Net Investment in Direct Financing Leases - Continued:

         The  following  is a schedule of future  minimum  lease  payments to be
         received on direct financing leases at March 31, 2005:

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

                        2005                              $    14,627
                        2006                                   19,519
                        2007                                   19,663
                        2008                                   19,805
                        2009                                   19,863
                        Thereafter                            146,814
                                                      ----------------

                                                          $   240,291
                                                      ================

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

         Real estate and other  assets held for sale  consists of the  following
         at:
<TABLE>
<CAPTION>

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

                Land and buildings            $  170,830          $  146,136
                Inventory                          3,239                  --
                                           --------------    ----------------

                                              $  174,069          $  146,136
                                           ==============    ================
</TABLE>

         The  specialty  finance  segment  actively  acquires real estate assets
         subject to leases with the intent to sell. In accordance with Statement
         of Financial Accounting Standard No. 144 "Accounting for the Impairment
         or  Disposal  of  Long-Lived   Assets"  ("FAS  144"),  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. During 2002, the Company purchased the operations of certain
         restaurants.  In December 2004, the restaurant  operations were sold to
         an affiliated entity.

         In  addition,  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.  The Company  expects to
         receive proceeds of approximately  $6.2 million in connection with this
         sale. As of March 31, 2005,  the Company had a liability  approximately
         $0.8 million for exit costs related to the gas and fuel activities. The
         Company  expects  this  transaction  to close  within  the next  twelve
         months.   All  operating  results  relating  to  all  of  these  retail
         operations  were recorded as  discontinued  operations  for all periods
         presented.


<PAGE>


                           TRUSTREET PROPERTIES, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                       Quarters Ended March 2005 and 2004
                                   (UNAUDITED)


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

         The operating  results of the  discontinued  operations were as follows
         for the quarters ended March 31:
<TABLE>
<CAPTION>

 <c>
                                                                           (In thousands)
                                                                       2005              2004
                                                                   -------------     -------------

                 Rental income                                        $   2,246         $   2,840

                 Food, beverage and retail revenues                       5,245             3,819

                 Food, beverage and retail expenses                      (4,634 )          (4,008 )

                 Interest expense                                          (827 )            (717 )

                 Other property related expense                            (630 )            (418 )

                 Impairment provisions                                     (192 )               --
                                                                   -------------     -------------

                 Earnings from discontinued operations                    1,208             1,516
                                                                   -------------     -------------

                 Sales of real estate                                    56,954            48,049

                 Cost of real estate                                    (47,177 )         (41,114 )
                                                                   -------------     -------------

                 Gain on disposal of discontinued operations              9,777             6,935
                                                                   -------------     -------------

                 Income tax provision                                    (6,594 )          (1,234 )
                                                                   -------------     -------------

                 Income from discontinued operations                  $   4,391         $   7,217
                                                                   =============     =============
</TABLE>


<PAGE>


                           TRUSTREET PROPERTIES, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                       Quarters Ended March 2005 and 2004
                                   (UNAUDITED)


9.       Borrowings:

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

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

         Revolver                               $  49,000  5.71%       $ 125,000  April 2005      $  21,000    4.04%
         Term loan                                140,000  5.75%         385,000  April 2005             --      --
         Senior unsecured notes                   250,000  7.50%         250,000  April 2015             --      --
         Notes payable                            160,783  5.94%         160,783  2005-2011         162,810    5.83%
         Mortgage warehouse facilities             67,712  3.88%         260,000    Annual          101,394    2.78%
         Mortgage note payable (a)                    914  8.00%             914  June 2007              --      --
         Subordinated note payable                 21,875  7.00%          21,875  April 2005         21,875    7.00%
         Series 2000-A bonds payable              234,006  7.96%         234,006  2009-2017         239,165    7.96%
         Series 2001-A bonds payable (a)          142,674  2.94%         142,674  Aug. 2006              --      --
         Series 2001-4 bonds payable               27,964  8.90%          27,964  2009-2013          28,489    8.90%
         Series 2001 bonds payable                109,873  2.94%         109,873  Oct. 2006         111,577    1.89%
         Series 2003 bonds payable                 14,795  7.23%          14,795  2005-2011          26,190    6.02%
         Series 2005 bonds payable                274,305  4.66%         274,305  2011-2012              --      --
                                            --------------          -------------             --------------
                                               $1,493,901            $ 2,007,189                  $ 712,500
                                            ==============          =============             ==============
</TABLE>

         (a) Assumed debt as a result of the Merger described in Note 4.



<PAGE>


                           TRUSTREET PROPERTIES, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                       Quarters Ended March 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  terminated the remaining bridge
         facilities and repaid all amounts outstanding (see Note 16).

         Senior Notes.  In March 2005, the Company issued $250 million in senior
         uncollateralized  notes in a private placement.  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.

         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 in Note 16.

         Mortgage Note Payable.  In February 2005, the Company  acquired through
         the Merger,  described in Note 4, 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.

         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 $254 million
         at March 31,  2005.  The notes  include  certain  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 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 324
         properties with a carrying value of approximately $308 million at March
         31, 2005. The notes include  certain  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.



<PAGE>


                           TRUSTREET PROPERTIES, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                       Quarters Ended March 2005 and 2004
                                   (UNAUDITED)


9.       Borrowings - Continued:

         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.

         During the quarter ended March 31, 2005, the Company  entered into four
         interest rate swaps which were  designated as hedges of forecasted debt
         transactions  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  a $275
         million  offering of Triple Net Lease Mortgage  Notes,  Series 2005 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 following  schedule of maturities on outstanding  indebtedness does
         not reflect  the annual  extensions  on the  warehouse  facilities  and
         assumes  that bonds  payable  amortize  in  accordance  with  estimated
         payment amounts.

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

                       2005                            $   264,097
                       2006                                321,090
                       2007                                175,571
                       2008                                 30,353
                       2009                                 34,031
                       Thereafter                          668,759
                                                  -----------------

                                                      $  1,493,901
                                                  =================

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 ("TRSs").

         The Company has a TRS in which the activities of its specialty  finance
         segment,  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  the real  estate  segment  conducted  certain
         activities involving the development and resale of real properties, 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 incorporated
         into the TRS of the specialty  finance segment.  These  reorganizations
         have simplified the tax reporting structure into a single TRS.


<PAGE>


                           TRUSTREET PROPERTIES, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                       Quarters Ended March 2005 and 2004
                                   (UNAUDITED)


10.      Income Tax - Continued:

         The purchase of real  properties  with an intent to resell at a profit,
         the  development and resale 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,  subsidiaries  within  the  real  estate  segment
         purchased from subsidiaries within the specialty finance segment, a 100
         percent  interest in a partnership  that held a pool of mortgage  loans
         collateralizing  the $160.8 million note payable, in order to align the
         holding of those mortgage loans with Trustreet  Investment's  objective
         of  holding  real  properties   (the  "Loan   Transfer")  as  long-term
         investments.  The $160.8 million note payable financing,  that remained
         in effect through the Loan Transfer,  carries a variable  interest rate
         tied  to the  weighted  average  rate of  commercial  paper  plus  1.25
         percent.   A  portion  of  variable  interest  was  fixed  through  the
         initiation  of a hedge  transaction  at the time of the  original  note
         payable financing in 2002. This hedge transaction met the definition of
         a cash flow hedge  transaction,  and as a result,  changes in its value
         were reported in other comprehensive income ("OCI").  Valuation changes
         in OCI are required to be reflected net of  applicable  income taxes at
         the then  applicable  effective  tax rate.  The hedge  transaction  has
         resulted  in a  liability  that  provides  a deferred  tax asset  since
         inception in 2002.

         The  effective  tax rate in the year the deferred tax asset  associated
         with the hedge arose,  reflected the uncertainty over the TRS's ability
         to  ultimately  realize the benefit of the  liability,  and a valuation
         allowance  offset all  deferred  tax  assets.  In 2003,  the  specialty
         finance  segment's  strength  in  earnings  led  to a  reversal  of the
         valuation  allowance  and,  pursuant to generally  accepted  accounting
         principles, the related tax benefit was reflected in net income and not
         as an adjustment to OCI.

         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,  but would enter into the  determination
         of REIT  taxable  income.  As a  result,  any  deferred  tax  asset  or
         liability,  and any tax  effect  of the  hedge  reflected  in OCI,  was
         reversed at March 31, 2005.

         The TRS recorded an income tax  provision  of $6.6  million  during the
         quarter   ended  March  31,  2005,   all  of  which  was  allocated  to
         discontinued  operations.  Included in this amount was $5.0  million in
         deferred  taxes  that  resulted  from the hedge  and the Loan  Transfer
         described  above.  The  remaining  $1.6 million in taxes on pre-tax net
         income in the TRS of $4.1 million represents taxes  substantially equal
         to the statutory rate. The TRS recorded an income tax provision of $1.2
         million  during the quarter  ended March 31, 2004 on pre-tax net income
         of $3.2 million representing taxes substantially equal to the statutory
         rate.

         Deferred  tax assets are  recorded to reflect the benefit of the future
         tax  deductions,  such as those  relating to loan and  investment  loss
         reserves,  within the TRS. At March 31, 2005 the net deferred tax asset
         is $4.1 million  compared with a net deferred tax asset of $5.3 million
         at December 31, 2004.  The reduction in the net deferred tax assets was
         associated  with the  removal of the hedge and other  differences  as a
         result of the Loan Transfer.

11.      Related Party Transactions:

         As a result of the Merger  described in Note 4, the Company  assumed an
         existing  lease  between USRP and Tax Ease,  LP, 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  $60,800.  During the quarter  ended March 31, 2005,  the
         Company received  approximately  $3,000 in rental payments  relating to
         this lease.



<PAGE>


                           TRUSTREET PROPERTIES, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                       Quarters Ended March 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.  The  following  is a summary of
         options outstanding by range of exercise price as of March 31, 2005:
<TABLE>
<CAPTION>

 <c>
                                                                     $12.23-           $15.50-           All
                                                                      $14.25           $22.00          Options
                                                                   -------------     ------------    ------------

             Options outstanding                                         36,000           32,000          68,000
             Average option price per share                            $  12.23         $  18.34        $  15.11
             Weighted average contractual life (years)                     5.02             3.01            4.07
             Options exercisable                                         36,000           32,000          68,000
             Average option price per share                            $  12.23         $  18.34        $  15.11
</TABLE>

         The  following  is a summary of stock  option  activity for the quarter
         ended March 31, 2005:
<TABLE>
<CAPTION>

 <c>
                                                                     Weighted
                                                                      Average           Weighted
                                                                     Exercise            Average
                                                                     Price at         Fair Value at
                                                                    Grant Date         Grant Date           Number
                                                                   --------------    ----------------     -----------

         Options outstanding at beginning of quarter                   $  14.95                               87,000
         Exercised                                                        14.38                              (19,000 )
         Forfeited                                                           --                                   --
                                                                                                          -----------

         Options outstanding and exercisable at end of
           quarter                                                     $  15.11                               68,000
                                                                                                          ===========
</TABLE>



<PAGE>


                           TRUSTREET PROPERTIES, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                       Quarters Ended March 2005 and 2004
                                   (UNAUDITED)


12.      Stock Options and Restricted Shares - Continued:

         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 quarter ended March 31, 2005,
         and all previously  granted options by USRP were fully vested as of the
         date of the Merger.  As a result,  no compensation  cost was recognized
         relating to stock options during the three months ended March 31, 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 three months ended March
         31, 2005.

         During March 2005, the Company granted approximately 0.1 million shares
         of  restricted  stock to members of its board of directors  and various
         employees.   The   restricted   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.  As of March 31, 2005,  approximately  $2.4 million of
         total unrecognized  compensation costs related to non-vested awards are
         expected to be recognized over a weighted average period of 4 years.



<PAGE>


                           TRUSTREET PROPERTIES, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                       Quarters Ended March 2005 and 2004
                                   (UNAUDITED)


13.      Stockholders' Equity:

         On February 23, 2005, CNLRP awarded 26,500 shares of CNLRP common stock
         to three independent directors.

         On February 25,  2005,  in  accordance  with the terms of the Merger as
         described  in Note 4, 45.2  million  shares of CNLRP  common  stock was
         converted  into 35.2 million  shares of the Company's  common stock and
         7.4 million of newly issued shares of the Company's  Series C Preferred
         Stock.

         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.  Distributions  on Series C Preferred  Stock are cumulative


<PAGE>



                           TRUSTREET PROPERTIES, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                       Quarters Ended March 2005 and 2004
                                   (UNAUDITED)


13.      Stockholders' Equity - Continued:

         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 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 ended March
         31, 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 March 31, 2005
                                                            -------------------------------------------------------
                                                                Income              Shares             Per-Share
                                                              (Numerator)        (Denominator)          Amount
                                                            ----------------    ----------------     --------------

         Loss from continuing operations                          $    (942)
         Less:  Preferred stock dividends                            (2,923)
                                                            ----------------

         Basic Earnings Per Share:
         ------------------------
         Loss from continuing operations available
           to common stockholders                                    (3,865)             43,858          $   (0.09)
                                                            ----------------    ----------------     --------------

         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                      $   (3,865)             43,858          $   (0.09)
                                                            ================    ================     ==============


                                                                         Quarter ended March 31, 2004
                                                            -------------------------------------------------------
                                                                Income              Shares             Per-Share
                                                              (Numerator)        (Denominator)          Amount
                                                            ----------------    ----------------     --------------

         Basic and Diluted Earnings Per Share:
         ------------------------------------
         Income from continuing operations
           available to common stockholders                       $   3,631              35,032           $   0.10
                                                            ================    ================     ==============
</TABLE>



<PAGE>


                           TRUSTREET PROPERTIES, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                       Quarters Ended March 2005 and 2004
                                   (UNAUDITED)


13.      Stockholders' Equity - Continued:

         (1)  For the quarter ended March 31, 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  68
              thousand  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.

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.

         The following tables summarize the results for the quarters ended March
         31, 2005 and 2004 for the real estate segment and the specialty finance
         segment.  Consolidating  eliminations and results of the holding parent
         company are reflected in the "other" column.
<TABLE>
<CAPTION>

 <c>
                                                                      Quarter ended March 31, 2005
                                                                             (In thousands)
                                                                        Specialty
                                                      Real estate        finance                      Consolidated
                                                        segment          segment         Other           Totals
                                                      -------------   --------------  -------------  ---------------

          Revenues                                       $  28,158        $   6,586       $   (620 )     $   34,124
                                                      -------------   --------------  -------------  ---------------

          General operating and administrative               3,285            8,221           (543 )         10,963
          Interest expense                                  12,514            4,452            (75 )         16,891
          Property expenses, state and other taxes           1,155              136            (94 )          1,197
          Depreciation and amortization                      4,957              273             --            5,230
          Minority interest net of equity in
             earnings                                           36              749             --              785
                                                      -------------   --------------  -------------  ---------------
                                                            21,947           13,831           (712 )         35,066
                                                      -------------   --------------  -------------  ---------------
          Discontinued operations:
          Income/(loss) from discontinued
             operations, net of income tax
             provision                                        (230 )          4,621              --            4,391
                                                      -------------   --------------  -------------  ---------------

          Net income/(loss)                              $   5,981       $   (2,624 )      $    92        $   3,449
                                                      =============   ==============  =============  ===============

          Assets at March 31, 2005                      $2,289,860       $  306,119      $   4,540      $ 2,600,519
                                                      =============   ==============  =============  ===============

          Investments accounted for under the
          equity method at March 31, 2005                $   1,203         $     --        $    --        $   1,203
                                                      =============   ==============  =============  ===============
</TABLE>



<PAGE>


                           TRUSTREET PROPERTIES, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                     Quarters Ended March 31, 2005 and 2004
                                   (UNAUDITED)


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

 <c>
                                                                      Quarter ended March 31, 2004
                                                                             (In thousands)
                                                                         Specialty
                                                       Real estate        finance                    Consolidated
                                                         segment          segment        Other          Totals
                                                      --------------   --------------  -----------  ---------------

         Revenues                                        $   19,915        $   7,039      $  (752 )     $   26,202
                                                      --------------   --------------  -----------  ---------------

         General operating and administrative                 2,176            4,699         (576 )          6,299
         Interest expense                                     7,175            4,683          (29 )         11,829
         Property expenses, state and other taxes               135               --           --              135
         Depreciation and amortization                        2,653              131           --            2,784
         Loss on termination of cash flow hedge                   --             355           --              355
         Impairments and provisions on assets                   273              274           --              547
         Minority interest net of equity in earnings              8              620           --              628
         Gain on sale of assets                                  (6 )             --           --               (6 )
                                                      --------------   --------------  -----------  ---------------
                                                             12,414           10,762         (605 )         22,571
                                                      --------------   --------------  -----------  ---------------
         Discontinued operations:
            Income from discontinued
                operations, net of income tax
                benefit                                       1,532            5,685            --            7,217
                                                      --------------   --------------  -----------  ---------------

         Net income                                       $   9,033        $   1,962      $  (147 )     $   10,848
                                                      ==============   ==============  ===========  ===============

         Assets at March 31, 2004                        $  809,103       $  492,045     $ (6,062 )    $ 1,295,086
                                                      ==============   ==============  ===========  ===============

         Investments accounted for under the
         equity method at March 31, 2004                  $   1,041         $     --       $   --        $   1,041
                                                      ==============   ==============  ===========  ===============

</TABLE>





<PAGE>


                           TRUSTREET PROPERTIES, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                     Quarters Ended March 31, 2005 and 2004
                                   (UNAUDITED)


15.      Commitments and Contingencies:

         During the quarter  ended March 31,  2005,  the Company  incurred  $0.3
         million in ground rent expense relating to properties  acquired through
         the Merger.  The remaining lease terms (excluding renewal option terms)
         expire between 2005 and 2014. Minimum future lease obligations at March
         31, 2005 are as follows:

                                                         (In thousands)
                                                      ---------------------
                            2005                      $              3,017
                            2006                                     3,527
                            2007                                     3,077
                            2008                                     2,344
                            2009                                     1,605
                            Thereafter                               2,605
                                                      ---------------------
                                                      $             16,175
                                                      =====================

         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 March 31, 2005,  the Company had committed to purchase $28.6 million
         in properties  from  qualified  tenants.  In addition,  the Company has
         commitments  to  purchase  real  estate  properties  at March 31,  2005
         totaling  $12.4  million.  In April 2005,  the Company  entered  into a
         $137.5 million commitment, described in Note 16.

         Certain  operating leases relating to real estate held for sale 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.

         The Company  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 the financial condition of the Company.

         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 Ended March 31, 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,  CNL-Investments  and CNL-Corp.  in the District Court of
         Dallas County,  Texas. The complaint  alleges 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, CNL-Investments,  CNL-Corp., and USRP aided and abetted in the
         alleged  breaches of fiduciary  duties.  The complaint  further alleges
         that the Income Fund general partners violated provisions of the Income
         Fund partnership agreements and demands an accounting as to the affairs
         of the  Income  Funds.  On  April  26,  2005,  a  supplemental  plea to
         jurisdiction  was held with a ruling  expected May 13, 2005.  On May 2,
         2005,  the  plaintiffs  filed their First  Amended  Petition  for Class
         Action.  In the Amended  Petition the plaintiffs do not add any parties
         or claims, but they do 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.

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

16.      Subsequent Events:

         In April 2005,  a subsidiary  of the Company  entered into a commitment
         letter  (the  "Commitment")  with The  Restaurant  Company,  a Delaware
         corporation ("TRC"), pursuant to which TRC will sell and simultaneously
         lease back from the  Company up to 68 of TRC's owned  properties  which
         are  currently  operated  by TRC as  "Perkins  Restaurant  and  Bakery"
         restaurants  (each, a "Property" and collectively,  the  "Properties").
         The sale and lease back of each Property is conditioned on, among other
         things,  the  negotiation  and  execution  by the  Company  and  TRC of
         mutually agreeable  definitive  purchase and lease agreements,  each on
         the terms specified in the Commitment. The aggregate purchase price for
         the Properties  will be $137.5 million,  and the lease  agreements will
         each have terms of between 17 and 20 years with two successive ten-year
         renewal   options.   The  Company   currently   expects  to  close  the
         transactions  contemplated in the Commitment no more than 60 days after
         the execution of the Commitment.



<PAGE>


                           TRUSTREET PROPERTIES, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                     Quarters Ended March 31, 2005 and 2004
                                   (UNAUDITED)


16.      Subsequent Events - Continued:

         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 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.  The  Facility  contains  certain  covenants  that  limit
         matters,  including the incurrence of liens, investments,  indebtedness
         and  mergers  and  consolidations.  The  Facility  also  restricts  the
         payments of dividends on the  Company's  outstanding  capital stock and
         repurchases or redemptions of the Company's  outstanding capital stock.
         The Company is also required to maintain certain  financial  covenants.
         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.

         On April 27,  2005,  the  Company was  informed by the Hawaii  Attorney
         General's  office that they,  along with the Federal Trade  Commission,
         are 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 intends to fully cooperate with the investigation.

         Through April 2005, the Company had a 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 principal and interest.  In
         April 2005, this promissory note was paid off with part of the proceeds
         from the senior credit facilities.



<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 sell  our  current  retail  activities  including  the
         operation  of  restaurants,  gas  stations  and a terminal  interest in
         Hawaii;
     o   our ability to effect an integration of recently merged  properties and
         operations;
     o   our ability to re-lease  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.



<PAGE>


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. sales of real estate to investors;
   3. property improvement and redevelopment; and
   4. maximizing the potential of our real estate portfolio.

Strategy 1:  Financing Freestanding Restaurant and Retail Real Estate

We own over  1,800  properties  at March  31,  2005 with an  investment  of $1.9
billion,  substantially all of which are leased to restaurant operators.  We are
the largest  provider of net-lease  financing to the restaurant  industry,  also
offering  investment  banking and  advisory  services  through  our  subsidiary,
Trustreet Investment Banking, LLC. Beginning in 1995 through March 31, 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   $1.9  billion  in  properties  purchased  under  sale  leaseback  terms
         including approximately $247 million throughout 2004; and
     o   $2.9 billion in mortgage  loans,  including  $1.8 billion more recently
         through our strategic alliance with Bank of America.

The  combination  of both  net-lease  and mortgage  financing 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  five
         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 $37.3  million in
property  acquisitions  through March 31, 2005,  we currently  have $216 million
under  commitment  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 originate 10 to 20 percent more in 2005
versus the $272  million  CNLRP and USRP  collectively  originated  in 2004.  We
expect over time to hold more of our new  acquisitions  than we sell through the
Investment  Property Sales ("IPS") program.  We expect the predominant amount of
our new property  acquisitions  will continue to be in the restaurant  industry.
However,  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:  Sale of Real Estate to Investors

Since 2001,  we have sold more than $923 million in properties  generating  more
than $104 million in real estate gains. We hold about 150 properties for sale to
investors with an investment of $174 million,  including 100 properties  with an
investment  of $142 million held by our specialty  finance  segment at March 31,
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. In 2004, the website  registered  approximately
174,000 hits.

We expect our percentage net gain on the sale of real estate in 2005 to approach
the level  achieved by CNLRP for the year 2004,  which was 15.8 percent.  In the
first quarter of 2005, net gains from the IPS program were 20.8 percent.

Our IPS program complements our sale leaseback financing and we believe provides
us 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 3:  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.  In 2005, we expect these activities to generate $5.0 to
$6.0 million in real estate gains.

Strategy 4:  Maximizing the Potential of our Real Estate Portfolio

Our portfolio held for investment  consists of  approximately  1,750  properties
with an  investment  of $1.7  billion  at March 31,  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 no longer subject to a lease where the tenant  experienced  financial
issues. 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 hold for  investment or
list for sale.

We have about 50  properties  with an  investment  of $39  million  with  leases
expiring in the next year,  and about 100  properties  with an investment of $81
million  that are  vacant  with no lease.  We intend to  actively  manage  these
properties, and reduce the number of vacant properties in the next year.


<PAGE>


The following tables illustrate as of March 31, 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                                        89        5.1%              8.3%                   6.9
     Burger King                                         181        10.3%             8.0%                   9.5
     Jack in the Box                                     122        7.0%              7.9%                   9.7
     Arby's                                              126        7.2%              5.2%                  12.2
     International House of Pancakes                      62        3.5%              4.6%                  14.5
     Captain D's                                         102        5.8%              4.5%                  17.8
     Bennigan's                                           34        1.9%              4.3%                  11.8
     Wendy's                                              46        2.6%              2.9%                  13.2
     Denny's                                              47        2.7%              2.7%                   8.9
     Applebee's Restaurant                                31        1.8%              2.6%                  14.0


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

     Golden Corral Corporation                            72         4.1%             6.9%                    6.4
     IHOP Properties                                      59         3.4%             4.5%                   14.6
     Jack in the Box Eastern Division L.P.                69         3.9%             4.4%                    8.7
     Captain D's, LLC                                     93         5.3%             4.3%                   18.4
     S&A Properties Corp.                                 37         2.1%             4.1%                   13.2
     Jack in the Box Inc.                                 57         3.2%             3.8%                   11.2
     Sybra Inc.                                           58         3.3%             2.5%                   11.8
     Texas Taco Cabana, LP                                32         1.8%             2.4%                   12.2
     Carrols Corporation                                  39         2.2%             2.1%                    7.7
     Shoney's, Inc.                                       33         1.9%             1.9%                   14.1


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

     Texas                                               389        22.2%             20.7%                   9.7
     Florida                                             163         9.3%             10.4%                  10.7
     Georgia                                              98         5.6%             5.3%                   13.9
     California                                           61         3.5%             4.7%                   11.3
     Illinois                                             64         3.6%             4.3%                    9.9
     Tennessee                                            86         4.5%             4.1%                   11.6
     North Carolina                                       82         4.7%             4.0%                    9.6
     Ohio                                                 90         5.7%             3.9%                    9.7
     Missouri                                             48         2.7%             2.9%                   10.9
     Arizona                                              43         2.5%             2.8%                   10.4
</TABLE>

Approximately  60 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 March 31, 2005, our total annualized base rent on properties held
for investment was  approximately  $171.7 million,  without giving effect to any
rent escalations after 2005.


<PAGE>



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.

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
ended March 31,  2004.  In  addition,  the first  quarter of 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 March 31, 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.

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 March 31,
2005 to  approximately  59  percent,  and our  secured  debt to total  assets to
approximately  40 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.

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.  As described in Note 4 to the financial
statements  included in Item 1, because  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.  As described in Note 4 to the financial statements included in
Item 1, 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.  As of  March  31,  2005  we had  closed  two of the  three  planned
financings to pay down the bridge  facilities.  Those  included a $275.0 million
net lease  securitization  due in 2012 and $250.0  million  in senior  unsecured
notes due in 2015. On April 8, 2005, we closed a $175.0  million  five-year term
loan and a $175.0 million  revolving credit  facility,  allowing us to repay the
amount  due under  the  bridge  financing  and  various  other  financings.  The
following  table  illustrates  the  sources  and uses of funds  relating  to the
restructure between February 25 and April 8, 2005:
<TABLE>
<CAPTION>

 <c>
                     Sources:                                                      Uses:
                  (in millions)                                                (in millions)
---------------------------------------------------    --------------------------------------------------------------

New senior credit facility:                            Purchase of Income Funds, cash consideration (1)      $ 420.0
   Revolving line of credit                $  175.0
   Less: unused revolver                     (100.0 )  Payment of USRP debt:
   Term loan                                  175.0        Senior unsecured notes due in 2005                  111.0
                                                           Loan secured by Hawaiian assets                      11.4
                                                           Revolver                                             14.5
New net lease securitization                  275.0        Term loan                                            35.0
                                                           Series B preferred stock obligation                  32.5
New senior unsecured notes                    250.0
                                                       Payment of CNLRP debt:
                                                           Revolver                                             59.0
                                                           Subordinate debt                                     21.9
                                                           Related party loan, including interest               36.4

                                                       Fees, expenses, and prepayment penalties                 33.3

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

         Total                       $        775.0               Total                                       $775.0
                                     ==============                                                      ============
</TABLE>

(1) Net of $30 million in cash held by the Income Funds pursuant to merger
    agreements.



<PAGE>


Our debt structure following the April 8, 2005 financing is as follows:
<TABLE>
<CAPTION>

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

Mortgage Warehouse Facility                    $ 19.5            LIBOR + .90%                Jun-05          Secured
Mortgage Warehouse Facility                      48.2            LIBOR + .90%                Feb-06          Secured
Series 2001-A Bonds                             142.7            LIBOR + .98%                Aug-06          Secured
Series 2001 Bonds                               109.9            LIBOR + .94%                Oct-06          Secured
Five Year Term Facility                         160.8      Commercial Paper + 1.25%         June-07          Secured
Revolver                                         80.0            LIBOR + 2.25%              April-08        Unsecured
Five Year Term Loan                             175.0            LIBOR + 2.00%              April-10        Unsecured
Series 2001-4 Bonds                              28.0                8.90%                 2009-2013         Secured
Series 2003 Bonds                                14.8            LIBOR + 5.00%             2005-2011         Secured
Series 2005 Bonds                               274.3                5.05%                 2011-2012         Secured
Senior Unsecured Notes Debt                     250.0                7.50%                   Apr-15         Unsecured
Series 2000-A Bonds                             234.0                8.28%                 2009-2017         Secured
                                       ---------------

                  Total Debt                 $1,537.2
                                       ===============
</TABLE>

Our weighted  average expected  maturity of debt,  excluding our line of credit,
short-term warehouse credit facilities and related party loans was approximately
6.20  years at March  31,  2005 and 7.40  years at March 31,  2004.  We have two
secured  financings  that total  $252.6  million that mature in 2006 and a third
secured  financing of $160.8 million that matures in 2007.  The 2006  maturities
are  collateralized  by properties  with a book value of $492.5 million at March
31, 2005.  Similarly,  the 2007 maturity is secured by mortgage loans receivable
with a book value of $196.7  million at March 31, 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 so that we
increase our base of unencumbered assets.

Cash Flows
<TABLE>
<CAPTION>

 <c>
                                                                    Quarter ended         Quarter ended
                                                                   March 31, 2005        March 31, 2004
                                                                  ------------------    ------------------
                                                                               (in millions)

   Cash flows provided by/(used in) operating activities          $      59.5             $  (18.7)
   Cash flows provided by/(used in) investing activities               (440.4)                16.1
   Cash flows provided by/(used in) financing activities                386.8                (12.1)
                                                                  ------------------    ------------------

   Net increase (decrease) in cash and cash equivalents                   5.9                (14.7)
   Cash and cash equivalents at beginning of year                        22.8                 37.0
                                                                  ------------------    ------------------

   Cash and cash equivalents at end of period                     $      28.7             $   22.3
                                                                  ==================    ==================
</TABLE>

The abbreviated  information from the condensed consolidated  statements of cash
flows  provided  above  illustrates  the  impact of the Income  Fund  properties
acquired through the merger and  merger-related  financings.  It also reflects a
larger  amount of cash used for  investing  activities  as some $26.3 million in
properties purchased were designated as held for long term investment during the
quarter ended March 31, 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 $18.7  million in the quarter ended March 31, 2004 to a net provision
of $59.6  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
quarter of 2004.


<PAGE>


Off-Balance Sheet Transactions

We currently hold an interest 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 March 31, 2005
and we also hold certain of the bonds  outstanding  with a net carrying value of
$16.0  million.  Both  appear  as  investments  in  the  consolidated  financial
statements.  The  following  table  shows  the  assets  and  the  related  bonds
outstanding in each securitization pool at March 31, 2005:

<TABLE>
<CAPTION>

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


       Loans and debt supporting 1998-1 Certificates             $   159.9                 $  158.1
       Loans and debt supporting 1999-1 Certificates             $   214.7                 $  214.7
                                                              -------------------    -------------------

                                                                 $   374.6                 $  372.8
                                                              ===================    ===================
</TABLE>


Contractual Obligations, Contingent Liabilities and Commitments.

The following table presents  contractual  cash  obligations and related payment
periods as of March 31, 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)                                   $ 264.1       $ 496.7       $  64.4        $  668.8       $ 1,494.0
Loans from an affiliate (3)                         33.8            --            --              --            33.8
Ground leases                                        3.0           6.6           4.0             2.6            16.2
Leased office space (2)                              0.8           2.4           2.5             6.8            12.5

                                               ----------     ---------    ----------    ------------     -----------
Total contractual cash obligations               $ 301.7       $ 505.7       $  70.2        $  678.2       $ 1,556.5
                                               ==========     =========    ==========    ============     ===========
</TABLE>

The following  table  presents  commitments,  contingencies  and  guarantees and
related expiration periods as of March 31, 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 (4)                 41.0               --            --             --          41.0
Fuel purchase commitments (5)                       --               --            --             --            --
Litigation (6)                                      --               --            --             --            --
Capital improvements (7)                            --               --            --             --            --

                                             ----------     -----------    -----------    ------------     ---------
Total commitments, contingencies
   and guarantees                               $ 42.3           $   --        $   --         $   --         $42.3
                                             ==========     ===========    ===========    ============     =========
</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 May 31, 2005
     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)  Amounts were repaid in April 2005.

(4)  Represents  opportunities  for net lease  property  purchases  approved for
     funding  and  accepted  by the client at March 31,  2005.  In April we also
     entered into an additional  commitment to purchase  Perkins  Restaurant and
     Bakery  properties  worth $137.5  million  subject to a leaseback  and with
     other recent activity our commitments now approximate $216 million.

(5)  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.

(6)  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 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. 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.

(7)  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. 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.  We
expect to pay common and preferred  dividends of  approximately  $105.1  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 as of March 31, 2005 are set
forth  in Note 9 to the  financial  statements  included  in Item  1,  which  is
incorporated  herein by  reference.  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 March 31, 2005,  we had the
following derivative instruments outstanding:
<TABLE>
<CAPTION>

 <c>
                                                                                                    Estimated
                                                                                                      Value
                                                                                                    (Liability)
                                                     Cap Strike                                         at
        Type of Hedge                Notional         Price or         Trade         Maturity         March 31,
       ($ in millions)                Amount          Swap Rate         Date           Date            2005
------------------------------    ---------------    ------------    -----------    ----------    ---------------

Interest Rate Swap                $  123.8                6.590%       6/14/02         3/15/22       $    (5.9)
Interest Rate Cap                 $  111.5                4.500%       9/28/01        10/25/06       $     0.2
Interest Rate Cap                 $   25.1                3.500%      12/17/03          2/1/11       $     0.7
Interest Rate Cap                 $  149.7                6.000%       8/13/01         8/26/06       $      --
</TABLE>


At March 31, 2005, we had fixed rate debt of $809 million and floating rate debt
of $685 million.  At March 31, 2005,  the weighted  average rate on the floating
rate debt is 4.53 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
$5.6 million, holding all other variables constant.

Results of Operations

Financial Reporting

We manage,  operate and report our  business  by  dividing it into two  distinct
segments.  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 retaining  interests in our prior
         loan securitizations.

         Specialty  finance  segment:  This segment includes our IPS program and
         our subsidiary Trustreet Investment Bank, 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 as of March 31, 2005,  where we
         believe they are more aligned as long-term investments.

The following table presents components of net income, including 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
                                                                                           March 31,
                                                                                         (in thousands)
                                                                                    2005                 2004
                                                                               ---------------       -------------
   Revenues:
       Real estate                                                                $    28,158          $   19,915
       Specialty finance                                                                6,586               7,039
       Other*                                                                            (620 )              (752 )
                                                                              ----------------      --------------
          Total revenues                                                               34,124              26,202
                                                                              ----------------      --------------

   Expenses:
   Operating expenses excluding interest, depreciation, and amortization:**
       Real estate                                                                      4,476               2,586
       Specialty finance                                                                9,106               5,948
       Other*                                                                            (637 )              (576 )
                                                                              ----------------      --------------
          Total operating expenses excluding interest, depreciation, and
              amortization**                                                           12,945               7,958
                                                                              ----------------      --------------

   Depreciation and amortization expense:
       Real estate                                                                      4,957               2,653
       Specialty finance                                                                  273                 131
                                                                              ----------------      --------------
          Total depreciation and amortization expense                                   5,230               2,784
                                                                              ----------------      --------------

   Interest expense:
       Real estate                                                                     12,514               7,175
       Specialty finance                                                                4,452               4,683
       Other*                                                                             (75 )                (29 )
                                                                              ----------------      ---------------
          Total interest expense                                                       16,891               11,829
                                                                              ----------------      ---------------

          Total expenses                                                               35,066               22,571
                                                                              ----------------      ---------------

   Income (loss) from continuing operations, net                                         (942 )              3,631

   Income (loss) from discontinued operations, after income taxes:
       Real estate                                                                       (230 )              1,532
       Specialty finance                                                                4,621                5,685
                                                                              ----------------      ---------------
          Total income from discontinued operations, after income taxes                 4,391                7,217
                                                                              ----------------      ---------------

   Net income                                                                      $    3,449       $       10,848
                                                                              ================      ===============
</TABLE>


     *  relates primarily to eliminations of transactions between segments

     ** also includes the minority interest in earnings of consolidated JV's 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
                                                                      March 31,
                                                                    (in thousands)
                                                              % of total                     % of total
                                                               segment                        segment
                                                   2005        revenues          2004         revenues
                                              -------------- --------------  -------------- -------------
           Rental income                           $  26,236     93%            $  17,002      86%

           Interest income                             1,082      4%                1,275       6%

           Other                                         840      3%                1,638       8%
                                              --------------- -------------  -------------- -------------
              Total Revenues                       $  28,158     100%           $  19,915      100%
                                              ================ ============  ============== =============
</TABLE>

Real estate segment  revenues  include  primarily rental income on operating and
capital leases and contingent  rent,  which  increased in the first quarter as a
result of the merger transaction on February 25th, 2005 in which over $1 billion
of new properties were added, increasing the property portfolio to $1.7 billion.
Rental  income in the  quarter  ended  March 31,  2005  increased  54 percent as
compared to the same quarter in the prior year. The weighted  average lease rate
on the  portfolio  was 10.3  percent in both  quarters  ended March 31, 2005 and
2004,  although the portfolio as of March 31, 2005 has a more significant number
of properties subject to ground leases that would 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 $1.1 million and $1.3 million in
the quarters  ended March 31, 2005 and 2004,  respectively,  is generated by our
portfolio  of  mortgage,  equipment  and  other  notes  receivable  held by this
segment. We have not made any direct loans since 2001 and the interest income is
declining as a result of the repayment of principal on these notes.

Other income in the real estate  segment  includes  investment  income earned on
bonds held in mortgage loan  securitizations.  Approximately $0.6 million of the
decrease in other income was related to 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 $6.6 million in the quarter ended March
31, 2005 compared  with $7.0 million in the quarter  ended March 31, 2005.  This
revenue  consists  primarily of interest income on a portfolio of mortgage loans
receivable  held by this segment.  As with the portfolio held by the real estate
segment,  interest  income is  declining  as a result of the  repayment  of loan
principal.  On March 31,  2005 most of the loans held by the  specialty  finance
segment were moved to the real estate segment.

Operating expenses, excluding interest, depreciation and amortization:

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


<PAGE>

<TABLE>
<CAPTION>

 <c>

                                                                           Quarter Ended
                                                                             March 31,
                                                                            (in thousands)
                                                                         % of                        % of
                                                                         total                       total
                                                                        segment                     segment
                                                           2005         revenues        2004        revenues
                                                      ---------------- -----------  -------------- -----------
       General operating and administrative                $    3,285     12%           $   2,176     11%
       Property expenses, state and other taxes                 1,155      4%                 135      1%
       Other                                                       36      --                 275      1%
                                                      ---------------- -----------  -------------- -----------
                                                           $    4,476     16%       $       2,586     13%
                                                      ================ ===========  ============== ===========
</TABLE>

General  operating and  administrative  expenses in the real estate segment have
increased  26 percent in the  current  period.  Costs are higher in the  current
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
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.  As
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.  As an offset to this, we have shifted the
internal  reporting  of certain  development  and resale  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 the development  and resale  activities  approximated  $0.3
million in the quarter ended March 31, 2004.

Property expenses,  state and other taxes reflect  approximately $0.4 million in
additional  charges in the three months ended March 31, 2005 for property  taxes
that we pay, but are able to bill the tenant, with such billings included in the
rental revenues as discussed above. Similarly, we pay approximately $0.3 million
in ground  rents each month  that we are able to bill to our  tenants.  Activity
relating to these  increased  property  taxes and ground rent payments  resulted
from the merged properties.

Operating expenses,  excluding interest,  depreciation,  and amortization in the
specialty finance segment consisted of the following:
<TABLE>
<CAPTION>

 <c>
                                                                  Quarter Ended
                                                                    March 31,
                                                                  (in thousands)
                                                             2005                2004
                                                        ----------------    ---------------
            General operating and administrative             $    8,221         $    4,699
            Property expenses, state and other
               taxes                                                136                 --
            Other                                                   749              1,249
                                                        ----------------    ---------------
                                                             $    9,106         $    5,948
                                                        ================    ===============
</TABLE>

General operating and  administrative  expenses in the specialty finance segment
have  increased  75 percent in the current  period.  There are a number of items
that have  impacted the  comparability  between  periods that are  summarized as
follows:

     o   Our  expenses  in this  segment  include a $2.0  million  charge in the
         current  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. In
         anticipation  of a May 2005  implementation,  we have incurred  certain
         costs   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 one-month
         period after the merger, we incurred various one-time setup expenses 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.  We brought  substantially all of these functions internal in
         an  initiative  that  began in  November  2004 and is nearly  complete.
         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 achieved our  objectives to comply with the stricter  standards
         imposed by Sarbanes-Oxley legislation, and in addition to the attention
         given to this effort by  management,  we have  incurred $0.2 million in
         additional  internal audit costs in the quarter ended March 31, 2005 as
         compared the quarter ended March 31, 2004.
     o   We have  shifted the  internal  reporting  of certain  development  and
         resale 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 development  and resale  activities  approximated  $0.8
         million in the quarter ended March 31, 2005.
     o   We have incurred $0.2 million in legal  expenses in the current  period
         relating  primarily to our defense against the class action  litigation
         brought by two former limited  partners in the CNL Income Funds,  while
         no such charges were recorded in the prior period.

Property expenses in this segment represent activities in development and resale
transitions  from the real estate  segment this year and costs  associated  with
activities  merged into this segment  from USRP.  The decrease in the other line
item relates to impairments and losses from the termination of a cash flow hedge
in the quarter ended March 31, 2004.

Interest Expense

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


                                                 Quarter Ended
                                                   March 31,
                                                 (in thousands)
                                             2005              2004
                                       ------------------ ----------------
          Real estate                    $    12,514       $    7,175
          Specialty finance                    4,452            4,683
          Other                                  (75)             (29)
                                       ------------------ ----------------
                                         $    16,891       $   11,829
                                       ================== ================

Interest  expense  in the  real  estate  segment  increased  approximately  $5.3
million,  or 74 percent due to the  increased  level of debt.  Total debt at the
real  estate  segment  increased  to $1.4  billion at March 31, 2005 versus $0.4
billion at 2004.  The  increase  was a result of debt  assumed in the merger and
from the merger  financings  completed by March 31,  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,  where it more appropriately  aligned with
the  long-term  investment  objectives.  The weighted  average  interest rate on
borrowings  was 5.5  percent at March 31,  2005  versus 5.8 percent at March 31,
2004.   Included  in  interest   expense  within  the  real  estate  segment  is
amortization  of deferred  financing  costs of $1.6 million and $1.0 million for
the quarters ended March 31, 2005 and 2004, respectively.


<PAGE>


Interest  expense at the specialty  finance  segment  remained  constant for the
quarter  ended March 31, 2005 versus  2004.  Specialty  finance  segment debt is
primarily the warehouse credit facilities that provide  short-term  financing of
properties in the investment property sales program,  with an interest rate that
floats  based on  LIBOR.  The  weighted  average  cost of the  warehouse  credit
facilities  was 3.88 percent in the first quarter of 2005 versus 2.61 percent in
the first quarter of 2004 reflecting the increase in short term financing rates.
Interest  expense in this segment also included the interest on the $161 million
in debt that  financed  the pool of  mortgage  loans  transferred  into the real
estate segment on March 31, 2005.

Depreciation and Amortization

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

                                                  Quarter Ended
                                                    March 31,
                                                 (in thousands)
                                             2005              2004
                                        ----------------  ----------------
          Real estate                    $    4,957         $   2,653
          Specialty finance                     273               131
                                        ----------------  ----------------
                                         $    5,230        $    2,784
                                        ================  ================

The real estate segment experienced an increase in depreciation and amortization
expense of $2.3  million or 87 percent in the quarter  ended March 31, 2005 when
compared to the same period 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 is a 61  percent  remaining  increase  in  depreciation  and  amortization
expense,  that  correlates  to a 54 percent  increase 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".


<PAGE>


<TABLE>
<CAPTION>

 <c>

                                                               Quarter Ended March 31,
                                                                    (in thousands)
                                           2005               2005                2004                2004
                                     -----------------  ------------------ ------------------- -------------------
                                       Real Estate       Specialty Finance     Real Estate       Specialty Finance
                                         Segment             Segment            Segment              Segment
                                     -----------------  ------------------ ------------------- -------------------

Sale of real estate                         $       --      $      56,954        $      8,082       $      39,967
Cost of real estate sold                            --             47,177               6,440              34,674
                                     -----------------  ------------------ ------------------- -------------------
   Gain on sale of real estate                      --              9,777               1,642               5,293

Net other income (expense)                       (230)                827                  79               1,626
                                     -----------------  ------------------ ------------------- -------------------
   Earnings (loss) from real estate
     discontinued operations
     before tax                                  (230)             10,604               1,721               6,919

Retail operations revenue                          --               5,245               3,819                  --
Retail cost of sales                               --               4,634               4,008                  --
                                     -----------------  ------------------ ------------------- -------------------
   Earnings (loss) from retail
     discontinued operations before
     tax                                           --                 611                (189)                 --

Income tax provision                               --               6,594                  --               1,234
                                     -----------------  ------------------ ------------------- -------------------

Income (loss) from discontinued
   operations, after income taxes         $      (230)       $      4,621        $      1,532        $      5,685
                                     =================  ================== =================== ===================
</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 did not sell any  properties in the first
quarter  of 2005 but  sold  $8.1  million  during  the  first  quarter  of 2004,
generating a $1.6 million gain.

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  $972 million in  restaurant  properties  generating  net gains of
$92.8 million. In the first quarter of 2005, we sold $57.0 million in properties
generating a 17.2 percent  margin or $9.8 million  gain. In the first quarter of
2004, we sold $39.9 million in  properties  generating a 13.2 percent  margin or
$5.3 million  gain. At March 31, 2005, we had  approximately  $137.8  million in
real estate held for sale in our specialty finance segment.

We currently  operate 18 convenience  and gas stores in Hawaii that are held for
sale.  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,  are conducting an investigation into whether
the proposed  transaction  may violate state and federal  antitrust laws. We are
fully  cooperating  with that  investigation  but  believe  this will  delay the
ultimate sale into the second half of the year. During the quarter, the Hawaiian
operations  produced  pre-tax  income  of  approximately  $0.6  million,  before
consideration of indirect corporate overhead.

In 2004, we operated twelve restaurants in a subsidiary that was sold in the 4th
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,  the  Company  has a taxable  REIT  subsidiary  ("TRS),  where  various
business  operations take place  including the IPS program.  The TRS recorded an
income tax  provision  of  approximately  $6.6  million and $1.2 million for the
quarter  ended  March 31,  2005 and  2004,  respectively.  Included  in the $6.6
million was a nonrecurring,  non-cash $5.0 million deferred tax charge resulting
from the transfer of loans from the specialty finance segment to the real estate
segment.  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 by the real estate  segment of a 100
percent interest in the subsidiary that held the mortgage loans in the specialty
finance  segment.  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  transaction 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 $5.0
million  charge in the quarter  ended March 31, 2005 would have  continued to be
amortized as a charge to earnings over the life of the hedge contract.

As of March 31,  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.

No stock options were issued  during the quarter  ended March 31, 2005,  and all
previously  granted  options  by USRP  were  fully  vested as of the date of the
Merger.  As a result,  no  compensation  cost was  recognized  relating to stock
options  during the three  months ended March 31,  2005.  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 three months ended March 31, 2005.

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.



<PAGE>


Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

Information  regarding  the  Company's  market  risk at  December  31,  1005 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 March  31,  2005 and  carried  out an
evaluation as of March 31, 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 March 31, 2005,  the  Company's  disclosure
controls and procedures were effective.

Changes in Internal Control over Financial  Reporting.  During the quarter ended
March 31, 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 alleges 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  alleges that the Income
Funds' general  partners  violated  provisions of the Income Funds'  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,  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.
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.

         A special  meeting of the Company's  stockholders  was held on February
24,  2005,  at 10:00 a.m.,  at 12240 Inwood Road,  Suite 300,  Dallas,  Texas to
consider and vote upon the following:

            1. a proposal to approve and adopt the Agreement and Plan of Merger,
      dated as of August 9, 2004,  between CNL Restaurant  Properties,  Inc. and
      the Company, the other transactions contemplated thereby and the merger;

            2. a  proposal  to  approve  and  adopt 18  Agreements  and Plans of
      Merger,  dated as of August 9, 2004,  each among the Company,  a separate,
      wholly owned subsidiary of the operating partnership of the Company, and a
      separate CNL Income Fund, the other transactions  contemplated thereby and
      the related mergers;

            3. a proposal to approve an amendment  to the  Restated  Articles of
      Incorporation  of the Company to increase its  authorized  common stock to
      300,000,000  shares  and its  authorized  preferred  stock to  100,000,000
      shares;

            4. a proposal to approve an amendment  to the  Restated  Articles of
      Incorporation of the Company to expand the class of investors for whom the
      board of  directors  of the  Company  can waive  capital  stock  ownership
      limits; and

            5. such other  business as may  lawfully  come before the meeting or
      any adjournment  thereof.

         Holders  of  record  of the  Company's  common  stock  at the  close of
business on December 23, 2004, the record date,  were entitled to notice of, and
to vote at, the special meeting. The vote for each proposal was as follows:
<TABLE>
<CAPTION>

 <c>
                                                                                            Abstentions and
          Proposal Number                 For                         Against              Broker Non-Votes
       ---------------------- ----------------------------- ---------------------------- ----------------------
                 1                     14,529,977                    1,145,275                  189,158
                 2                     14,507,195                    1,161,191                  196,024
                 3                     11,640,277                    3,998,138                  225,996
                 4                     14,108,909                    1,483,425                  272,076
</TABLE>


        No other business was considered at the meeting.

Item 5. Other Information.

The Board of  Directors  has  scheduled  the  Company's  next annual  meeting of
stockholders for June 23, 2005, at 10:00 a.m. at CNL Center at City Commons, 450
South Orange Avenue, Orlando,  Florida. Because the date has been advanced by 35
calendar  days  from  the  date  of  the  Company's   2004  annual   meeting  of
stockholders,  the  dates  for  submitting  matters  (i) to be  included  in the
Company's  proxy  statement  and form of proxy and (ii) to be  considered at the
2005 annual  meeting have advanced from those  disclosed in the Company's  proxy
statement  for its 2004 annual  meeting as follows.  Proposals  of  stockholders
intended to be presented at the 2005 annual  meeting must have been  received by
the  Secretary of the Company at the  Company's  principal  executive  office no
later  than  December  27,  2004 in order to have  been  included  in the  proxy
statement and form of proxy for the meeting.  Proposals of stockholders intended
to be  presented  at the 2005  annual  meeting  must have been  received  by the
Secretary of the Company at the Company's  principal  executive  office no later
than April 5, 2005 in order to have been considered at the meeting.

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 (filed
                  herewith).

         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).


<PAGE>



         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.

         10.1     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).

         10.2     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).

         10.3     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).

         10.4     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).

         10.5     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:  May 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 (filed
                  herewith).

         3.4      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 3.1


<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