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

                                    FORM 10-Q


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

                  For the quarterly period ended June 30, 1999

                                       or

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

      For the transition period from _______________ to __________________


                         Commission File Number 1-13089


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

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

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

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

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

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

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

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

As of August 5, 1999,  there were  15,461,811  shares of Common  Stock $.001 par
value outstanding.

                                  Page 1 of 23

<PAGE>


                        U.S. RESTAURANT PROPERTIES, INC.


PART I.  FINANCIAL INFORMATION

      Item 1.  Financial Statements

               Condensed Consolidated Balance Sheets as of June 30, 1999
                 (Unaudited) and December 31, 1998............................ 3

               Condensed Consolidated Statements of Income for the Three
                 and Six Months Ended June 30, 1999 and 1998 (Unaudited)...... 4

               Condensed Consolidated Statements of Other Comprehensive
                 Income for the Three and Six Months Ended June 30, 1999
                 and 1998 (Unaudited)......................................... 5

               Condensed Consolidated Statement of Stockholders' Equity
                 for the Six Months Ended June 30, 1999 (Unaudited)........... 6

               Condensed Consolidated Statements of Cash Flows for the
                 Six Months Ended June 30, 1999 and 1998 (Unaudited).......... 7

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

      Item 2.  Management's Discussion and Analysis of Financial Condition
                 and Results of Operations....................................16

      Item 3.  Quantitative and Qualitative Disclosures About Market Risk.....21


PART II. OTHER INFORMATION

      Item 1.  Legal Proceedings..............................................22

      Item 2.  Changes in Securities..........................................22

      Item 3.  Defaults upon Senior Securities................................22

      Item 4.  Submission of Matters to Vote of Security Holders..............22

      Item 5.  Other Information..............................................22

      Item 6.  Exhibits and Reports on Form 8-K...............................22


                                  Page 2 of 23

<PAGE>


                          Part I. FINANCIAL INFORMATION

Item 1.  Financial Statements
<TABLE>

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

                                                             June 30,         December 31,
                                                               1999               1998
                                                          ----------------   ----------------
                                                             (Unaudited)
                       ASSETS
<S>                                                       <C>                <C>
Property, net
  Land                                                     $     197,816      $     172,155
  Building and leasehold improvements                            392,739            342,686
  Machinery and equipment                                         11,451              8,057
                                                          ----------------   ----------------
                                                                 602,006            522,898
  Less: Accumulated depreciation                                 (38,005)           (27,938)
                                                          ----------------   ----------------
                                                                 564,001            494,960

Construction in progress                                          30,104             30,713
Cash and cash equivalents                                          8,519              1,857
Restricted cash                                                      700                700
Rent and other receivables, net
   (includes $2,062 and $1,962 from related parties)              10,021             10,817
Prepaid expenses and purchase deposits                             2,728             10,091
Investments                                                        3,612              3,057
Notes receivable
   (includes $2,300 from related parties)                         18,528              8,225
Mortgage loan receivable                                          23,554             23,275
Net investment in direct financing leases                          8,656              9,678
Intangibles and other assets, net                                 10,941             10,796
                                                          ----------------   ----------------
                                      TOTAL ASSETS         $     681,364      $     604,169
                                                          ================   ================

   LIABILITIES AND STOCKHOLDERS' EQUITY

Accounts payable and accrued liabilities                   $      11,205             11,492
Accrued dividends and distributions                                8,835              8,456
Unearned contingent rent                                           1,744              2,148
Deferred gain on sale of property                                    342                556
Lines of credit                                                  159,343            136,000
Mortgage and notes payable                                       267,824            206,112
Capitalized lease obligations                                         23                 63
                                                          ----------------   ----------------
                                 TOTAL LIABILITIES               449,316            364,827

Minority interest in operating partnership                        33,376             29,567
Stockholders' Equity
Preferred stock, $.001 par value per share;
  50,000 shares authorized, Series A - 3,680
  shares issued and outstanding as of June 30,
  1999 and December 31, 1998 (aggregate
  liquidation value $92,000)                                           4                  4
Common stock, $.001 par value per share;
  100,000 shares authorized, 14,354 and 14,372
  shares issued and outstanding as of June 30,
  1999 and December 31, 1998, respectively                            14                 14
Additional paid in capital                                       261,475            262,024
Excess stock, $.001 par value per share, 15,000
  shares authorized, no shares issued
Accumulated other comprehensive loss                              (1,132)              (797)
Distributions in excess of net income                            (61,689)           (51,470)
                                                          ----------------   ----------------
                        TOTAL STOCKHOLDERS' EQUITY               198,672            209,775
                                                          ----------------   ----------------
        TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY         $     681,364      $     604,169
                                                          ================   ================
</TABLE>

See Notes to Condensed Consolidated Financial Statements

                                  Page 3 of 23
<PAGE>

<TABLE>

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

                                                         Three Months Ended               Six Months Ended
                                                              June 30,                        June 30,
                                                  ----------------------------    ----------------------------
                                                     1999            1998            1999            1998
                                                  ------------    ------------    ------------   -------------
<S>                                               <C>             <C>             <C>            <C>
Revenues:
  Rental income                                    $  18,676       $  12,519       $  35,423      $   24,153
  Interest income and other                            1,657             732           3,394           1,328
  Amortization of unearned income
   on direct financing leases                            236             283             497             600
                                                  ------------    ------------    ------------   -------------
                             Total revenues           20,569          13,534          39,314          26,081

Expenses:
  Rent                                                   126              65             244             133
  Depreciation and amortization                        5,473           3,690          10,947           7,060
  General and administrative                           2,144           1,178           3,456           2,198
  Interest expense                                     7,401           3,871          14,140           7,132
  Termination of management contract                   2,092              --           4,642              --
  Equity in net (income) loss of affiliates             (142)             56             (81)             56
                                                  ------------    ------------    ------------   -------------
                            Total  expenses           17,094           8,860          33,348          16,579
                                                  ------------    ------------    ------------   -------------
Income before gain on sale of property,
  minority interest in operating partnership
  and extraordinary item                               3,475           4,674           5,966           9,502
Gain on sale of property                                 375             457             447             457
                                                  ------------    ------------    ------------   -------------
Income before minority interest and
  extraordinary item                                   3,850           5,131           6,413           9,959
Minority interest in operating partnership              (157)           (269)           (210)           (503)
                                                  ------------    ------------    ------------   -------------
Income before extraordinary item                       3,693           4,862           6,203           9,456
Loss on early extinguishment of debt                      --              --              --            (190)
                                                  ------------    ------------    ------------   -------------
Net income                                             3,693           4,862           6,203           9,266

Dividends on Preferred Stock                          (1,775)         (1,776)         (3,551)         (3,551)
                                                  ------------    ------------    ------------   -------------
Net income allocable to Common Stockholders        $   1,918       $   3,086       $   2,652      $    5,715
                                                  ============    ============    ============   =============
Net income per share
         Basic                                     $    0.13       $    0.24       $    0.18      $     0.44
         Diluted                                   $    0.13       $    0.23       $    0.17      $     0.44

Weighted average shares outstanding
         Basic                                        14,345          13,022          14,348          12,938
         Diluted                                      15,252          13,229          15,290          13,124
</TABLE>



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

See Notes to Condensed Consolidated Financial Statements

                                  Page 4 of 23

<PAGE>

<TABLE>

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


                                                    Three Months Ended               Six Months Ended
                                                         June 30,                        June 30,
                                               ----------------------------    ----------------------------
                                                   1999            1998            1999            1998
                                               ------------    ------------    ------------   -------------

<S>                                            <C>             <C>             <C>            <C>
Net Income                                      $   3,693       $   4,862       $   6,203      $    9,266
   Other comprehensive loss - unrealized
   loss on investments                               (131)             --            (335)             --
                                               ------------    ------------    ------------   -------------
Comprehensive income                            $   3,562       $   4,862       $   5,868      $    9,266
                                               ============    ============    ============   =============
</TABLE>


See Notes to Condensed Consolidated Financial Statements

                                  Page 5 of 23

<PAGE>

<TABLE>

<CAPTION>
                        U.S. RESTAURANT PROPERTIES, INC.
      CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Unaudited)
                     FOR THE SIX MONTHS ENDED JUNE 30, 1999
                                 (In thousands)



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

Proceeds from exercised
  stock options                                       15                          155                                          155
Common stock repurchased
  and retired                                        (33)                        (704)                                        (704)
Other comprehensive
  loss                                                                                                        (335)           (335)
Net income                                                                                    6,203                          6,203
Distributions on
  preferred stock                                                                            (3,551)                        (3,551)
Distributions on
  common stock and
  distributions declared                                                                    (12,871)                       (12,871)
                          -------- ----------- ---------- ------------ ---------------- ------------- --------------- -------------
Balance June 30, 1999       3,680   $      4      14,354   $       14   $     261,475    $  (61,689)   $    (1,132)    $   198,672
                          ======== =========== ========== ============ ================ ============= =============== =============

</TABLE>

See Notes to Condensed Consolidated Financial Statements

                                  Page 6 of 23

<PAGE>

<TABLE>

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

                                                                     Six Months Ended
                                                                          June 30,
                                                             ----------------------------------
                                                                   1999               1998
                                                             ----------------   ---------------

<S>                                                          <C>                <C>
Cash flows from operating activities:
Net Income                                                    $       6,203      $     9,266
Adjustments to reconcile net income
  to net cash from operating activities:
    Depreciation and amortization                                    10,947            7,060
    Amortization of deferred financing costs                            547              286
    Non-cash interest income                                           (273)              --
    Realized and unrealized gain on trading securities                 (662)              --
    Gain on sale of property                                           (447)            (457)
    Termination of management contract                                4,642               --
    Distributions received on investments                               155               --
    Minority interest in operating partnership                          210              503
    Equity in (income)loss of affiliates                                (81)              56
    Loss on early extinguishment of debt                                 --              190
    Increase in restricted cash                                          --           (1,332)
    Decrease (increase) in rent and other
      receivables, net                                                  700           (1,908)
    Increase in prepaid expenses                                     (1,015)            (502)
    Reduction in net investment in direct
      financing leases                                                1,022            1,175
    Increase (decrease) in accounts payable and
      accrued liabilities                                              (287)           1,101
    Increase (decrease) in unearned contingent rent                    (404)             468
                                                             ----------------   ---------------
                                                                     15,054            6,640
                                                             ----------------   ---------------
                 Cash provided by operating activities               21,257           15,906

Cash flows used in investing activities:
    Proceeds from sale of properties                                  7,262              632
    Purchase of property                                            (54,496)         (70,505)
    Purchase of machines and equipment                               (2,050)            (786)
    Construction payments                                           (14,385)              --
    Decrease in purchase deposits                                     8,378              232
    Proceeds from sale of investments                                   148               --
    Purchase of investments                                            (620)            (367)
    Increase in mortgage loan receivable                             (1,200)            (450)
    Reduction of mortgage loan receivable principal                     921               90
    Increase in notes receivable                                    (11,026)         (13,449)
    Reduction of notes receivable principal                           1,166              820
                                                             ----------------   ---------------
                     Cash used in investing activities              (65,902)         (83,783)

</TABLE>

                             continued on next page

                                  Page 7 of 23

<PAGE>

<TABLE>

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

                                                                     Six Months Ended
                                                                          June 30,
                                                             ----------------------------------
                                                                  1999               1998
                                                             ----------------   ---------------

<S>                                                          <C>                <C>
Cash flows from financing activities:
    Proceeds from line of credit, mortgage
      and notes payable                                             113,000          278,786
    Payments on line of credit, mortgage
      and notes payable                                             (42,945)        (189,982)
    Proceeds from sale of common stock                                  155            3,099
    Preferred stock dividends paid                                   (3,551)          (4,123)
    Distributions to stockholders                                   (12,521)          (9,823)
    Distributions to minority interest                               (1,014)            (867)
    Financing costs and other intangibles                            (1,061)          (1,484)
    Payments on capitalized lease obligations                           (52)             (52)
    Repurchase and retirement of stock                                 (704)              --
                                                             ----------------   ---------------
                 Cash provided by financing activities               51,307           75,554
                                                             ----------------   ---------------
Increase (decrease) in cash and cash equivalents                      6,662            7,677
Cash and cash equivalents at beginning of period                      1,857            1,104
                                                             ----------------   ---------------
Cash and cash equivalents at end of period                    $       8,519      $     8,781
                                                             ================   ===============
Supplemental disclosure:
    Interest paid during the period                           $      12,699      $     5,786
Non-cash investing activities:
    Fair value of stock issued for ownership
      interest in another entity                              $          --      $       621
    Property acquired under capital lease                     $          12      $        --
    Deferred gain on sale of property                         $         214      $        85
    Deferred rent on sale of property                         $          96      $        --
    Note payable in exchange for property                     $      15,000      $        --
    Unrealized loss on investments                            $         335      $        --
    Notes received on sale of investment                      $         443      $        --
    Notes received on sale of property                        $          --      $       675
    Reduction in note receivable for property acquired        $          --      $    11,822
    Reduction in accounts receivable for
      property acquired                                       $          --      $       219
    Net transfers from construction in progress
      to property                                             $      14,994      $        --

Non-cash financing activities:
    Common stock dividends declared                           $         350      $        --
    Distributions to minority interest declared               $          29      $        --

</TABLE>

See Notes to Condensed Consolidated Financial Statements

                                  Page 8 of 23

<PAGE>


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

1.  Interim Unaudited Financial Information

U.S.  Restaurant  Properties,  Inc. (the "Company") is a  self-administered  and
self-managed  real  estate  investment  trust  ("REIT"),  as  defined  under the
Internal  Revenue Code of 1986,  as amended.  As noted in the  Company's  Annual
Report on Form 10-K for the year ended December 31, 1998, the Company became the
successor entity to U.S.  Restaurant  Properties Master L.P.  (collectively with
its  subsidiaries,  "USRP").  The  business  and  operations  of the Company are
conducted primarily through U.S. Restaurant Properties Operating L.P. ("OP"). At
June 30,  1999,  the Company  owns 92.58% of and controls the OP. As of June 30,
1999, the Company owned 902 core business properties (primarily  restaurants and
service stations) in 48 states.

The accompanying  condensed  consolidated financial statements should be read in
conjunction  with  the  consolidated  financial  statements  and  notes  thereto
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1998, which was filed with the Securities and Exchange  Commission  ("SEC").
The  results of  operations  for the six months  ended  June 30,  1999,  are not
necessarily  indicative  of the  results  to be  expected  for the  year  ending
December  31,  1999.  Certain  information  and  footnote  disclosures  normally
included in financial  statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted in this report on Form 10-Q
pursuant to the Rules and  Regulations of the SEC. In the opinion of management,
the  disclosures  contained in this report are adequate to make the  information
presented not misleading.

The accompanying  condensed  consolidated  balance sheet as of June 30, 1999 and
the other condensed  consolidated financial information for the six months ended
June 30, 1999 and 1998,  are unaudited,  but management of the Company  believes
that all adjustments  (consisting only of normal recurring  accruals)  necessary
for a  fair  presentation  of the  Company's  condensed  consolidated  financial
statements for the periods presented have been included therein.

The Company derives its revenues primarily from the leasing of its properties to
operators (primarily  restaurants and service stations) on a "triple net" basis.
Triple net leases  typically  require the tenants to be responsible for property
operating costs,  including property taxes,  insurance,  maintenance and in most
cases the ground rents where applicable. Accordingly, the accompanying financial
statements do not include costs for property  taxes and insurance  which are the
responsibility  of the tenants.  Additionally,  those  amounts  associated  with
ground rent expense  where the tenant is  responsible  for the ground rents have
been recorded as a reduction to rent revenues with no impact on net income.  For
the three months ended June 30, 1999 and 1998,  the Company has recorded  ground
rent  costs  of  $1,042,000  and  $661,000,  respectively,  and  $1,816,000  and
$1,335,000 for the six months ended June 30, 1999 and 1998,  respectively,  as a
reduction to rent revenues.

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

The Company had 14,353,627 and 14,372,027  shares of Common Stock outstanding as
of June 30,1999 and December 31, 1998 respectively.

In May 1998, the Financial  Accounting  Standards  Board's  Emerging Issues Task
Force issued EITF 98-9,  "Accounting  for Contingent  Rent in Interim  Financial
Periods," (EITF 98-9),  which provides  guidance on recognition of rental income
during interim  periods for leases which provide for contingent  rents (commonly
referred to as "percentage  rents").  In accordance  with the initial  consensus
reached  in EITF  98-9,  the  Company  revised  its  method  of  accounting  for
contingent  rent on a  prospective  basis  effective  May 21,  1998.  Using  the
historical basis of accounting,  net income and basic and diluted net income per
share amounts would have been $3,523,000, $0.12 and $0.11, respectively, for the
three  month  period  ended  June 30,  1999 and  $5,829,000,  $0.16  and  $0.15,
respectively  for the six month period ended June 30, 1999. Using the historical
basis of accounting,  net income before extraordinary item, net income and basic
and diluted net income per share amounts would have been $5,292,000, $5,292,000,
$0.27 and $0.27, respectively for the three month period ended June 30, 1998 and
$9,886,000,  $9,696,000,  $0.48 and $0.47, respectively for the six month period
ended June 30, 1998.


                                  Page 9 of 23
<PAGE>


The pro forma information below was prepared based on management's  estimate for
the  effects  of EITF 98-9 since it is  impracticable  to  calculate  the actual
amount on a retroactive basis precisely. Management of the Company believes that
the estimate is not  materially  different  from what actual  results would have
been under EITF 98-9.  Following is the pro forma  information for the three and
six months ended June 30, 1999 and 1998 as if the EITF 98-9 were in effect as of
January 1, 1998:
<TABLE>

<CAPTION>
                                                         Three Months Ended               Six Months Ended
                                                              June 30,                        June 30,
                                                     ----------------------------    ----------------------------
(In thousands, except per share amounts)                1999            1998            1999            1998
                                                     ------------    ------------    ------------   -------------

<S>                                                  <C>             <C>             <C>            <C>
Income before extraordinary item as reported          $   3,693       $   4,862       $   6,203      $    9,456
Add: Adjustment for change in accounting policy
  on recognition of contingent lease rent                    35             478             656             561
                                                     ------------    ------------    ------------   -------------
Income before extraordinary item as adjusted          $   3,728       $   5,340       $   6,859      $   10,017
                                                     ============    ============    ============   =============
Net income as adjusted                                $   3,728       $   5,340       $   6,859      $    9,827
                                                     ============    ============    ============   =============
Net income available to common stockholders
  as adjusted                                         $   1,953       $   3,564       $   3,308      $    6,276
                                                     ============    ============    ============   =============
Income per share - Basic:
  Before extraordinary item, less dividends on
    preferred stock as reported                       $    0.13       $    0.24       $    0.18      $     0.46
  Adjustment for effect of change in accounting
    policy                                                   --            0.03            0.05            0.04
                                                     ------------    ------------    ------------   -------------
  Income before extraordinary item, less
    dividends on preferred stock as adjusted          $    0.13       $    0.27       $    0.23      $     0.50
                                                     ============    ============    ============   =============
  Net income available to common stockholders
    as reported                                       $    0.13       $    0.24       $    0.18      $     0.44
  Adjustment for effect of change in accounting
    policy                                                   --            0.03            0.05            0.04
                                                     ------------    ------------    ------------   -------------
  Net income available to common stockholders
    as adjusted                                       $    0.13       $    0.27       $    0.23      $     0.48
                                                     ============    ============    ============   =============
Income per share - Diluted:
  Before extraordinary item, less dividends on
    preferred stock as reported                       $    0.13       $    0.23       $    0.17      $     0.45
  Adjustment for effect of change in accounting
    policy                                                   --            0.03            0.05            0.04
                                                     ------------    ------------    ------------   -------------
  Income before extraordinary item, less
    dividends on preferred stock as adjusted          $    0.13       $    0.26       $    0.22      $     0.49
                                                     ============    ============    ============   =============
  Net income available to common stockholders
    as reported                                       $    0.13       $    0.23       $    0.17      $     0.44
  Adjustment for effect of change in accounting
    policy                                                   --            0.03            0.05            0.04
                                                     ------------    ------------    ------------   -------------
  Net income available to common stockholders
    as adjusted                                       $    0.13       $    0.26       $    0.22      $     0.48
                                                     ============    ============    ============   =============
</TABLE>


2.  Net Income per Share of Common Stock

Basic earnings per share are computed based upon the weighted  average number of
common  shares  outstanding.  Diluted  earnings per share  reflects the dilutive
effect  of stock  options,  contingent  shares  and  stock on which the price is
guaranteed  ("Guaranteed  Stock"). In addition,  convertible preferred stock was
antidilutive in the three and six months ended June 30, 1999 and 1998.

A  reconciliation  of net  income  per share  and the  weighted  average  shares
outstanding for calculating basic and diluted net income per share for the three
and six month periods ended June 30, 1999 and 1998 is as follows:

                                 Page 10 of 23
<PAGE>

<TABLE>

<CAPTION>
                                                               Three months ended              Six months ended
                                                                    June 30,                       June 30,
                                                          ----------------------------------------------------------
    (In thousands, except per share amounts)                 1999           1998            1999            1998
                                                          -----------    ------------    -----------     -----------

<S>                                                       <C>            <C>             <C>             <C>
 Net income before extraordinary item                      $  3,693       $   4,862       $  6,203        $   9,456
 Loss on early extinguishment of debt                            --              --             --             (190)
                                                          -----------    ------------    -----------     -----------
 Net income                                                   3,693           4,862          6,203            9,266
 Dividends on preferred stock                                (1,775)         (1,776)        (3,551)          (3,551)
                                                          -----------    ------------    -----------     -----------
 Net income allocable to shareholders                      $  1,918       $   3,086       $  2,652        $   5,715
                                                          ===========    ============    ===========     ===========

Net income per share - Basic
   Before  extraordinary item, less  preferred
     stock dividends                                       $   0.13       $    0.24       $   0.18        $    0.45
   Extraordinary loss on extinguishment of debt                  --              --             --            (0.01)
                                                          -----------    ------------    -----------     -----------
Net income allocable to common stockholders                $   0.13       $    0.24       $   0.18        $    0.44
                                                          ===========    ============    ===========     ===========
Net income per share - Diluted
   Before  extraordinary item, less  preferred
     stock dividends                                       $   0.13       $    0.23       $   0.17        $    0.45
   Extraordinary loss on extinguishment of debt                  --              --             --            (0.01)
                                                          -----------    ------------    -----------     -----------
Net income allocable to common stockholders                $   0.13       $    0.23       $   0.17        $    0.44
                                                          ===========    ============    ===========     ===========

Weighted average shares outstanding (a)
    Basic                                                    14,345          13,022         14,348           12,938
      Dilutive effect of outstanding options                     47             207             51              186
      Dilutive effect of guaranteed stock                        75              --            106               --
      Dilutive effect of contingent shares                      785              --            785               --
                                                          ------------    -----------    -----------     -----------
    Diluted                                                  15,252          13,229         15,290           13,124
                                                           ===========    ===========    ===========     ===========
</TABLE>

         (a)  June 30, 1999, excludes 3,679,938 shares of convertible  preferred
              stock,  622,000  stock  options and  1,162,672  OP units which are
              anti-dilutive.   June  30,  1998,  excludes  3,680,000  shares  of
              convertible  preferred  stock,  913,563 shares of guaranteed stock
              and 1,148,418 OP units, which are anti-dilutive.

3.  Property Acquisitions and Dispositions

During the three months ended June 30, 1999, the Company  completed the purchase
of 12 properties for an aggregate  purchase  price of  $9,714,000.  In addition,
four properties (2 core business  properties) were sold for net cash proceeds of
$1,328,000.

During the three months ended March 31, 1999, the Company completed the purchase
of 51 properties for an aggregate purchase price of $62,396,000. In addition, 12
properties were sold for net cash proceeds of $5,934,000.

During the six months  ended June 30,  1999,  the Company has net  transfers  of
approximately  $14,994,000 from  construction in progress to land,  building and
equipment.

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

On June 30, 1999,  earnest money purchase deposits amounting to $451,000 were on
deposit for the purchase of  properties.  These  amounts will be included in the
allocation of the purchase price of the respective  properties  once acquired or
reduced once the deposit is returned.  Non-refundable deposits are expensed once
it becomes unlikely that the property will be acquired.

4.  Investments

The aggregate cost basis and net unrealized loss for  investments  classified as
available  for  sale  under  SFAS  115 at June  30,  1999  were  $4,744,000  and
$(1,132,000),  respectively.  The net unrealized  loss is recorded as a separate
component  of  stockholders'  equity  of which  $(131,000)  and  $(335,000)  was

                                 Page 11 of 23
<PAGE>

recorded during the three and six months ended June 30, 1999,  respectively.  In
addition, during the six months ended June 30, 1999, the Company exercised stock
options for 87,500 shares of ICH Corporation common stock and has classified the
common stock as a trading investment. On April 23, 1999, the Company sold 60,000
shares of the  trading  investment  for cash of  $148,000  and  received  a note
receivable of $443,000  which bears interest at 8.5% with interest and principal
due monthly  through May 2003. At June 30, 1999, the fair value of the remaining
trading  investment  was $400,000 and the  realized and  unrealized  gain on the
trading  investments  amounted to $253,000  and  $662,000  for the three and six
months ended June 30, 1999,  respectively and is included in interest income and
other in the condensed consolidated financial statements.

5.  Revolving Credit Facilities

In January  1998,  the OP entered  into a credit  agreement  with a syndicate of
banks for an unsecured  revolving  credit line of $175  million.  As of June 30,
1999,  the  Company has  approximately  $6 million  available  under this credit
agreement.  The Company  may request  advances  under this credit  agreement  to
finance the acquisition of properties,  to repair and update  properties and for
working  capital.  The banks will also issue  standby  letters of credit for the
account of the Company under this line of credit.  This credit agreement expires
on January 15, 2001 and provides that borrowings thereunder bear interest at the
then  current  LIBOR  plus a margin  spread  of  either  1.05%,  1.20% or 1.35%,
dependent on a leverage  ratio  formula.  As of June 30, 1999, the margin spread
was 1.35%  resulting in an effective  rate of 6.30%.  There is an unused line of
credit fee of 0.25% per annum on the unused portion of the credit agreement. The
line of credit  requires the Company to maintain a minimum  equity value of $200
million,   total  adjusted  outstanding   indebtedness  not  to  exceed  60%  of
capitalization  value,  secured indebtedness not to exceed 15% of capitalization
value,  debt yield of not less than 16% and  maintain  certain  other  financial
covenants as defined in the line of credit agreement.  On February 23, 1999, the
OP entered into an Assignment and Acceptance  agreement that became effective on
April 12, 1999 upon execution of the credit  agreement with Credit Lyonnais (see
Note 6). Under the terms of the  Assignment and Acceptance the OP became a party
to the revolving credit agreement, and accepted the assignment of $10 million of
the  available  credit  line.  This  agreement  effectively  reduced the maximum
availability under the revolving credit agreement by $10 million.

6.  Notes Payable

On December 15, 1998, the Company  entered into a secured note  agreement  ("PAC
Note") for $20  million.  On January 9, 1999 the  Company  obtained  $20 million
under the PAC Note which matures on December 15, 1999 and bears interest rate of
LIBOR plus 3.00% per annum (7.97% at June 30,  1999).  The note is secured by 35
properties.

On December 30, 1998, the Company financed a part of a property acquisition with
the seller in the amount of $6,550,000. The note bears interest at prime plus 1%
per annum (8.75% as of June 30, 1999).  This note is due in two  installments of
$3,275,000 plus accrued interest on June 15, 1999 and December 30, 1999.  During
the three months  ended June 30, 1999,  the Company  repaid  $3,275,000  on this
note.  This note is secured by 18  properties.  Subsequent to June 30, 1999, the
Company repaid the remaining balance.

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

On April 12, 1999, the OP entered into an unsecured credit agreement with Credit
Lyonnais ("CLNY Agreement") under which the OP may borrow up to a maximum of $50
million.  After July 9, 1999,  no further  borrowings  can be made and the total
amount  borrowed  becomes the  principal  balance of a note  payable  which will
mature on April 11, 2002.  This note provides that  borrowings  thereunder  bear
interest at the then current  LIBOR plus a margin  spread  ranging from 2.00% to
2.75%,  dependent on a leverage ratio formula (7.75% as of June 30, 1999). As of
June 30,  1999,  the Company  had drawn a total of $45  million  under this CLNY
Agreement.  Subsequent  to June 30, 1999 the Company has drawn the  remaining $5
million available on this note.

The Company is in  compliance  with all covenants  associated  with its debt and
credit facilities as of June 30, 1999.

                                 Page 12 of 23

<PAGE>


7.  Related Party Transactions

The Managing General Partner of Arkansas Restaurants #10 L.P. (ARK #10) is owned
by an officer of the Company who receives no  compensation  for this role. As of
June 30, 1999 and December 31, 1998,  notes receivable of $454,000 were due from
ARK #10.  The notes  receivable  are due on  September  1, 1999  ($394,000)  and
November 2, 1999 ($60,000) and have an interest rate of 9.0% per annum.  At June
30, 1999 and December 31, 1998,  tenant and other  receivables from ARK #10 were
$703,000 and $678,000, respectively.

The Managing  General  Partner of Southeast  Fast Food  Partners,  L.P. (SFF) is
owned by another  officer of the  Company.  As of June 30, 1999 and December 31,
1998, notes receivable of $1,070,000 were due from SFF. The notes receivable are
due on July 1, 1999 and have an  interest  rate of 9.0% per  annum.  At June 30,
1999 and December 31, 1998 a note receivable of $136,000 is due from two limited
partners of SFF one of which is an officer of the  Company.  These notes are due
on July 1, 1999,  and have an  interest  rate of 9.0% per annum.  As of June 30,
1999  and  December  31,  1998,  tenant  and  other  receivables  from  SFF were
$1,125,000  and $979,000,  respectively.  Subsequent to June 30, 1999,  SFF sold
their  interest in the  operations  on 23  properties  owned by the Company to a
third party.  The master lease between SFF and the Company on the properties was
terminated  and a new  master  lease was  entered  into  with the new  operator.
Subsequently,  all balances, net of any reserves, were paid by SFF including the
amounts due from the limited partners of SFF.

During  the three and six months  ended  June 30,  1999,  the  Company  recorded
reserves for bad debts of $316,000 and $1,005,000,  respectively  which has been
recorded  as a  reduction  to  rental  revenues  in the  accompanying  financial
statements.

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

In April 1998, two affiliates of the Company,  U.S.  Restaurant Lending GP, Inc.
(the  "General  Partner")  and U.S.  Restaurant  Lending LP, Inc.  (the "Limited
Partner") entered into joint venture and limited partnership agreements with MLQ
Investors,  L.P.,  an  affiliate  of  Goldman,  Sachs & Co., to form two limited
partnerships.  The two  limited  partnerships  engage in lending  activities  to
owners and  operators of quick  service  franchise  and gas  station/convenience
store outlets. The Company has indirect ownership interests (through the General
Partner  and  Limited   Partner   interests   it  owns)  of  71.25%  and  47.5%,
respectively,  in these two  partnerships.  As of June 30, 1999 and December 31,
1998, the Company had other  receivables  from the two lending  partnerships  of
$234,000 and $306,000  respectively.  In addition, at June 30, 1999 and December
31, 1998 a note  receivable  of  $640,000  is due from the  General  Partner and
Limited  Partner.  Officers of the  Company  own 95% of the voting  stock of the
General  Partner  and  the  Limited  Partner.  The  joint  venture  and  limited
partnerships  are  currently  in  the  process  of  selling  all  current  loans
maintained by the partnerships, after which the partnerships will be liquidated.

The Company has entered into lease agreements under which the tenant  operations
are  either  owned or a  majority  interest  is held by  members of the board of
directors of the Company.  As of June 30, 1999 and December 31, 1998, no amounts
were due from the operators of these properties.

8.  Stockholders' Equity and Minority Interest

Distributions to Common and Preferred Stockholders

During the six months ended June 30, 1999,  the Company  paid  distributions  of
$13,535,000 to its Common  Stockholders  and the minority  interests (or $0.8725
per share of Common  Stock) and  $3,551,000 to its  Preferred  Stockholders  (or
$0.965  per  share of  Preferred  Stock).  As of June 30,  1999,  $8,835,000  in
dividends  have  been  declared  to  be  paid  on  Preferred  and  Common  Stock
outstanding to stockholders  and minority  interests OP unitholders of record on
September 1, 1999.

Common Stock

During the six months ended June 30, 1999, the Company  repurchased  and retired
33,400 shares of Common Stock for $704,000.  As a June 30, 1999, the Company has
repurchased and retired a total of 67,100 shares under the Company's  repurchase
program.  The Board of Directors  have approved the  repurchase of up to 500,000
shares  of the  Company's  common  stock.  However,  at this  time,  no  further
repurchases are being considered.

                                 Page 13 of 23

<PAGE>

Minority Interest

As reported in the Company's Annual Report on Form 10-K as of December 31, 1998,
OP units  represent  a  minority  interest  in the OP of the REIT.  Each OP unit
participates  in any income  (loss) of the OP based on the percent  ownership in
the OP and receives a cash dividend in an amount equivalent to a share of Common
Stock.  Each OP unit may be  exchanged  by the holder  thereof  for one share of
Common  Stock of the Company.  With each  exchange of  outstanding  OP units for
Common Stock, the Company's percentage ownership interest in the OP, directly or
indirectly,  will increase. In addition,  under a terminated management contract
in 1997 the original sole minority interest holder QSV Properties,  Inc. ("QSV")
is entitled to an  additional  825,000  shares of Common Stock of the Company or
its equivalent in OP units if certain earnings targets are met by the year 2000.
These earnings targets are calculated  using a formula,  primarily driven by the
volume of property transactions which is based upon what QSV would have received
under the  management  contract  that was  terminated.  For the six month period
ended June 30, 1999, the Company accrued $4,642,000  representing an increase of
289,848  contingent  shares  earned under the  earnings  target  formula.  These
additional accrued contingent shares have increased the total accrued contingent
shares to 785,357 with an accrued value of approximately  $16,689,000  (based on
the market value of a share of the Company's Common Stock at June 30, 1999). The
785,357  contingent  shares have not been issued and will not participate in any
income  (loss) or  receive  any  distributions  from the OP until such units are
issued. As of June 30, 1999 there are 1,162,672 OP units outstanding.

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

           Balance December 31, 1998                  $      29,567
           Market value of contingent shares
             earned for the period                            4,642
           Distributions paid and accrued in the
             period                                          (1,043)
           Income allocated to minority interest                210
                                                      ----------------
           Balance at June 30, 1999                   $      33,376
                                                      ================

Shelf Registrations

On August 22, 1997, the Company filed a shelf registration statement to register
shares of  Common or  Preferred  Stock for sale in the  amount of  $150,000,000.
Subsequent to June 30, 1999, the Company sold  1,010,000  shares of common stock
at $21.50 per share under this registration statement.  The amount of securities
available  for sale  under  this shelf  registration  statement  after the stock
issuance is approximately $3,310,000.

On October 30, 1998, the Company filed a shelf  registration for $175,000,000 to
register  shares of Common  and  Preferred  Stock  for sale.  This  registration
statement has been declared  effective  subsequent to June 30, 1999,  however no
securities  have been issued  under this  registration  statement at the time of
this Form 10-Q.

                                 Page 14 of 23

<PAGE>


9.  Pro Forma

The  following  pro forma  information  was  prepared  by  adjusting  the actual
consolidated  results of the Company for the three month  periods ended June 30,
1999 and 1998 for the effects of:

         a.       the purchase of 63 properties on various dates from January 1,
                  1999 through June 30, 1999 for an aggregate  purchase price of
                  $72,110,000;  and the  sale  of 16  properties  for  net  cash
                  proceeds of $7,262,000; and the net transfer of $14,994,000 of
                  completed properties from construction in progress and related
                  financing transactions; and

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

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

<TABLE>

<CAPTION>
                                                          Six Months Ended June 30,
                                                     --------------------------------------
(In thousands, except per share amounts)                   1999                1998
                                                     -----------------   ------------------

<S>                                                  <C>                 <C>
Total Revenues                                        $       40,690      $        39,370
                                                     =================   ==================
Net Income                                            $        5,971                9,633

Dividends on Preferred Stock                                  (3,551)              (3,551)
                                                     -----------------   ------------------
Net income allocable to Common Shareholders           $        2,420                6,082
                                                     =================   ==================
Net income per share
         Basic                                        $         0.17      $          0.42
         Diluted                                      $         0.16      $          0.42

Weighted average shares outstanding
         Basic                                                14,348               14,331
         Diluted                                              15,290               14,563

</TABLE>

                                 Page 15 of 23


<PAGE>


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

RESULTS OF OPERATIONS.

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

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

Comparison  of the six months  ended June 30, 1999 to the six months  ended June
30, 1998

The Company owned 591 properties  prior to January 1, 1998. The Company acquired
286  properties  (275 core  business  properties)  and sold 12  properties  from
January 1, 1998 to December 31, 1998 and the Company  acquired 63 properties (62
core business  properties) and sold 16 properties (14 core business  properties)
from January 1, 1999 to June 30,  1999,  the rent from which are included in the
periods presented from their respective dates of acquisition.

Revenues,  including  interest  income  and  income  earned on direct  financing
leases,  in the six months ended June 30, 1999 totaled  $39,314,000  up 51% from
the $26,081,000 recorded for the six months ended June 30, 1998. The increase in
revenues is primarily due to increases in the number of properties  owned during
the  period as  compared  to the same  period in 1998.  Through  June 30,  1999,
approximately 9% of the Company's rental revenues resulted from percentage rents
(rents  determined as a percentage of tenant  sales),  down from 12% for the six
months ended June 30, 1998.  Percentage  rents for the six months ended June 30,
1999 would have been  approximately  8% of the Company's  rental revenues before
adjustment for the impact of EITF 98-9. As a result,  percentage rents which are
derived from  restaurant  sales  continue to have a diminishing  effect on total
rental revenues.

Also  included  in revenues is  interest  income  relating to secured  notes and
mortgage receivable from tenants and related parties.  Interest income and other
was $3,394,000  for the six months ended June 30, 1999 compared with  $1,328,000
for the six months ended June 30, 1998, an increase of 156% when compared to the
six  months  ended June 30,  1998.  The  increase  resulted  primarily  from the
increase in mortgage loan receivables and notes receivable when compared to June
30, 1998. In addition,  the Company  recorded a realized and unrealized  gain on
trading securities of $662,000 during the six months ended June 30, 1999.

Rent expense for the six months ended June 30, 1999 totaled $244,000 an increase
of 84% when  compared to the six months  ended June 30, 1998.  Depreciation  and
amortization  expenses in the six months ended June 30, 1999 totaled $10,947,000
an increase  of 55% when  compared to the six months  ended June 30,  1998.  The
increase in rent expense and  depreciation and  amortization  expenses  directly
relate to the property acquisitions.

General  and  administrative  expenses  for the six months  ended June 30,  1999
totaled $3,456,000 an increase of 57% when compared to the six months ended June
30,  1998.   The   increase  was  a  result  of  the  costs  of  the   increased
infrastructure,  including  additional  employees,  required  by the  Company to
manage and maintain the Company's rate of growth.

Interest expense for the six months ended June 30, 1999 totaled $14,140,000,  an
increase  of 98%,  when  compared  to the six months  ended June 30,  1998.  The
increase in interest  expense directly relates to the additional debt associated
with  the  acquisitions  and  the  higher  interest  rate  associated  with  the
additional debt.

A non-cash  accounting  charge of $4,642,000  relating to the termination of the
management  contract  with QSV was  recorded  for the six months  ended June 30,
1999.  This charge  represents the market value,  based on the market value of a
share of Common Stock at June 30,  1999,  of 785,357  contingent  OP units (less
amounts  previously  recorded on 495,509  units as of December  31,  1998) which
would be  earned  by QSV at June 30,  1999  under  the  terms of the  terminated
management  contract. A maximum of 825,000 shares of Common Stock of the Company
or their  equivalent  in OP units  will be  issued  to QSV if  certain  earnings
targets  are  met by the  end of the  year  2000.

                                 Page 16 of 23

<PAGE>

These earnings targets are calculated  using a formula,  primarily driven by the
volume  of  property  transactions,  which is based  upon  what QSV  would  have
received  under their prior  management  contract.  These OP units have not been
issued,   and  will  not  participate  in  any  income  (loss)  or  receive  any
distributions from the OP until they have been issued in 2001.

Equity in net income  (loss) of  affiliates of $81,000 and $(56,000) for the six
months  ended June 30,  1999 and 1998,  respectively,  relates to the  Company's
share of net income from its  investments in other entities in which the Company
holds a minority interest.

Minority  interest in net income of the OP of $210,000  and $503,000 for the six
months ended June 30, 1999 and 1998,  respectively,  relates to OP units held by
QSV and other minority interest holders.

Gain on sale of  properties  of $447,000  for the six months ended June 30, 1999
related to the sale of 16 properties for cash of $7,262,000 net of closing costs
which represents a decrease of 2% when compared to gain on sale of properties of
$457,000 for the six months ended June 30, 1998. The loss on  extinguishment  of
debt of  $190,000  for  the six  months  ended  June  30,  1998  related  to the
termination of the Company's previous line of credit.

Comparison  of the three  months  ended June 30, 1999 to the three  months ended
June 30, 1998

Revenues,  including  interest  income  and  income  earned on direct  financing
leases, in the three months ended June 30, 1999 totaled  $20,569,000 up 52% from
the $13,534,000  recorded for the three months ended June 30, 1998. The increase
in revenues is  primarily  due to increases  in the number of  properties  owned
during the period as compared to the same period in 1998.  For the three  months
ended June 30, 1999, approximately 10% of the Company's rental revenues resulted
from percentage rents (rents  determined as a percentage of tenant sales),  down
from 12% for the three  months  ended June 30,  1998.  Percentage  rents for the
three  months  ended  June 30,  1999  would  have been  approximately  9% of the
Company's  rental revenues  before  adjustment for the impact of EITF 98-9. As a
result,  percentage  rents which are derived from  restaurant  sales continue to
have a diminishing effect on total rental revenues.

Also  included  in revenues is  interest  income  relating to secured  notes and
mortgage receivable from tenants and related parties.  Interest income and other
was  $1,657,000  for the three months ended June 30, 1999 compared with $732,000
for the three months ended June 30, 1998,  an increase of 126% when  compared to
the three months ended June 30, 1998. The increase  resulted  primarily from the
increase in mortgage loan receivables and notes receivable when compared to June
30, 1998. In addition,  the Company  recorded a realized and unrealized  gain on
trading securities of $253,000 during the three months ended June 30, 1999.

Rent  expense  for the three  months  ended June 30,  1999  totaled  $126,000 an
increase  of 94%  when  compared  to the  three  months  ended  June  30,  1998.
Depreciation and  amortization  expenses in the three months ended June 30, 1999
totaled  $5,473,000,  an increase of 48% when compared to the three months ended
June 30, 1998. The increase in rent expense and  depreciation  and  amortization
expenses directly relate to the property acquisitions.

General and  administrative  expenses  for the three  months ended June 30, 1999
totaled  $2,144,000  an increase of 82% when  compared to the three months ended
June  30,  1998.  The  increase  was a  result  of the  costs  of the  increased
infrastructure,  including  additional  employees,  required  by the  Company to
manage and maintain the Company's rate of growth.

Interest expense for the three months ended June 30, 1999 totaled $7,401,000, an
increase of 91%,  when  compared to the three months  ended June 30,  1998.  The
increase in interest  expense directly relates to the additional debt associated
with  the  acquisitions  and  the  higher  interest  rate  associated  with  the
additional debt.

A non-cash  accounting  charge of $2,092,000  relating to the termination of the
management  contract  with QSV was  recorded for the three months ended June 30,
1999.  This charge  represents the market value,  based on the market value of a
share of Common Stock at June 30,  1999,  of 785,357  contingent  OP units (less
amounts  previously  recorded on 755,816 units as of March 31, 1999) which would
be earned by QSV at June 30, 1999 under the terms of the  terminated  management
contract.  A maximum of 825,000  shares of Common  Stock of the Company or their
equivalent in OP units will be issued to QSV if certain earnings targets are met
by the end of the year 2000.  These  earnings  targets  are  calculated  using a
formula, primarily driven by the volume of property transactions, which is based
upon what QSV would have received under their prior management  contract.  These
OP units have not been issued,  and will not participate in any income (loss) or
receive any distributions from the OP until they have been issued in 2001.

                                 Page 17 of 23
<PAGE>

Equity in net income  (loss) of  affiliates  of $142,000 and  $(56,000)  for the
three  months  ended  June  30,  1999 and  1998,  respectively,  relates  to the
Company's  share of net income from its  investments  in other entities in which
the Company holds a minority interest.

Minority interest in net income of the OP of $157,000 and $269,000 for the three
months ended June 30, 1999 and 1998,  respectively,  relates to OP units held by
QSV and other minority interest holders.

Gain on sale of  properties of $375,000 for the three months ended June 30, 1999
related to the sale of 4 properties for cash of $1,328,000 net of closing costs,
which  represents  a  decrease  of 18%  when  compared  to the  gain  on sale of
properties for the three months ended June 30, 1998.

LIQUIDITY AND CAPITAL RESOURCES.

The Company's  principal  demands for  short-term  and long-term  liquidity are:
monthly debt service payments, capital improvements and development of property,
distributions  to  stockholders  and  minority  interest  holders  and  property
acquisitions.

The Company's  principal source of cash to meet its short term cash requirements
is rental revenues generated by the Company's properties.  Cash generated by the
portfolio in excess of  operating  needs is used to reduce  amounts  outstanding
under  the  Company's  credit  agreements.  The  terms of the  Company's  leases
("triple  net leases")  generally  require  that the tenant is  responsible  for
maintenance and improvements to the property.  Thus the Company is generally not
required to expend  funds for  remodels and  renovations.  However,  the Company
expects  to spend  approximately  $1  million  a year to  renovate  and  remodel
currently owned properties.  As of June 30, 1999 approximately $308,000 has been
funded for  remodels  and the Company  had 27  properties  in various  stages of
development.  As of June 30, 1999 the Company had  commitments of  approximately
$13  million  representing  construction  contract  costs not yet  incurred.  In
addition,  as of June 30,  1999,  the  Company  has  non-binding  contracts  for
acquisitions of approximately $21 million.

During the three  months  ended  March 31, 1999 the Company  paid  dividends  of
$0.8725 per share,  or an aggregate of  $13,535,000 to common  stockholders  and
minority interests. In addition, the Company paid dividends of $0.965 per share,
or an  aggregate  $3,551,000  to  preferred  stockholders  covering  the  period
December 16, 1998 to June 15, 1999.  In addition,  on June 3, 1999,  the Company
declared a  dividend  of $0.455 per share to common  stockholders  and  minority
interests  and  $0.4825  per  share  to  preferred  stockholders  to be  paid on
September 15, 1999.

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

On December 30, 1998, the Company financed a part of a property acquisition with
the seller in the amount of $6,550,000. The note bears interest at prime plus 1%
per annum (8.75% as of June 30, 1999).  This note is due in two  installments of
$3,275,000 plus accrued interest on June 15, 1999 and December 30, 1999.  During
the three months  ended June 30, 1999,  the Company  repaid  $3,275,000  on this
note.  This note is secured by 18  properties.  Subsequent to June 30, 1999, the
Company repaid the remaining balance.

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

On April 12, 1999, the OP entered into an unsecured credit agreement with Credit
Lyonnais ("CLNY Agreement") under which the OP may borrow up to a maximum of $50
million on or before July 9, 1999.  After July 9, 1999, the Company has borrowed
all $50 million.  This note provides that borrowings thereunder bear interest at
the then  current  LIBOR  plus a margin  spread  ranging  from  2.00% to  2.75%,
dependent on a leverage ratio formula. This note will mature on April 11, 2002.

                                 Page 18 of 23

<PAGE>


On January 17, 1998 the OP entered into a credit  agreement  with a syndicate of
banks for an  unsecured  revolving  credit  line of $175  million.  This  credit
agreement  replaced the Company's  then existing line of credit.  As of June 30,
1999, the Company has  approximately  $6 million  available  under the unsecured
line of credit.  The Company may request advances under this credit agreement to
finance the acquisition of properties,  to repair and update  properties and for
working capital.  This credit agreement expires on January 15, 2001 and provides
that borrowings thereunder bear interest at LIBOR plus a margin spread which was
1.35% per annum at March 31, 1999. On February 23, 1999,  the OP entered into an
Assignment and Acceptance agreement that became effective on April 12, 1999 upon
execution of the credit agreement with Credit  Lyonnais.  Under the terms of the
Assignment  and  Acceptance  the OP  became  a  party  to the  revolving  credit
agreement,  and accepted the  assignment of $10 million of the available  credit
line.  This agreement  effectively  reduced the maximum  availability  under the
revolving credit agreement by $10 million.

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

FUNDS FROM OPERATIONS (FFO)

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

The following table sets forth, for the six months ended June 30, 1999 and 1998,
the  calculation  of FFO on a diluted  basis.  For the six months ended June 30,
1999, net income allocable to common stockholders,  which is used in calculating
FFO,  includes a  non-cash  accounting  charge of  $4,642,000  which  relates to
contingent OP units that would be earned by QSV under the provisions of the 1997
management contract termination agreement.

<TABLE>
<CAPTION>
(in thousands)                                                   Six Months Ended
                                                                      June 30,
                                                       ------------------------------------
Funds From Operations                                        1999                 1998
                                                       ---------------      ---------------
<S>                                                    <C>                  <C>
Net income allocable to common stockholders             $      2,652         $      5,715

Direct financing lease payments                                  984                1,175
Capital lease principal payments                                 (52)                 (52)
Depreciation and amortization                                 10,902                7,023
Gain on sale of property                                        (447)                (457)
Income allocable to minority interest                            210                  503
Loss on early extinguishment of debt                              --                  190
Effect of EITF 98-9                                             (404)                 468
Preferred stock dividends                                      3,551                3,551
                                                       ---------------      ---------------
Funds from operations (FFO) - diluted                   $     17,396         $     18,116
                                                       ===============      ===============
</TABLE>

                                 Page 19 of 23


<PAGE>


<TABLE>

<S>                                                    <C>                  <C>
Weighted average shares outstanding - basic                   14,348               12,938
Dilutive effect of preferred stock                             3,453                3,453
Dilutive effect of contingent shares                             785                   --
Dilutive effect of outstanding stock options                      51                  186
Dilutive effect of guaranteed stock                              106                   --
Weighted average OP units outstanding                          1,163                1,148
                                                       ---------------      ---------------
Total shares applicable to FFO                                19,906               17,725
                                                       ===============      ===============

</TABLE>


INFLATION

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

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

SEASONALITY

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

YEAR 2000 SYSTEMS CONVERSION

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

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

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

Tenant responses to the survey have been limited.  Most major tenants  responded
that they expect to be compliant.  Should information come to our attention that
tenants are not prepared, a contingency plan will be formulated to deal with any
payment defaults.

                                 Page 20 of 23

<PAGE>


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

The Company has not finalized its contingency plan as of this date.  However,  a
formal  contingency  plan will be developed as any risks are  identified  during
1999. The Company does not  anticipate  any material  impact on its results from
operations  or its financial  condition as a result of any Year 2000  compliance
issues.  To date the Company  has spent  approximately  $12,000 on hardware  and
testing.  The estimated remaining costs of compliance,  consisting  primarily of
verification and testing costs, are not expected to exceed $10,000.

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

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

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

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

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

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

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

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

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

                                 Page 21 of 23

<PAGE>


                           Part II. OTHER INFORMATION


ITEM 1     LEGAL PROCEEDINGS

           None

ITEM 2     CHANGES IN SECURITIES

           None

ITEM 3     DEFAULTS UPON SENIOR SECURITIES

           None

ITEM 4     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

           (a)  An annual meeting of stockholders was held on June 2, 1999
           (b) (1) The  election  of seven  directors  to hold office for
              terms expiring at the next annual meeting of stockholders.
<TABLE>

<CAPTION>
                                                                     Votes Against
              Nominees                     Votes For                  or Withheld      Abstentions
              --------                     ---------                  -----------      -----------
<S>                                        <C>                        <C>              <C>
              Robert J. Stetson              10,165,029                 30,714                 0
              Fred H. Margolin               10,165,188                 30,554                 0
              Gerald H. Graham               10,163,538                 32,204                 0
              George Mileusnic               10,163,688                 32,054                 0
              Darrel L. Rolph                10,164,580                 31,163                 0
              David K. Rolph                 10,164,580                 31,163                 0
              Eugene G. Taper                10,165,030                 30,713                 0
</TABLE>


              (2) To  approve an  amendment  to the  Company's  Flexible
                  Incentive Plan to increase the number of shares of common
                  stock reserved for issuance thereunder by 500,000.

                                  Votes against
               Votes For           or Withheld                  Abstentions
               ---------          -------------                 -----------
               9,654,583               434,839                     106,312

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

                                  Votes against
               Votes For           or Withheld                  Abstentions
               ---------          -------------                 -----------
               9,930,180               236,087                      29,477


ITEM 5     OTHER INFORMATION

           None

ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K

           a)   Exhibits

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

                                 Page 22 of 23

<PAGE>


                                   SIGNATURES


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



                                       U.S. RESTAURANT PROPERTIES, INC.




Dated:  August 12, 1999                By:     /s/ Robert J. Stetson
                                          -------------------------------
                                           Robert J. Stetson
                                           President and Chief Executive Officer



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


                                 Page 23 of 23