<PAGE>
================================================================================

                                  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 September 30, 2001

                                       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 incorporation              (I.R.S. Employer
                or organization)                            Identification No.)


                12240 Inwood Rd., Suite 300, Dallas, Texas 75244
                    (Address of principal executive offices)
                                   (Zip Code)

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




         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
                                    ---     ---

As of November 9, 2001, U.S. Restaurant Properties, Inc. had 18,706,033 shares
of common stock, $.001 par value per share, outstanding.

================================================================================

<PAGE>

                        U.S. RESTAURANT PROPERTIES, INC.



<Table>
<S>                                                                                            <C>
PART I.           FINANCIAL INFORMATION

         Item 1.  Financial Statements

                  Condensed Consolidated Balance Sheets as of September 30, 2001
                           (Unaudited) and December 31, 2000....................................3

                  Condensed Consolidated Statements of Operations for the three and nine
                           months ended September 30, 2001 and 2000 (Unaudited).................5

                  Condensed Consolidated Statements of Other Comprehensive Operations
                           for the three and nine months ended September 30, 2001 and
                           2000 (Unaudited).....................................................6

                  Condensed Consolidated Statement of Stockholders' Equity for the
                           nine months ended September 30, 2001 (Unaudited).....................7

                  Condensed Consolidated Statements of Cash Flows for the nine
                           months ended September 30, 2001 and 2000 (Unaudited).................8

                  Notes to Condensed Consolidated Financial Statements (Unaudited).............10

         Item 2.  Management's Discussion and Analysis of Financial Condition
                           and Results of Operations...........................................18

         Item 3.  Quantitative and Qualitative Disclosures About Market Risk...................25

PART II. OTHER INFORMATION

         Item 1.  Legal Proceedings............................................................26

         Item 2.  Changes in Securities and Use of Proceeds....................................26

         Item 3.  Defaults upon Senior Securities..............................................26

         Item 4.  Submission of Matters to a Vote of Security Holders..........................26

         Item 5.  Other Information............................................................26

         Item 6.  Exhibits and Reports on Form 8-K.............................................26
</Table>


                                       2
<PAGE>

                          PART I FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                        U.S. RESTAURANT PROPERTIES, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<Table>
<Caption>
                                                                          SEPTEMBER 30,  DECEMBER 31,
                                                                          -------------  ------------
                                                                               2001          2000
                                                                          -------------  ------------
                                                                          (UNAUDITED)
<S>                                                                       <C>            <C>
            ASSETS
REAL ESTATE
       Property, net
               Land                                                          $ 185,967    $ 203,164
               Buildings and leasehold improvements                            367,013      397,080
               Machinery and equipment                                          10,852       13,602
                                                                             ---------    ---------
                                                                               563,832      613,846
               Less:  accumulated depreciation                                 (79,204)     (68,166)
                                                                             ---------    ---------
                                                                               484,628      545,680

       Assets held for sale                                                     22,071           --
       Construction in progress                                                  1,280        8,535
       Cash and cash equivalents                                                25,809        5,509
       Restricted cash and marketable securities                                 3,389          742
       Rent and other receivables, net
               (includes $4,136 and $4,349 allowance for doubtful accounts
               at September 30, 2001 and December 31, 2000, respectively)       14,454       14,575
       Prepaid expenses and other assets                                           843        3,001
       Investments                                                               5,479        2,791
       Notes receivable, net
               (includes $488 and $2,167 due from related parties
               and $6,728 and $4,565 allowance for doubtful accounts
               at September 30, 2001 and December 31, 2000, respectively)        6,319       11,837
       Mortgage loans receivable                                                19,067       22,620
       Net investment in direct financing leases                                 1,497        2,754
       Intangibles, net                                                         12,954        6,979
                                                                             ---------    ---------
                                                                               597,790      625,023


RETAIL OPERATIONS
       Cash and cash equivalents                                                   471           --
       Rent and other receivables, net                                              63           --
       Inventories                                                                 529           --
       Deposits and other assets                                                   264           --
                                                                             ---------    ---------
                                                                                 1,327           --
                                                                             ---------    ---------

                                                                             ---------    ---------
         TOTAL ASSETS                                                        $ 599,117    $ 625,023
                                                                             =========    =========
</Table>

                             continued on next page
            See Notes to Condensed Consolidated Financial Statements.

                                       3
<PAGE>

                        U.S. RESTAURANT PROPERTIES, INC.
                CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)


<Table>
<Caption>
                                                                              SEPTEMBER 30,  DECEMBER 31,
                                                                              -------------  ------------
                                                                                   2001          2000
                                                                              -------------  ------------
                                                                               (UNAUDITED)
<S>                                                                            <C>            <C>
                        LIABILITIES AND STOCKHOLDERS' EQUITY

REAL ESTATE
       Accounts payable and accrued liabilities                                   $  14,907    $  18,057
       Accrued dividends and distributions                                            3,778        3,706
       Unearned contingent rent                                                       1,189        1,083
       Deferred gain on sale of property                                                428          423
       Line of credit                                                                    --      119,036
       Interest rate protection agreements at fair value                              5,811           --
       Notes payable
               (includes $959 due to related parties at December 31, 2000)          365,571      236,637
       Mortgage note payable                                                            987        1,007
       Capitalized lease obligation                                                      --           16
                                                                                  ---------    ---------
                                                                                    392,671      379,965

RETAIL OPERATIONS
       Accounts payable and accrued liabilities                                       1,045           --
                                                                                  ---------    ---------

       TOTAL LIABILITIES                                                            393,716      379,965

       COMMITMENTS AND CONTINGENCIES                                                     --           --

       MINORITY INTEREST IN OPERATING PARTNERSHIPS                                   54,418       54,733

       STOCKHOLDERS' EQUITY

       Preferred stock, $.001 par value per share; 50,000 shares authorized,
               Series A - 3,680 shares issued and outstanding at September 30,
               2001 and December 31, 2000 (aggregate liquidation value of
               $92,000)                                                                   4            4
       Common  stock, $.001 par value per share; 100,000 shares authorized,
               18,034 and 17,417 shares issued and outstanding at September 30,
               2001 and December 31, 2000, respectively                                  18           17
       Additional paid-in capital                                                   309,174      302,634
       Excess stock, $.001 par value per share
               15,000 shares authorized, no shares issued                                --           --
       Accumulated other comprehensive loss                                          (5,256)      (1,840)
       Loans to stockholders for common stock                                          (850)        (300)
       Distributions in excess of net income                                       (152,107)    (110,190)
                                                                                  ---------    ---------
            TOTAL STOCKHOLDERS' EQUITY                                              150,983      190,325
                                                                                  ---------    ---------
                     TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                   $ 599,117    $ 625,023
                                                                                  =========    =========
</Table>

            See Notes to Condensed Consolidated Financial Statements.

                                       4
<PAGE>

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

<Table>
<Caption>
                                                        THREE MONTHS ENDED       NINE MONTHS ENDED
                                                          SEPTEMBER 30,            SEPTEMBER 30,
                                                         2001       2000         2001        2000
                                                       --------    --------    --------    --------
<S>                                                    <C>         <C>         <C>         <C>
REAL ESTATE
     Revenues:
           Rental income                               $ 16,553    $ 18,637    $ 51,596    $ 57,166
           Interest income                                1,265       1,396       3,946       4,019
           Amortization of unearned income
               on direct financing leases                    72         128         249         465
                                                       --------    --------    --------    --------
                Total revenues                           17,890      20,161      55,791      61,650
     Expenses:
           Property                                         559         531       1,546       1,729
           Depreciation and amortization                  5,499       5,983      17,361      18,983
           General and administrative                     1,381       1,560       6,437       6,466
           Provision for doubtful accounts                1,964         285       2,914       6,455
           Loss on lease resolution                         410          --         410       1,367
           Interest expense                               5,885       7,341      19,426      22,242
           Amortization of loan origination fees            637         316       4,739         964
           Derivative settlement payments                   518          --       1,053          --
           Termination of management contract                --         670          --      (3,752)
           Impairment of long-lived assets                1,042       1,899      17,091       5,271
           Fair value adjustment for interest rate
                swap                                        248          --       2,607          --
                                                       --------    --------    --------    --------
                Total expenses                           18,143      18,585      73,584      59,725
                                                       --------    --------    --------    --------
     Income(loss) before retail operations, gain
           on sale of property, minority
           interests and extraordinary item                (253)      1,576     (17,793)      1,925

RETAIL OPERATIONS
           Operating revenue                              5,490          --       7,476          --
           Operating general and administrative            (255)         --        (264)         --
           Cost of sales                                 (4,929)         --      (6,592)         --
                                                       --------    --------    --------    --------
           Income from retail operations                    306          --         620          --
                                                       --------    --------    --------    --------

     Income (loss) before gain on sale of property,
           minority interests and extraordinary item         53       1,576     (17,173)      1,925
           Gain on sale of property                         285         978       1,893       1,649
                                                       --------    --------    --------    --------
     Income (loss) before minority interests
           and extraordinary item                           338       2,554     (15,280)      3,574
     Minority interests                                  (1,150)     (1,141)     (3,324)     (3,151)
                                                       --------    --------    --------    --------
     Net income (loss) before extraordinary item           (812)      1,413     (18,604)        423
           Loss on early extinguishment of debt              --          --        (340)         --
                                                       --------    --------    --------    --------
     Net income (loss)                                     (812)      1,413     (18,944)        423
     Dividends on preferred stock                        (1,776)     (1,776)     (5,327)     (5,327)
                                                       --------    --------    --------    --------
     Net loss allocable to common stockholders         $ (2,588)   $   (363)   $(24,271)   $ (4,904)
                                                       ========    ========    ========    ========

     Basic and diluted net loss per share:
     Net loss before extraordinary item                $  (0.14)   $  (0.02)   $  (1.34)   $  (0.32)
     Extraordinary item                                      --          --       (0.02)         --
                                                       --------    --------    --------    --------
     Net loss                                          $  (0.14)   $  (0.02)   $  (1.36)   $  (0.32)
                                                       ========    ========    ========    ========

     Weighted average shares outstanding
           Basic and diluted                             17,964      15,378      17,796      15,380
</Table>

            See Notes to Condensed Consolidated Financial Statements.

                                       5
<PAGE>

                        U.S. RESTAURANT PROPERTIES, INC.
       CONDENSED CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE OPERATIONS
                                 (IN THOUSANDS)
                                   (UNAUDITED)

<Table>
<Caption>
                                                             THREE MONTHS ENDED     NINE MONTHS ENDED
                                                                SEPTEMBER 30,         SEPTEMBER 30,
                                                            2001        2000        2001        2000
                                                          --------    --------    --------    --------
<S>                                                       <C>         <C>         <C>         <C>
Net income (loss)                                         $   (812)   $  1,413    $(18,944)   $    423
Cumulative effect of change in accounting
   for derivative instrument                                    --          --      (1,474)         --
Reclassification adjustment - hedge settlement                  --          --       1,474          --
Change in derivatives' fair value                           (3,205)         --      (3,205)         --
Unrealized gain (loss) on available-for-sale securities       (256)        (46)       (211)        212
                                                          --------    --------    --------    --------
Comprehensive income (loss)                               $ (4,273)   $  1,367    $(22,360)   $    635
                                                          ========    ========    ========    ========
</Table>

            See Notes to Condensed Consolidated Financial Statements.

                                       6

<PAGE>

                        U.S. RESTAURANT PROPERTIES, INC.
            CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
                                 (IN THOUSANDS)
                                   (UNAUDITED)

<Table>
<Caption>
                                                                                                                 ACCUMULATED
                                                                        ADDITIONAL     LOANS     DISTRIBUTIONS     OTHER
                                   PREFERRED STOCK     COMMON STOCK      PAID-IN        TO        IN EXCESS OF  COMPREHENSIVE
                                  SHARES   PAR VALUE SHARES  PAR VALUE   CAPITAL    SHAREHOLDERS   NET INCOME    GAIN (LOSS)
                                  ------   --------- ------  ---------  ----------  ------------ ------------- --------------
<S>                               <C>      <C>       <C>     <C>        <C>         <C>          <C>           <C>
Balance at January 1, 2001           3,680   $   4   17,417   $    17   $  302,634   $  (300)    $  (110,190)   $  (1,840)
Net loss                                                                                             (18,944)
Loans to shareholders for common
  stock                                                                                 (550)
Cumulative effect of change in
  accounting for derivative
  instrument                                                                                                       (1,474)
Reclassification adjustment -
hedge settlement                                                                                                    1,474
Proceeds from sale
  of common stock                                       469         1        4,837
Proceeds from exercised
  stock options                                         174                  2,026
Common stock repurchased
  and retired                                           (26)                  (323)
Changes in derivatives' fair value                                                                                 (3,205)
Unrealized loss on
   available-for-sale securities                                                                                     (211)
Distributions on common stock
   and distributions declared                                                                        (17,646)
Distributions on preferred stock                                                                      (5,327)
                                     -----   -----   ------   -------   ----------   -------     -----------    ---------
Balance at September 30, 2001        3,680   $   4   18,034   $    18   $  309,174   $  (850)    $  (152,107)   $  (5,256)
                                     =====   =====   ======   =======   ==========   =======     ===========    =========

<Caption>


                                     TOTAL
                                   --------
<S>                               <C>
Balance at January 1, 2001        $ 190,325
Net loss                            (18,944)
Loans to shareholders for common
  stock                                (550)
Cumulative effect of change in
  accounting for derivative
  instrument                         (1,474)
Reclassification adjustment -
hedge settlement                      1,474
Proceeds from sale
  of common stock                     4,838
Proceeds from exercised
  stock options                       2,026
Common stock repurchased
  and retired                          (323)
Changes in derivatives' fair value   (3,205)
Unrealized loss on
   available-for-sale securities       (211)
Distributions on common stock
   and distributions declared       (17,646)
Distributions on preferred stock     (5,327)
                                  ---------
Balance at September 30, 2001     $ 150,983
                                  =========
</Table>

            See Notes to Condensed Consolidated Financial Statements.

                                       7
<PAGE>

                        U.S. RESTAURANT PROPERTIES, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                   (UNAUDITED)


<Table>
<Caption>
                                                                         NINE MONTHS ENDED
                                                                            SEPTEMBER 30,
                                                                          2001        2000
                                                                        --------    --------
<S>                                                                     <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:

Net income (loss)                                                       $(18,944)   $    423
Adjustments to reconcile net income (loss) to
         net cash provided by operating activities:
      Depreciation and amortization                                       17,361      18,983
      Extraordinary loss on extinguishment of debt                           340          --
      Amortization of loan origination fees and discounts                  4,815         886
      Impairment of long-lived assets                                     17,091       5,271
      Provision for doubtful accounts                                      2,914       6,455
      Realized and unrealized loss on trading securities
         and accretion of interest income                                   (454)       (412)
      Fair value adjustment for interest rate derivatives                  2,607          --
      Minority interests                                                   3,324       3,151
      Gain on sale of property                                            (1,893)     (1,649)
      Loss on sale of investments                                             --         816
      Termination of management contract                                      --      (3,752)
      Increase in rent and other receivables, net                           (920)     (6,271)
      Decrease (increase) in prepaid expenses                              1,894        (300)
      Increase in inventories                                               (529)         --
      Reduction in net investment in direct financing leases                 600       1,880
      Increase (decrease) in accounts payable and accrued liabilities     (1,323)        961
      Increase (decrease) in unearned contingent rent                        106        (330)
                                                                        --------    --------
                                                                          45,933      25,689
                                                                        --------    --------
            Cash provided by operating activities                         26,989      26,112

CASH FLOWS FROM INVESTING ACTIVITIES:

      Proceeds from sale of property and equipment                        17,121      42,319
      Purchase of property                                                (2,547)    (14,614)
      Purchase of machinery and equipment                                    (46)       (192)
      Purchase of investments                                             (2,490)         --
      Proceeds from sale of investments                                       --         259
      Distributions received on investments                                   45         133
      Decrease (increase) in restricted cash                              (3,347)     12,137
      Increase in mortgage notes receivable                                  (40)        (53)
      Reduction of mortgage loans receivable principal                     3,593       1,368
      Increase in notes receivable                                        (1,429)     (7,064)
      Reduction of notes receivable principal                              5,522       2,330
                                                                        --------    --------
            Cash provided by investing activities
                                                                          16,382      36,623
</Table>

                             continued on next page
            See Notes to Condensed Consolidated Financial Statements.

                                       8
<PAGE>

                        U.S. RESTAURANT PROPERTIES, INC.
           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
                                 (IN THOUSANDS)
                                   (UNAUDITED)

<Table>
<Caption>
                                                                                 NINE MONTHS ENDED
                                                                                    SEPTEMBER 30,
                                                                                  2001        2000
                                                                               ---------    ---------
<S>                                                                            <C>          <C>
CASH FLOWS FROM FINANCING ACTIVITIES:

      Proceeds from line of credit                                             $      --    $  32,293
      Payments on line of credit                                                (119,036)     (72,843)
      Distributions to minority interest                                          (3,639)      (4,535)
      Cash distributions to stockholders/partners                                (17,646)     (12,230)
      Payment of preferred stock dividends                                        (5,327)      (5,327)
      Increase (decrease) in accrued dividends payable                                72       (5,991)
      Proceeds from sale of stock                                                  5,521           --
      Proceeds from exercised stock options                                          694           --
      Payments on notes/mortgage payable                                        (231,904)         (21)
      Proceeds from notes/mortgage payable                                       360,700           --
      Loan origination fees                                                      (11,712)        (225)
      Payments on capitalized lease obligations                                       --           (1)
      Purchase and retirement of common stock                                       (323)        (372)
                                                                               ---------    ---------
            Cash flows used in financing activities                              (22,600)     (69,252)
                                                                               ---------    ---------

Increase (decrease) in cash and cash equivalents                                  20,771       (6,517)
Cash and cash equivalents at beginning of period                                   5,509        9,695
                                                                               ---------    ---------
Cash and cash equivalents at end of period                                     $  26,280    $   3,178
                                                                               =========    =========

SUPPLEMENTAL DISCLOSURE:
      Interest paid during the period                                          $  19,248    $  21,537
                                                                               =========    =========

NON-CASH INVESTING ACTIVITIES:
      Deferred gain of repossessed property                                    $      --    $      89
      Transfer of property from capitalized lease to property and equipment          657           --
      Unrealized gain (loss) on investments classified as available for sale        (211)         212
      Notes received on sale of property                                           1,033        1,233
      Notes written off on repossessed property                                      563          306
      Net transfers from construction in progress to property                      7,855       30,188
      Security deposit and note receivable transferred                               700           --

NON-CASH FINANCING ACTIVITIES:
      Decrease in common stock dividends accrued                               $      --    $  (5,991)
      Fair value of stock received in exchange for investments                        --           88
      OP units converted to common stock                                              --           86
      Account receivable conversion to note receivable                               124           --
      Common stock grant                                                              98           --
      Loan to shareholder for purchase of common stock                               550           --
</Table>

            See Notes to Condensed Consolidated Financial Statements.

                                       9
<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, 2000, 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
September 30, 2001, the Company owned 99.27% of and controlled the OP. As of
September 30, 2001, the Company owned 820 properties 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, 2000, which was filed with the Securities and Exchange Commission (the
"SEC"). The results of operations for the three and nine months ended September
30, 2001, are not necessarily indicative of the results to be expected for the
year ending December 31, 2001. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America, 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.

Accounting measurements at interim dates inherently involve greater reliance on
estimates than at year end and the results of operations for the interim periods
shown in this report are not necessarily indicative of results to be expected
for the fiscal year. In the opinion of management, the accompanying unaudited
condensed consolidated financial statements include all adjustments (of a normal
recurring nature) necessary to present fairly the consolidated financial
position of the Company as of September 30, 2001, the consolidated results of
its operations, comprehensive operations, stockholders' equity and cash flows
for the three and nine months ended September 30, 2001 and 2000.

The Company derives its revenues primarily from the leasing of its properties to
operators (primarily restaurants) 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
lease rents where applicable. Accordingly, the accompanying condensed
consolidated financial statements do not include costs for property taxes and
insurance which are the responsibility of the tenants. Additionally, those
amounts associated with ground lease rent expense where the tenant is
responsible for the ground lease rents, have been recorded as a reduction to
rent revenues with no impact on net income. For the three months ended September
30, 2001 and 2000, the Company has recorded ground lease rent payments of
$873,000 and $1,019,000, respectively, as reductions to rent revenues. For the
nine months ended September 30, 2001 and 2000, the Company has recorded ground
lease rent payments of $2,872,000 and $3,055,000, respectively, as reductions to
rent revenues.

The preparation of consolidated financial statements, in conformity with
accounting principles generally accepted in the United States of America,
requires management to make estimates and assumptions that affect reported
amounts of certain assets, liabilities, revenues and expenses as of and for the
reporting periods. Actual results may differ from such estimates.

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

Investments in equity securities with readily determinable fair values and debt
securities are classified as either available-for-sale or trading, based on the
Company's intent with respect to those securities. Such investments are
classified as trading securities if those securities are held principally for
the purpose of selling them in the near term. All other such investments are
classified as available-for-sale. These investments are recorded at fair value
on the balance sheet. Changes in fair value during the period are recorded in
earnings for trading securities and in other comprehensive income for
available-for-sale securities.


                                       10
<PAGE>

Investments in equity securities that do not have readily determinable fair
values are recorded using the cost method since the Company does not have the
ability to exercise significant influence over the investees.

As disclosed in the Company's Form 10-K for December 31, 2000, the Company
revised its accounting for contingent rent on a prospective basis, effective May
21, 1998, to account for contingent rents in accordance with the initial
consensus reached in the Financial Accounting Standards Board's Emerging Issues
Task Force ("EITF") Issue No. 98-9, "Accounting for Contingent Rent in Interim
Financial Periods." As the Company has already complied with the requirements of
accounting for contingent rents, the Company believes it is in compliance with
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements" which was effective October 1, 2000.

Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended, was effective for
the Company January 1, 2001. This standard requires that all derivative
financial instruments be recognized as either assets or liabilities on the
balance sheet at their fair values and that accounting for the changes in the
fair values is dependent upon the intended use of the derivatives and their
resulting designations. If the derivative is designated as a fair-value hedge,
the changes in the fair value of the derivative and the hedged item will be
recognized in earnings. If the derivative is designated as a cash flow hedge,
changes in fair value of the derivative will be recorded in other comprehensive
income and will be recorded in the statement of operations when the hedged item
affects earnings. SFAS No. 133 defines new requirements for designation and
documentation of hedging relationships as well as ongoing effectiveness
assessments in order to use hedge accounting. For a derivative that does not
qualify as a hedge, changes in fair value will be recognized in earnings.

The adoption of SFAS No. 133 as of January 1, 2001 resulted in the recognition
of a liability of $1,474,000, with a cumulative effect adjustment to other
comprehensive income of $1,474,000.

SFAS No. 141, "Business Combinations" is effective July 1, 2001 and prohibits
pooling-of-interests accounting for acquisitions. SFAS No. 142, "Goodwill and
Other Intangible Assets" is effective January 1, 2002 and specifies that
goodwill and some intangible assets will no longer be amortized but instead will
be subject to periodic impairment testing. The Company has not yet determined
the effect adopting SFAS No. 142 will have on its financial statements.

SFAS No. 143, "Accounting for Asset Retirement Obligations" was issued in June
2001, and will be adopted by the Company on January 1, 2003. This Statement
addresses financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. The Company has not yet determined the effect adopting SFAS No. 143 will
have on its financial statements.

SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets"
was issued in August 2001, and will be adopted by the Company on January 1,
2002. This Statement supersedes SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", and the
accounting and reporting provisions of APB Opinion No. 30, "Reporting the
Results of Operations--Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions", for the disposal of a segment of a business (as previously
defined in that Opinion). This Statement retains the requirements of SFAS No.
121 to (a) recognize an impairment loss only if the carrying amount of a
long-lived asset is not recoverable from its undiscounted cash flows and (b)
measure an impairment loss as the difference between the carrying amount and
fair value of the asset. This Statement requires that a long-lived asset to be
abandoned, exchanged for a similar productive asset, or distributed to owners in
a spinoff be considered held and used until it is disposed of. The accounting
model for long-lived assets to be disposed of by sale is used for all long-lived
assets, whether previously held and used or newly acquired. That accounting
model retains the requirement of SFAS No. 121 to measure a long-lived asset
classified as held for sale at the lower of its carrying amount or fair value
less cost to sell and to cease depreciation. Discontinued operations are no
longer measured on a net realizable value basis, and future operating losses are
no longer recognized before they occur. The Company has not yet determined the
effect adopting SFAS No. 144 will have on its financial statements.

The Company had 18,033,756 and 17,416,672 shares of common stock outstanding as
of September 30, 2001 and December 31, 2000, respectively.


                                       11
<PAGE>

2.       NET LOSS PER SHARE OF COMMON STOCK

A reconciliation of net loss per share and the weighted average shares
outstanding for calculating basic and diluted net loss per share for the periods
ended September 30, 2001 and 2000 is as follows:

<Table>
<Caption>
                                                    THREE MONTHS ENDED       NINE MONTHS ENDED
                                                       SEPTEMBER 30,           SEPTEMBER 30,
(In thousands, except per share amounts)             2001        2000        2001        2000
                                                   --------    --------    --------    --------
<S>                                                <C>         <C>         <C>         <C>
Net income (loss) before extraordinary item        $   (812)   $  1,413    $(18,604)   $    423
Dividends on preferred stock                         (1,776)     (1,776)     (5,327)     (5,327)
                                                   --------    --------    --------    --------
Net loss before extraordinary item allocable
   to common stockholders                            (2,588)       (363)    (23,931)     (4,904)
Loss on early extinguishment of debt                     --          --        (340)         --
                                                   --------    --------    --------    --------
Net loss allocable to common stockholders          $ (2,588)   $   (363)   $(24,271)   $ (4,904)
                                                   ========    ========    ========    ========

Basic and diluted net loss per share:
Loss from continuing operations                    $  (0.14)   $  (0.02)   $  (1.34)   $  (0.32)
Extraordinary item                                       --          --       (0.02)         --
                                                   --------    --------    --------    --------
Net loss per share                                 $  (0.14)   $  (0.02)   $  (1.36)   $  (0.32)
                                                   ========    ========    ========    ========

Weighted average shares outstanding
         Basic and diluted (a)                       17,964      15,378      17,796      15,380
                                                   ========    ========    ========    ========

Antidilutive securities:
Stock options                                            59          --          26           4
Contingent shares                                        --         825          --         825
OP units                                                134       1,293         134       1,294
Guaranteed stock                                         94         226          94         226
Convertible preferred stock                           3,453       3,453       3,453       3,453
</Table>

(a) Basic loss per share is computed based upon the weighted average number of
shares of common stock outstanding. Diluted loss per share typically reflects
the dilutive effect of stock options, contingent shares, OP units, OP units and
shares on which the price is guaranteed and convertible preferred stock.

3. PROPERTY

During the nine months ended September 30, 2001, the Company completed the sale
and disposal of 29 properties for net cash proceeds of $17,121,000, net of
closing costs, and $1,033,000 of notes. During the nine months ended September
30, 2001, the Company transferred $7,855,000 of construction costs and costs
associated with land on which no further development work is intended to be
performed, from construction in progress to land, building and equipment.

During the three months ended March 31, 2001, the Company acquired one building
from a tenant who defaulted on a land-only lease. The building was recorded at
the carrying value of the receivable due from the tenant which was less than the
fair market value of the building.

During the three months ended March 31, 2001, BC Oil Ventures LLC, the tenant
leasing the Company's service stations and fuel terminal in Hawaii, defaulted on
its monthly rent payments. After careful assessment of various factors relevant
to these properties, management determined it was appropriate to sell these
properties. Accordingly, the Company has classified these properties as Assets
Held for Sale in the amount of $22,071,000, and an impairment charge of
$7,743,000 was recorded to write these assets down to the estimated proceeds
from the anticipated disposal of these properties net of estimated costs to
sell. It is anticipated that the sale of these properties will be completed
within one year. During the nine months ended September 30, 2001, the Company
recognized an operating loss of $331,000 related to these properties. In order
to ensure the subtenants in these service stations


                                       12
<PAGE>
receive fuel on a regular basis, in April 2001 the Company formed a subsidiary,
Fuel Supply Inc. ("FSI"), for the purpose of supplying the service stations with
fuel.

Also during the first quarter of 2001, management analyzed service stations in
Missouri, Illinois and Texas which were late paying rent and defaulting on
certain lease terms for possible impairment. It was determined that 16 of these
properties had carrying values in excess of their fair value. The Company
recorded an impairment charge of $7,567,000 to revalue these assets to their
estimated fair value. The estimated fair values of these assets were determined
by discounting the estimated cash flows of each asset. As a result of the
Company's regular analysis of its investments to determine if circumstances
indicate that the carrying amount of an asset may not be recoverable, additional
impairment charges of $1,781,000 for the nine months ended September 30, 2001
were recorded in order to revalue 17 other assets to their estimated fair value.

4. INVESTMENTS

The aggregate cost basis and net unrealized loss for investments classified as
available-for-sale or trading at September 30, 2001 were $6,884,000 and
$2,051,000, respectively. The net change in the unrealized fair value of
available-for-sale securities is recorded as other comprehensive loss was
$211,000 for the nine months ended September 30, 2001. In addition to these
investments, the Company has other investments carried at a cost basis of
approximately $646,000.

5. LINES OF CREDIT, BRIDGE LOAN AND NOTES PAYABLE

In August 2001, the Company completed a $180,000,000 offering of Triple Net
Lease Mortgage Certificates (the "Certificates") through its subsidiary U.S.
Restaurant Properties, Inc. Funding 2001-A, L.P. Proceeds from the offering were
primarily used to repay approximately $156,997,000 outstanding under the
Company's secured bridge facility with Bank of America and the balance of the
net proceeds were used for general corporate purposes including the prepayment
of the $27,500,000 Senior B Secured Guaranteed Notes in October 2001. The
Certificates amortize over 15 years, bear interest at the 30 - day LIBOR plus 48
basis points and other associated fees of approximately 52.6 basis points, and
have an assumed final distribution or maturity date of August 28, 2006. At
September 30, 2001, there was $179,776,000 outstanding on the Certificates.

In January 2001, the Company entered into an Indenture agreement with Bank of
America for a secured bridge facility of $175,000,000. Proceeds from this bridge
facility were used to pay-off the outstanding balance of the $175,000,000
revolving credit line and the $50,000,000 unsecured term loan from Credit
Lyonnais. The initial term of the bridge loan matured in July 2001, and the
Company entered into options to extend the facility through August 31, 2001. In
August 2001, the Company paid the outstanding balance of this bridge facility
with the proceeds from the offering of the Certificates.

Simultaneously with the closing of the Bank of America Indenture, the Company
entered into a Credit Agreement with Bank of America for an unsecured revolving
credit facility in the amount of $7,000,000. The Credit Agreement has a term of
up to two years and bears interest in traunches of 30, 60, 90 or 180 - day LIBOR
contracts plus 225 basis points. The Credit Agreement also provides that up to
$3,500,000 of the facility may be used for letters of credit. Effective January
9, 2001, Bank of America issued a letter of credit in the amount of $1,775,000
on behalf of the Company for the benefit of the preferred stockholders. There is
a 2.25% fee per annum on the outstanding letter of credit. Amounts available
under this facility are further reduced by the market value of the Bank of
America Derivatives (as defined below) in excess of a $2,000,000 threshold. At
September 30, 2001, the availability under this facility was $2,397,000.

On February 26, 1997, the Company issued $40,000,000 in privately placed debt
which consisted of $12,500,000 Series A Senior Secured Guaranteed Notes with a
8.06% interest rate, which were due January 31, 2000, and $27,500,000 Series B
Senior Secured Guaranteed Notes with a 8.30% interest rate, due January 31,
2002. In January 2000, the Company paid the $12,500,000 Series A Senior Secured
Guaranteed Notes in full as scheduled. In October 2001, the Company prepaid the
$27,500,000 Series B Senior Secured Guaranteed Notes in full. In connection with
this prepayment, the Company paid $389,000 of make-whole fees and wrote-off
$216,000 worth of unamortized loan origination fees associated with this
facility in October 2001.


                                       13
<PAGE>

On May 12, 1998, the Company issued $111,000,000 of seven year fixed rate senior
unsecured notes payable in a private placement. The notes bear interest at the
rate of 7.15% per annum and are due May 1, 2005. The net proceeds of the notes
were used to repay a portion of the Company's previous revolving credit
agreement and for general corporate purposes. In conjunction with the notes
payable agreement, the underwriters and the Company entered into a rate lock
agreement for the purpose of setting the interest rate on these notes payable.
The fee paid to lock in the rate on these notes payable was approximately
$424,000 and is being amortized over the term of the notes as an adjustment to
interest expense. As a result of the Bank of America Credit Agreement and
certain guarantees required by it, the subsidiaries of the Company executed a
Subsidiary Guaranty for the benefit of these noteholders.

On November 13, 1998, the Company issued $47,500,000 in senior notes payable in
a private placement. The notes bear interest at the rate of 8.22% per annum and
are due August 1, 2003. The net proceeds were used to repay a portion of the
Company's previous revolving credit agreement and for general corporate
purposes. In conjunction with the notes payable agreement, the underwriters and
the Company entered into a rate lock agreement for the purpose of setting the
interest rate of these notes payable. The fee paid to lock in the rate on these
notes payable was approximately $406,000 and is being amortized over the term of
the notes as an adjustment to interest expense. As a result of the Bank of
America Credit Agreement and certain guarantees required by it, the subsidiaries
of the Company executed a Subsidiary Guaranty for the benefit of these
noteholders.

In April 1999, the OP entered into a credit agreement with Credit Lyonnais for
an unsecured term loan of $50,000,000. This credit facility was scheduled to
mature in April 2002. On January 9, 2001, the Company paid the outstanding
balance under this facility with proceeds from a bridge loan issued by Bank of
America. In connection with this pay-off, the Company wrote-off $340,000 worth
of unamortized loan origination fees associated with this facility in January
2001.

6. DERIVATIVE INSTRUMENTS

Derivative financial instruments are utilized by the Company to reduce its
exposure to market risks from changes in interest rates. Derivative financial
instruments include interest rate swaps, and interest rate collars. During the
three months ended September 30, 2001, the Company recognized $36,000 in expense
related to the ineffective portion of the interest rate swap with Credit
Lyonnais. From the date of hedge designation until September 30, 2001,
derivative valuation adjustments representing the effective portion of the cash
flow hedges, and totaling $3,205,000, were recognized in other comprehensive
operations.

In conjunction with the completion of the Certificates offering, the Company
entered into derivative instruments with Bank of America (the "Bank of America
Derivatives"): an interest rate swap at a fixed rate of 3.825% for one year on a
notional amount of $50,000,000; and an interest rate collar with a floor of
4.42% and a ceiling of 6.00% for four years on a notional amount of $80,000,000.
These derivatives effectively lock in $50,000,000 at 4.8310% (3.825% plus
1.006%) for one year and lock in $80,000,000 at between 5.4260% (4.42% plus
1.006%) and 7.006% (6.0% plus 1.006%) for four years.

Effective July 3, 2000, the Company entered into an interest rate swap with
Credit Lyonnais for a notional amount of $50,000,000 on which the Company pays a
fixed rate of 7.05% and receives a variable rate based upon LIBOR. The interest
rate swap agreement terminates in May 2003 but may be terminated earlier subject
to certain restrictions. The agreement calls for the net expense or income to be
paid or received quarterly. This swap was secured by six properties with an
aggregate net book value of $3,198,000 on February 23, 2001. The adoption of
SFAS No. 133 as of January 1, 2001 resulted in the recognition of a liability of
$1,474,000 with a cumulative effect adjustment to other comprehensive income of
$1,474,000. The interest rate swap was designated as a cash flow hedge of the
variable rate interest payments related to the Company's term loan with Credit
Lyonnais. As previously discussed, during January 2001, the Company repaid the
Credit Lyonnais term loan in full with proceeds from a bridge loan. Accordingly,
the cash flow hedge relationship was terminated, and the $1,474,000 in
accumulated other comprehensive operations was re-classified to earnings over a
six-month period, which was the anticipated term of the bridge loan. From
January 2001 until August 2001, this interest rate swap was not designated as a
hedge, and accordingly all changes in value, which amounted to an expense of
$1,097,000, were recorded directly to earnings. In connection with the
completion of the Certificate offering, the Company designated this interest
rate swap as a cash flow hedge of the variable interest rate payments on
$50,000,000 of the Certificates. The Company reduced the notional amount of this
interest rate swap by $20,000,000 in November 2001 for a cost of approximately
$1,400,000.



                                       14
<PAGE>

7. RELATED PARTY TRANSACTIONS

In connection with Mr. Robert Stetson's resignation as Chief Executive Officer
and President of the Company, the Company entered into a Settlement Agreement
and Consulting Agreement with Mr. Stetson as of October 6, 1999. Pursuant to the
terms of the Settlement Agreement, the Company agreed to provide Mr. Stetson one
or more loans, up to the aggregate of $800,000, for the sole purpose of
acquiring shares of the Company's common stock from time to time in the open
market. In March 2000, the Company advanced $400,000 to Mr. Stetson for the
purchase of the common stock of the Company. The promissory note provides for an
interest rate of 7.0% per annum and quarterly payments of interest only through
December 2005, with a final payment of principal and interest due in March 2006.
Pursuant to the note agreement, Mr. Stetson has pledged the common stock
purchased with the note proceeds as collateral for the loans. This $400,000 note
is classified as a note receivable on the balance sheet.

Effective September 22, 2000, the Company and Mr. Stetson entered into an
Amendment to the Settlement Agreement that provided for two changes to the
original Settlement Agreement that were completed in October 2000. First, Mr.
Stetson executed a second promissory note in the amount of $300,000 in exchange
for which he received 35,037 restricted shares of USRP common stock (calculated
based on a value of $8.5625 per share). Second, the Company advanced Mr. Stetson
$75,000 under a third promissory note to be used for the sole purpose of
acquiring shares of the Company's common stock in the open market. Both notes
bear interest at 7.0% per annum and provide for quarterly payments of interest
only through July 2006, with a final payment of principal and interest due in
October 2006. In addition, both notes are secured by the restricted common stock
and stock purchased with the proceeds of the notes. The $300,000 note is
classified as a loan to shareholders for common stock on the balance sheet and
the note for $75,000 is classified as a note receivable on the balance sheet.

On December 20, 2000, USRP/HCI Partnership 1, L.P., a subsidiary of the Company,
("HJV") made an advance to the preferred interest holder in the amount of
$700,000. Under the terms of the Advance Agreement dated December 1, 2000, the
$700,000 advance bears interest at an annual interest rate of 9.0%. This advance
was paid in full as scheduled in April 2001.

In conjunction with the merger between the Company and QSV, the Company assumed
a note receivable from Mr. Stetson in the amount of $959,000 due on January 22,
2001 with an interest rate of 10.00%, as well as a note payable to Mr. Darrel L.
Rolph, who was then a Director of the Company, for $959,000 due on January 22,
2001 with an interest rate of 10.00%. Both the note receivable and note payable
were paid in full on their scheduled due dates.

In connection with their resignations, Messrs. Margolin, Rolph and Rolph entered
into Noncompetition and Release Agreements with the Company pursuant to which
each of them agreed not to (a) submit or cause the submission of any proposals
or nominations of candidates for election as directors of the Company or (b)
solicit proxies from any of the Company's stockholders, in each case prior to
December 31, 2003. Additionally, Mr. Margolin agreed not to directly or
indirectly own, manage, control, participate in, invest in or provide consulting
services to any entity or business organization that engages in or owns, invests
in, manages or controls any venture engaged in the ownership, management,
acquisition or development of restaurant, gasoline and convenience store
properties similar to those of the Company and its affiliates for a one-year
period ending March 9, 2002. As consideration under such agreement and in
connection with the termination of Mr. Margolin's Employment Agreement with the
Company, the Company paid Mr. Margolin $800,000 in severance compensation which
was expensed during the quarter ended March 31, 2001. Similarly, each of the
Rolphs agreed not to directly or indirectly compete with the Company, other than
through the restaurant operations of the Rolphs in existence as of the initial
closing of the Lone Star Transaction (as defined below).

On August 27, 2001, as part of the employment arrangement with the Company's new
Chief Financial Officer and Chief Operating Officer, H.G. Carrington, Jr., the
Company advanced Mr. Carrington $550,000 for the purpose of acquiring shares of
the Company's common stock. The promissory note provides for an interest rate of
5.0% per annum and quarterly payments of interest only through May 2006, with a
final payment of principal and interest due in August 2006. This $550,000 note
is classified as a loan to shareholders for common stock on the balance sheet.


                                       15
<PAGE>

8. STOCKHOLDERS' EQUITY AND MINORITY INTERESTS

On January 17, 2001, the Company entered into an agreement with two affiliates
of Lone Star Fund III (U.S.), L.P. ("Lone Star") providing for the sale of
1,877,935 shares of Common Stock at a price of $10.65 per share, for aggregate
consideration of $20,000,000 (the "Lone Star Transaction"). The Lone Star
Transaction will involve three or more closings: an initial closing, that
occurred on March 9, 2001, at which Lone Star paid $5,000,000 in exchange for
469,484 shares; a closing on October 30, 2001 at which Lone Star paid $7,000,000
in exchange for 657,277 shares, and one or more subsequent closings, to occur on
or before December 31, 2001, at which up to an additional 751,174 shares will be
purchased. After completion of the entire Lone Star Transaction and including
Lone Star's purchase of 1,856,330 shares from Fred H. Margolin, Darrel L. Rolph,
David K. Rolph and their affiliates, Lone Star will be a beneficial owner of
approximately 19.19% of the Company's outstanding common stock.

The Company and each of Messrs. Margolin, Rolph and Rolph entered into a
Registration Rights Agreement, dated March 9, 2001, permitting the holders
thereto to request a shelf registration on Form S-3 to be filed with the
Securities and Exchange Commission ("SEC") by the Company. Additionally, as a
component of the Lone Star Transaction, the Company and Lone Star entered into a
Registration Rights Agreement, dated March 9, 2001, granting Lone Star the
ability to request a shelf registration on Form S-3.

DISTRIBUTIONS TO COMMON AND PREFERRED STOCKHOLDERS

During the nine months ended September 30, 2001, the Company declared dividends
of $17,646,000 to its common stockholders (or $.11 per month per share of common
stock) and $5,327,000 to its preferred stockholders (or $0.4825 per quarter per
share of preferred stock).

MINORITY INTERESTS

As reported in the Company's Annual Report on Form 10-K for the year ended
December 31, 2000, each OP unit represents a minority interest in the OP of the
Company. 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 at any time 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. As of September 30,
2001, there were 134,344 OP units outstanding.

During 1999, the Company issued $55,000,000 of 8.5% preferred limited
partnership interests in HJV to a third party for net proceeds of $52,793,000.
Under the terms of this transaction, the preferred interest holder receives
annual distributions equal to $4,675,000, payable monthly from the cash flows of
HJV. Income is allocated to the preferred interest holder equal to the amount of
their distribution. The Company may be required from time to time to exchange
properties that do not meet specified criteria set forth in the HJV partnership
agreement.

The 134,344 OP units outstanding at September 30, 2001 and December 31, 2000 and
the preferred partnership interests represent the only minority interests in
subsidiaries of the Company.

Minority interest in the OP and the preferred limited partnership consist of the
following at September 30, 2001 (in thousands):

<Table>
<S>                                           <C>
Balance at January 1, 2001                     $ 54,733
Distributions paid and accrued in the period     (3,639)
Income allocated to minority interest             3,324
                                               --------
Balance at September 30, 2001                  $ 54,418
                                               ========
</Table>

9. SEGMENT INFORMATION

Effective April 2001, with the formation of Fuel Supply Inc. and the
commencement of retail operations, the Company now has two operating segments,
real estate and retail. Operating segments are defined as components of an
enterprise for which separate financial information is available that is
evaluated by the chief operating decision maker(s) in deciding how to allocate
resources and in assessing performance.


                                       16
<PAGE>

Real Estate. Real estate activities are comprised of property management,
acquisition and development operations and related business objectives. The
Company derives its revenues primarily from rental income received on its 820
restaurant and service station properties located throughout 48 states.

Retail. Commencing in April 2001, the Company formed FSI, which began retail
sales. At September 30, 2001, FSI was operating ten service stations in Hawaii,
thirteen service stations in Texas, seven service stations in Illinois, and two
service stations in Missouri. Revenues from this segment are generated from the
gasoline and convenience store sales at these 32 service stations. Intersegment
revenues paid to the real estate segment from the retail segment included
approximately $41,000 of rental revenue on two service stations.


                                       17
<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) 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
lease rents where applicable. Approximately 50% 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, portions of the Company's revenues are a function of the number of
properties in operation and their level of sales. Sales at individual properties
are influenced by local market conditions, the efforts of specific operators,
marketing, new product programs, support of the franchisor and 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 three months ended September 30, 2001 to the three months
ended September 30, 2000

Total revenues, including interest income, income earned on direct financing
leases, and income from retail operations, in the three months ended September
30, 2001, totaled $23,380,000, up 16.0% from the $20,161,000 recorded for the
three months ended September 30, 2000. The 11.2% decrease in rental revenues
from $18,637,000 in 2000 to $16,553,000 in 2001 is primarily due to decreases in
the number of properties owned during 2001 as compared to the same period in
2000. For the three months ended September 30, 2001, approximately 6.0% of the
Company's rental revenues resulted from percentage rents (rents determined as a
percentage of tenant sales), compared with 7.6% for the three months ended
September 30, 2000. The decrease of 9.4% in interest income from $1,396,000 in
2000 to $1,265,000 in 2001 is primarily due to reduced amounts of notes and
mortgages receivable and a general decline in short-term interest rates.

Retail operations commenced in April 2001. Retail income, which is comprised of
revenue from operating activities, was $5,490,000 in the three months ended
September 30, 2001. Cost of sales associated with this revenue totaled
$4,929,000 and general and administrative costs associated with this revenue
totaled $255,000 in the three months ended September 30, 2001.

Property expense for the three months ended September 30, 2001 totaled $559,000,
an increase of 5.3% when compared to the three months ended September 30, 2000.
Depreciation and amortization expenses in the three months ended September 30,
2001 totaled $5,499,000, a decrease of 8.1% when compared to the three months
ended September 30, 2000. This decrease relates directly to the decrease in the
number of properties owned during 2001 as compared to the same period in 2000,
and properties classified as held for sale during the first quarter of 2001.

General and administrative expenses for the three months ended September 30,
2001 totaled $1,381,000, a decrease of 11.5% when compared to the three months
ended September 30, 2000. This decrease is primarily due to a reduction in legal
costs associated with tenant litigation matters and reduced infrastructure costs
as a result of the decrease in the number of properties managed.

Provisions for doubtful accounts for the three months ended September 30, 2001
totaled $1,964,000 compared to $285,000 for the three months ended September 30,
2000. During the three months ended September 30, 2001, one the Company's
borrowers, Lyon's of California, Inc., filed for bankruptcy. The Company
increased its reserve by $2,225,000 to bring the total reserve for the Lyon's
notes to $2,500,000. The outstanding balance owed to the Company by Lyon's is
approximately $11,600,000. During the three months ended September 30, 2001,
increased collection efforts resulted in the collection of several accounts that
had previously been fully reserved. These recoveries partially offset the
increase in the Lyon's reserve.

Loss on lease resolution for the three months ended September 30, 2001 totaled
$410,000. This charge relates to the resolution of leases with one tenant that
involved 26 service stations in Missouri, Illinois, California and Texas. The
Company, through its operating subsidiary, Fuel Supply Inc., has commenced
operating and supplying fuel to 20 of these locations.

Interest expense for the three months ended September 30, 2001 totaled
$5,885,000, a decrease of 19.8% when compared to the three months ended
September 30, 2000. This decrease is primarily due to lower interest rates and


                                       18
<PAGE>

lower debt levels. Amortization of loan origination fees increased to $637,000
in 2001 as compared to $316,000 in 2000. This increase is due to the fees
associated with the Bank of America bridge facility extensions which were
expensed during the three months ended September 30, 2001. Derivative settlement
payments related to the interest rate instruments with Credit Lyonnais and Bank
of America increased to $518,000.

As of December 29, 2000, all of the 825,000 contingent shares of common stock
relating to the termination of the management contract with QSV had been earned
and issued. As the liability had been settled in full, no amounts were recorded
in the three months ended September 30, 2001. For the three months ended
September 30, 2000, a non-cash accounting charge of $670,000 was recorded. This
charge represented the increase in market value of a share of common stock at
September 30, 2000 compared to June 30, 2000 on the maximum total of 825,000
contingent OP units issuable to QSV pursuant to the termination agreement.

During the three months ended September 30, 2001, the Company recorded asset
impairment charges of $1,042,000 compared to a charge of $1,899,000 in the three
months ended September 30, 2000. During 2001, as part of the Company's regular
analysis, the Company determined that seven properties had carrying amounts in
excess of their net realizable value.

Fair value adjustment for the interest rate swap agreement that was entered into
in 2000 to hedge the variable rate interest payments related to the Company's
previous term loan with Credit Lyonnais, totaled $248,000 for the three months
ended September 30, 2001. Prior to August 2001, the Company had not redesignated
this interest rate swap as a hedge subsequent to the repayment of the Credit
Lyonnais term loan. As a result, all changes in the fair value of the interest
rate swap agreement subsequent to the Credit Lyonnais repayment and prior to
August 2001 were recognized in earnings immediately. In conjunction with the
closing of the Certificates, the Company redesignated this swap as a cash flow
hedge of the Certificates' variable interest rate payments.

The gain on sale of properties of $285,000 for the three months ended September
30, 2001 relates to the sale of four properties for cash of $2,628,000 and notes
of $155,000. The gain on sale of properties of $978,000 for the three months
ended September 30, 2000 relates to the sale of 43 properties for cash of
$31,333,000 and notes of $728,000.

Minority interest in net income was $1,150,000 for the three months ended
September 30, 2001 compared to $1,141,000 for the three months ended September
30, 2000.

Comparison of the nine months ended September 30, 2001 to the nine months ended
September 30, 2000

Total revenues, including interest income, income earned on direct financing
leases, and income from retail operations, in the nine months ended September
30, 2001 totaled $63,267,000, up 2.6% from the $61,650,000 recorded for the nine
months ended September 30, 2000. The 9.7% decrease in rental revenues from
$57,166,000 in the nine months ended September 30, 2000 to $51,596,000 in 2001
is primarily due to decreases in the number of properties owned during 2001 as
compared to the same period in 2000. For the nine months ended September 30,
2001, approximately 6.9% of the Company's rental revenues resulted from
percentage rents (rents determined as a percentage of tenant sales), compared
with 7.7% for the nine months ended September 30, 2000. The decrease of 1.8% in
interest income from $4,019,000 in the nine months ended September 30, 2000 to
$3,946,000 in 2001 is primarily due to reduced amounts of notes and mortgages
receivable, partially offset by higher average cash balances available for
short-term investment.

Retail operations commenced in April 2001. Retail income, which is comprised of
revenue from operating activities, was $7,476,000 in the nine months ended
September 30, 2001. Cost of sales associated with this revenue totaled
$6,592,000 and general and administrative costs associated with this revenue
totaled $264,000 in the nine months ended September 30, 2001.

Property expense for the nine months ended September 30, 2001 totaled
$1,546,000, a decrease of 10.6% when compared to the nine months ended September
30, 2000. Depreciation and amortization expenses in the nine months ended
September 30, 2001 totaled $17,361,000, a decrease of 8.5% when compared to the
nine months ended September 30, 2000. This decrease relates directly to the
decrease in the number of properties owned during 2001 as compared to the same
period in 2000.

General and administrative expenses for the nine months ended September 30, 2001
totaled $6,437,000, compared to $6,466,000 for the nine months ended September
30, 2000. During the nine months ended September 30, 2001, the


                                       19
<PAGE>
Company incurred costs of $813,000 for severance related to the Company's former
Chief Executive Officer, a provision of $350,000 for severance related to the
Company's former Chief Financial Officer and $230,000 for costs associated with
hiring the Company's new Chief Operating Officer/Chief Financial Officer. These
costs are partially offset by decreased legal costs associated with tenant
litigation matters and reduced infrastructure costs as a result of the decrease
in the number of properties managed.

Provisions for doubtful accounts for the nine months ended September 30, 2001
totaled $2,914,000 compared to $6,455,000 for the nine months ended September
30, 2000. During the nine months ended September 30, 2001, one of the Company's
borrowers, Lyon's of California, Inc. filed for bankruptcy. The Company reserved
$2,500,000 of the approximately $11,600,000 owed to the Company by Lyon's.
During the nine months ended September 30, 2000, the Company fully provided for
all outstanding notes and accounts receivable due from BC Oil Ventures LLC in
the amount of $3,138,000. Additional provisions during the nine months ended
September 30, 2001 and 2000 resulted from the Company's regular analysis of its
receivables to determine if circumstances indicate that the carrying value of
the receivable may not be recovered.

Loss on lease resolution for the nine months ended September 30, 2001 totaled
$410,000 compared to $1,367,000 for the nine months ended September 30, 2000.
The charge in 2001 relates to the resolution of leases with one tenant that
involved 26 service stations in Missouri, Illinois, California and Texas. The
Company, through its operating subsidiary, FSI, has commenced operating and
supplying fuel to 20 of these locations. The charges in 2000 resulted in costs
of $867,000 associated with terminating the lease with an operator of 37 fast
food properties. Costs of $500,000 were incurred in the resolution of a lease
with an operator of service stations in Georgia.

Interest expense for the nine months ended September 30, 2001 totaled
$19,426,000, a decrease of 12.7% when compared to the nine months ended
September 30, 2000. This decrease is primarily due to lower interest rates and
lower debt levels. Amortization of loan origination fees increased to $4,739,000
in 2001 as compared to $964,000 in 2000. This increase is due to the fees
associated with the Bank of America bridge facility which were expensed over the
first eight months of 2001. Derivative settlement payments related to the
interest rate instruments with Credit Lyonnais and Bank of America increased to
$1,053,000.

As of December 29, 2000, all of the 825,000 contingent shares of common stock
relating to the termination of the management contract with QSV had been earned
and issued. As the liability had been settled in full, no amounts were recorded
in the nine months ended September 30, 2001. For the nine months ended September
30, 2000, a non-cash accounting credit of $3,752,000 was recorded. This credit
represents the decline in market value of a share of common stock at September
30, 2000 compared to December 31, 1999 on the maximum total of 825,000
contingent OP units issuable to QSV pursuant to the termination agreement.

During the nine months ended September 30, 2001, the Company recorded an asset
impairment charge of $17,091,000, as compared to $5,271,000 recorded during the
nine months ended September 30, 2000. During the nine months ended September 30,
2001, BC Oil Ventures LLC, the tenant leasing the service stations and fuel
terminal in Hawaii, defaulted on its monthly rent payments. After careful
assessment of various factors relevant to these properties, management
determined it was appropriate to sell these properties. Accordingly, the Company
has classified these properties as Assets Held for Sale, and an impairment
charge of $7,743,000 was recorded to write these assets down to the estimated
proceeds anticipated from the disposal of these properties net of estimated
costs to sell. Also during this period, management analyzed service stations in
Missouri, Illinois and Texas which were late paying rent and defaulting on
certain lease terms for possible impairment. It was determined that 16 of these
properties had carrying values in excess of fair value. The Company recorded an
impairment charge of $7,567,000 to revalue these assets to estimated fair value.
The estimated fair value of these assets was determined by discounting the
estimated cash flows of each asset. As a result of the Company's regular
analysis of its investments to determine if circumstances indicate that the
carrying amount of an asset may not be recoverable, additional impairment
charges of $1,781,000 were recorded from the revaluing of 17 other assets to
their estimated fair value.

Fair value adjustment for the interest rate swap agreement for the nine months
ended September 30, 2001 totaled $2,607,000. The adoption of SFAS No. 133, as of
January 1, 2001 resulted in the recognition of a liability of $1,474,000, with a
cumulative effect adjustment to other comprehensive income of $1,474,000. The
interest rate swap agreement was entered into in 2000 to hedge the variable rate
interest payments related to the Company's previous term loan with Credit
Lyonnais. During January 2001, the Company repaid the Credit Lyonnais term loan
in full with proceeds from an eight month bridge loan. The unrealized loss on
the interest rate swap included in other comprehensive income upon adoption of
SFAS No. 133 was reclassified to earnings over the period of the bridge


                                       20
<PAGE>
loan. Prior to August 2001, the Company had not redesignated this interest rate
swap as a hedge subsequent to the repayment of the Credit Lyonnais term loan. As
a result, all changes in the fair value of the interest rate swap agreement
subsequent to the Credit Lyonnais repayment and prior to August 2001 were
recognized in earnings immediately. In conjunction with the closing of the
Certificates, the Company redesignated this swap as a hedge against the
Certificates. Of the $2,607,000 recorded, $1,474,000 represents reclassification
of the January 1, 2001 adjustment from other comprehensive income and $1,133,000
represents the change in the fair value of the interest rate swap.

The gain on sale of properties of $1,893,000 for the nine months ended September
30, 2001 relates to the sale of 26 properties for cash of $17,121,000, net of
closing costs, and notes of $1,033,000. The gain on sale of properties of
$1,649,000 for the nine months ended September 30, 2000 relates to the sale of
62 properties for cash of $42,319,000 and notes of $1,233,000, and the
non-renewal of ground leases.

Minority interest in net income was $3,324,000 for the nine months ended
September 30, 2001, compared to $3,151,000 for the nine months ended September
30, 2000.

Loss on early extinguishment of debt was $340,000 for the nine months ended
September 30, 2001. On January 9, 2001, the Company paid the outstanding balance
under the Credit Lyonnais facility with proceeds from a bridge loan issued by
Bank of America. In connection with this pay-off, the Company wrote-off $340,000
in unamortized loan origination fees associated with this facility.

LIQUIDITY AND CAPITAL RESOURCES

The Company's principal source of cash to meet its short-term cash requirements
is rental revenues generated by the Company's properties. Cash generated by the
portfolio in excess of operating and dividend payment needs is generally used to
reduce amounts outstanding under the Company's credit agreements or make new
property acquisitions. The Company currently has three letters of intent for
acquisitions outstanding worth approximately $19,000,000. The terms of the
Company's leases ("triple net leases") generally require that the tenant is
responsible for maintenance and improvements to the property. The Company is
generally not required to expend funds for remodels and renovations. However,
the Company expects to spend approximately $145,000 during the remainder of this
year to renovate and remodel currently owned properties.

During the nine months ended September 30, 2001, the Company declared dividends
of $17,646,000 to its common stockholders (or $.11 per month per share of common
stock) and $5,327,000 to its preferred stockholders (or $0.4825 per quarter per
share of preferred stock).

During the three months ended June 30, 2001, the Company was informed that two
of its tenants had filed for protection under Chapter 11 of the Bankruptcy Code
of the United States (the "Bankruptcy Code"). Gant Acquisition LLC ("Gant"),
which leases 27 service stations in North Carolina, filed on May 21, 2001.
Annual rent from these properties is approximately $1,504,000. Vista DFW Locs,
LLC (formerly VISTA Stores LLC) ("Vista"), which leases 53 FINA branded
convenience stores/service stations in Texas, filed on June 29, 2001. Annual
rent from these properties is approximately $2,236,000. The rents from these
properties are not delinquent and the Company does not anticipate any adverse
impairment of values associated with these properties.

During the three months ended September 30, 2001, the Company was informed that
one of its tenants leasing 19 casual dining restaurant properties was
experiencing financial difficulties. Annual rent from these properties is
approximately $3,058,000. The Company has received only a portion of the rent
from this tenant for October and November. Based on current information, the
Company does not anticipate any material adverse impairment of values associated
with these properties, but expects interruption of a significant portion of the
rent payments for an extended period.

During October 2001, the Company was informed that
one of its borrowers, Lyon's of California, Inc., had filed for protection under
Chapter 11 of the Bankruptcy Code. At September 30, 2001 there was approximately
$11,600,000 due from Lyon's for which $2,500,000 had been reserved. Interest
revenue associated with these notes is approximately $123,000 per month.

In August 2001, the Company completed a $180,000,000 offering of Triple Net
Lease Mortgage Certificates (the "Certificates") through its subsidiary U.S.
Restaurant Properties, Inc. Funding 2001-A, L.P. Proceeds from the


                                       21
<PAGE>
offering were primarily used to repay approximately $156,997,000 outstanding
under the Company's secured bridge facility with Bank of America and the balance
of the net proceeds were used for general corporate purposes including the
prepayment of the $27,500,000 Senior B Secured Guaranteed Notes in October 2001.
The Certificates amortize over 15 years, bear interest at the 30 - day LIBOR
plus 48 basis points and other associated fees of approximately 52.6 basis
points, and have an assumed final distribution or maturity date of August 28,
2006. At September 30, 2001 there was $179,776,000 outstanding on the
Certificates.

In conjunction with the completion of the offering of the Certificates, the
Company entered into the Bank of America Derivatives: an interest rate swap at a
fixed rate of 3.825% for one year on a notional amount of $50,000,000 and an
interest rate collar with a floor of 4.42% and a ceiling of 6.00% for four years
on a notional amount of $80,000,000. These derivatives effectively lock in
$50,000,000 at 4.8310% (3.825% plus 1.006%) for one year and lock in $80,000,000
at between 5.4260% (4.42% plus 1.006%) and 7.006% (6.0% plus 1.006%) for four
years.

In January 2001, the Company entered into a Credit Agreement with Bank of
America for an unsecured revolving credit facility in the amount of $7,000,000.
The Credit Agreement has a term of up to two years and bears interest in
traunches of 30, 60, 90 or 180 - day LIBOR contracts plus 225 basis points. The
Credit Agreement also provides that up to $3,500,000 of the facility may be used
for letters of credit. Effective January 9, 2001, Bank of America issued a
letter of credit in the amount of $1,775,000 on behalf of the Company for the
benefit of the preferred stockholders. There is a 2.25% fee per annum on the
outstanding letter of credit. Amounts available under this facility are further
reduced by the market value of the Bank of America Derivatives in excess of a
$2,000,000 threshold. At September 30, 2001, the availability under this
facility was $2,397,000.

On January 17, 2001, the Company entered into an agreement with two affiliates
of Lone Star Fund III (U.S.), L.P. ("Lone Star") providing for the sale of
1,877,935 shares of Common Stock at a price of $10.65 per share, for aggregate
consideration of $20,000,000 (the "Lone Star Transaction"). The Lone Star
Transaction will involve three or more closings: an initial closing, that
occurred on March 9, 2001, at which Lone Star paid $5,000,000 in exchange for
469,484 shares; a closing on October 30, 2001 at which Lone Star paid $7,000,000
in exchange for 657,277 shares, and one or more subsequent closings, to occur on
or before December 31, 2001, at which up to an additional 751,174 shares will be
purchased.

Management believes that cash flow from operations, along with the Company's
ability to raise additional equity through joint ventures and anticipated sales
of properties, additional proceeds from the sale of the remaining shares of
common stock to Lone Star, funds available under the revolving credit facility
and the Company's anticipated ability to obtain financing will provide the
Company with sufficient liquidity to meet its foreseeable capital needs.
However, there can be no assurance that the terms of anticipated financing 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") in their National Policy Bulletin dated November 8, 1999, 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 accounting principles generally accepted in the United States of
America), excluding real estate related depreciation and amortization, gains (or
losses) from sales of property, impairment of long-lived assets, extraordinary
items and items of a similar nature that are allocable to minority interest
holders. The Company believes FFO is helpful to investors as a measure of the
performance of an equity REIT because, along with the Company's statements of
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 obligation, or other commitments and uncertainties. FFO should not be
considered as an alternative to net income (determined in accordance with
accounting principles generally accepted in the United States of America), as an
indication of the Company's financial performance, to cash flows from operating
activities (determined in accordance with accounting principles generally
accepted in the United State of America) or 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.


                                       22
<PAGE>

The following table sets forth, for the three and nine months ended September
30, 2001 and 2000, the calculation of funds from operations.

<Table>
<Caption>
                                             Three Months Ended      Nine Months Ended
                                                September 30,          September 30,
                                              2001        2000        2001        2000
                                            --------    --------    --------    --------
<S>                                         <C>         <C>         <C>         <C>
(in thousands)
Net loss allocable to common stockholders   $ (2,588)   $   (363)   $(24,271)   $ (4,904)
Depreciation and amortization                  5,474       5,955      17,274      18,890
Gain on sale of property                        (285)       (978)     (1,893)     (1,649)
Impairment of long-lived assets                1,042       1,899      17,091       5,271
Extraordinary loss                                --          --         340          --
Income allocable to minority interests           (19)        (27)       (182)       (355)
                                            --------    --------    --------    --------
Funds from operations                       $  3,624    $  6,486    $  8,359    $ 17,253
                                            ========    ========    ========    ========
</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.

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.

RECENTLY ISSUED ACCOUNTING STANDARDS

SFAS No. 141, "Business Combinations" is effective July 1, 2001 and prohibits
pooling-of-interests accounting for acquisitions. SFAS No. 142, "Goodwill and
Other Intangible Assets" is effective January 1, 2002 and specifies that
goodwill and some intangible assets will no longer be amortized but instead will
be subject to periodic impairment testing. The Company has not yet determined
the effect adopting SFAS No. 142 will have on its financial statements.

SFAS No. 143, "Accounting for Asset Retirement Obligations" was issued in June
2001, and will be adopted by the Company on January 1, 2003. This Statement
addresses financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. The Company has not yet determined the effect adopting SFAS No. 143 will
have on its financial statements.

SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets"
was issued in August 2001, and will be adopted by the Company on January 1,
2002. This Statement supersedes SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", and the
accounting and reporting provisions of APB Opinion No. 30, "Reporting the
Results of Operations--Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions", for the disposal of a segment of a business (as previously
defined in that Opinion). This Statement retains the requirements of SFAS No.
121 to (a) recognize an impairment loss only if the carrying amount of a
long-lived asset is not recoverable from its undiscounted cash flows and (b)
measure an impairment loss as the difference between the carrying amount and
fair value of the asset. This Statement requires that a long-lived asset to be
abandoned, exchanged for a similar productive asset, or distributed to owners in
a spinoff be considered held and used until it is disposed of. The accounting
model for long-lived assets to be disposed of by sale is used for all long-lived
assets,


                                       23
<PAGE>
whether previously held and used or newly acquired. That accounting model
retains the requirement of SFAS No. 121 to measure a long-lived asset classified
as held for sale at the lower of its carrying amount or fair value less cost to
sell and to cease depreciation. Discontinued operations are no longer measured
on a net realizable value basis, and future operating losses are no longer
recognized before they occur. The Company has not yet determined the effect
adopting SFAS No. 144 will have on its financial statements.

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

Certain statements contained in this Form 10-Q, including without limitation
statements regarding the objectives of management for future operations and
statements containing the words "believe," "may," "will," "estimate,"
"continue," "anticipate," "intend," "expect" and similar expressions, are
forward-looking statements within the meaning of the federal securities laws.
Such forward-looking statements are subject to known and unknown risks,
uncertainties and assumptions which may cause the Company's actual results,
performance or achievements to differ materially from those anticipated or
implied by the forward-looking statements. The Company disclaims any obligation
to update any such statements or publicly announce any updates or revisions to
any of the forward-looking statements contained herein to reflect any change in
the Company's expectation with regard thereto or any change in events,
conditions, circumstances or assumptions underlying such statements. Reference
is hereby made to the disclosures contained in the Company's filings with the
Securities and Exchange Commission, including, but not limited to, the
disclosures under the heading "Risk Factors" in "Item 1. Business" of the
Company's Annual Report on Form 10-K filed with the Securities and Exchange
Commission on April 2, 2001.


                                       24
<PAGE>

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company has limited exposure to financial market risks, including changes in
interest rates and other relevant market prices, except as noted below. The
Company does not have any foreign operations and thus is not exposed to foreign
currency fluctuations.

An increase or decrease in interest rates would affect interest costs relating
to the Company's variable rate Certificates. At September 30, 2001 there was
$179,776,000 of variable rate debt outstanding on these Certificates. The
Certificates bear interest at the 30 - day LIBOR plus 100.6 basis points.

The Company has entered into an interest rate swap effective July 3, 2000 with a
notional amount of $50,000,000. The Company will pay a fixed rate of 7.05% and
receive a variable rate based upon LIBOR under this swap agreement. In August
2001, in conjunction with the completion of the Certificates offering, the
Company entered into the Bank of America Derivatives: an interest rate swap at a
fixed rate of 3.825% for one year on a notional amount of $50,000,000 and an
interest rate collar with a floor of 4.42% and a ceiling of 6.00% for four years
on a notional amount of $80,000,000. These derivatives effectively lock in
$50,000,000 at 4.8310% (3.825% plus 1.006%) for one year and lock in $80,000,000
at between 5.4260% (4.42% plus 1.006%) and 7.006% (6.0% plus 1.006%) for four
years. Based on the Company's variable rate debt and the derivatives designated
as cash flow hedges against this debt, a 10% increase or decrease in interest
rates would result in an increase or decrease in interest charges of
approximately $48,000.

                                       25
<PAGE>

                           PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

         None

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

         None

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

         None

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         None

ITEM 5.  OTHER INFORMATION

         None

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

a)       Exhibits

                  Exhibit 2.1 - Certificate of Merger of QSV Properties, Inc.
                  with and into U.S. Restaurant Properties, Inc. (incorporated
                  by reference to Exhibit 2.1 to the Company's Annual Report on
                  Form 10-K for the year ended December 31, 2000)

                  Exhibit 2.2 - Articles of Merger between QSV Properties, Inc.
                  a Delaware corporation and U.S. Restaurant Properties, Inc., a
                  Maryland corporation (incorporated by reference to Exhibit 2.2
                  to the Company's Annual Report on Form 10-K for the year ended
                  December 31, 2000)

                  Exhibit 2.3 - Agreement of Plan of Merger (incorporated by
                  reference to Exhibit 2.3 to the Company's Annual Report on
                  Form 10-K for the year ended December 31, 2000)

                  Exhibit 3.1 - Amended and Restated Articles of Incorporation
                  of the Company (incorporated by reference to Exhibit 3.1 to
                  the Company's Registration Statement of Form S-3 (File No.
                  333-34263))

                  Exhibit 3.2 - Bylaws of the Company (incorporated by reference
                  to Exhibit 3.2 to the Company's Registration Statement on Form
                  S-4 (File No. 333-21403))

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

                  Exhibit 10.1 - Amended and Restated Property Management
                  Agreement dated August 1, 2001.

                  Exhibit 10.2 - Amended and Restated Indenture dated August 1,
                  2001.

                  Exhibit 11.1 - Earnings per Share Computation

b)       Reports on Form 8-K

                  No reports on Form 8-K were filed during the quarter ended
September 30, 2001.


                                       26
<PAGE>

                                    SIGNATURE


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



                                        U.S. Restaurant Properties, Inc.




Dated:  November 14, 2001               By: /s/ H.G. Carrington, Jr.
                                            ------------------------------------
                                            H.G. Carrington, Jr.
                                            Chief Financial Officer
                                            Chief Operating Officer
                                            (Principal Financial Officer)


                                       27
<PAGE>

                                INDEX TO EXHIBITS

<Table>
<Caption>
EXHIBIT
NUMBER              DESCRIPTION
--------            -----------
<S>               <C>
10.1              Amended and Restated Property Management Agreement dated
                  August 1, 2001.

10.2              Amended and Restated Indenture dated August 1, 2001.

11.1              Earnings per Share Computation

</Table>