SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

           [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                  For the fiscal year ended December 31, 1997.

                         Commission File Number 1-13089

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


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


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

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


SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

Title of each class                   Name of each exchange on which registered
-------------------                   -----------------------------------------
Common Stock, par value               New York Stock Exchange
       $0.001 per share               
$1.93 Series A Cumulative             New York Stock Exchange
    Convertible Preferred
                    Stock             


     Indicate  by check mark  whether the  Registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
Registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes X   No 
                                             ---    ---

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
          ---

     The  aggregate  market  value of the Common  Stock  (based upon the closing
price of the Common  Stock on March 13,  1998,  on the New York Stock  Exchange)
held by non-affiliates of the Registrant was $367,196,692.

         As of March 13, 1998, there were 12,998,113 shares outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

Certain  information in the Registrant's  definitive proxy statement to be filed
with the Securities and Exchange Commission related to the Company's 1998 Annual
Meeting of Stockholders is incorporated by reference in Part III hereof.

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<PAGE>



                        U.S. RESTAURANT PROPERTIES, INC.

                                TABLE OF CONTENTS



                                                                   Page
                                                                   ----
                                     PART I

Item 1.  Business.............................................       3
Item 2.  Properties...........................................      13
Item 3.  Legal Proceedings....................................      15
Item 4.  Submission of Matters to a Vote of Security-Holders..      15


                                     PART II

Item 5.  Market for Registrant's Common Equity and Related
           Stockholder Matters................................      16
Item 6.  Selected Financial Data..............................      18
Item 7.  Management's Discussion and Analysis of Financial
           Condition and Results of Operations................      19
Item 8.  Financial Statements and Supplementary Data..........      23
Item 9.  Changes in and Disagreements with Accountants on
           Accounting and Financial Disclosure................      23

                                    PART III

Item 10. Directors and Executive Officers of the Registrant...      24
Item 11. Executive Compensation...............................      24
Item 12. Security Ownership of Certain Beneficial Owners and
           Management.........................................      24
Item 13. Certain Relationships and Related Transactions.......      24

                                     PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports
           on Form 8-K........................................      25



                                       2

<PAGE>


                                     PART I

ITEM 1.  BUSINESS

GENERAL

         U.S.  Restaurant  Properties,  Inc. (the Company),  a fully integrated,
self-administered  Real Estate  Investment  Trust (REIT),  is one of the largest
publicly-traded  entities in the United States  dedicated to acquiring,  owning,
managing and selectively developing restaurant properties. At December 31, 1997,
the Company's portfolio consisted of 591 properties  diversified  geographically
in 46 states  and  operated  by  approximately  290  restaurant  operators.  The
properties  are  leased  by the  Company  on a triple  net  basis  primarily  to
operators of fast food and casual dining chain restaurants affiliated with major
brands  such  as  Burger  King(R),   Arby's(R),  Dairy  Queen(R),   Hardee's(R),
Chili's(R),  Pizza Hut(R) and  Schlotzsky's(R)  and regional  franchises such as
Grandy's(R)  and  Taco  Cabana(R).  As of  December  31,  1997,  over 99% of the
Properties  were leased  pursuant to leases with average  remaining  lease terms
(excluding extension options) in excess of ten years.

         The Company is a Maryland corporation which intends to make an election
to be  taxed as a REIT for  federal  income  tax  purposes  commencing  with its
taxable year ended December 31, 1997. Both the common stock, par value $.001 per
share  (the  Common  Stock),  and the  $1.93  Series  A  Cumulative  Convertible
Preferred Stock, par value $.001 per share (the Preferred Stock), of the Company
are traded on the New York Stock  Exchange under the symbols "USV" and "USV pA,"
respectively. The principal executive offices of the Company are located at 5310
Harvest Hill Road, Suite 270, Dallas, Texas 75230. The telephone number is (972)
387-1487.

HISTORY AND STRUCTURE OF THE COMPANY

         The Company's predecessor, U.S. Restaurant Properties Master LP (USRP),
formerly  Burger King  Investors  Master L.P., was formed in 1985 by Burger King
Corporation  (BKC) and QSV Properties,  Inc.  (QSV),  both of which were at that
time  wholly-owned  subsidiaries  of The  Pillsbury  Company.  QSV  acted as the
general partner of USRP.  Burger King  Corporation was a special general partner
of USRP until its  withdrawal  on November  30, 1994.  USRP  effected an initial
public  offering  in  1986  and  the  proceeds  therefrom  were  used to buy the
Company's initial portfolio of 128 properties from Burger King Corporation. From
1986 through March 1995, the  partnership  agreement  governing USRP limited the
activities of the Company to managing the original portfolio of properties.

         In May 1994,  existing  management  assumed  control of the Company and
began implementing a number of new strategies intended to pursue Company growth.
These strategies have involved the Company in, among other things, acquiring new
properties, enhancing investment returns through merchant banking activities and
developing new co-branded  service centers on a selective  basis.  From May 1994
through  December 31, 1997, the Company acquired 477 Properties for an aggregate
purchase  price of  approximately  $300 million.  Since  December 31, 1997,  the
Company  has  acquired  an  additional  35  restaurant  properties  for a  total
investment of approximately $36 million.

         On October 15, 1997, the Company effected the Conversion of USRP into a
self-administered  REIT.  The  Conversion  was effected  through the merger (the
"Merger") of USRP  Acquisition,  L.P., a partnership  subsidiary of the Company,
with and into USRP.  As a result of the Merger,  USRP became a subsidiary of the
Company  and,  at the  effective  time of the  Merger,  all  holders of units of
beneficial interest (the "Units") of USRP became stockholders of the Company. On
October 16, 1997,  the Common  Stock,  in  replacement  of the Units,  commenced
trading on the NYSE under the symbol "USV." In connection  with the  Conversion,
QSV withdrew as general partner of each of USRP and U.S.  Restaurant  Properties

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<PAGE>


Operating L.P. (the "OP"),  effective as of October 15, 1997, and USRP Managing,
Inc., a wholly-owned  subsidiary of the Company,  was substituted as the general
partner for USRP and the Operating Partnership.  As part of the Conversion,  QSV
received  126,582  shares of  Common  Stock and  1,148,418  units of  beneficial
interest  in the OP,  which are  exchangeable  at any time for  shares of Common
Stock on a one-for-one  basis,  in exchange for its interests in USRP and the OP
and the termination of its management contract.

STRATEGY

         The  Company  seeks  to  maximize  sustainable  growth  in  Funds  From
Operations (FFO) (see Selected  Financial Data) per share and cash available for
distribution   to  stockholders   through   effective   management,   operation,
acquisition  and selective  development  of restaurant  properties.  The Company
believes it can achieve its goal of increasing  FFO per share and cash available
for distribution per share by (i) acquiring high quality  restaurant  properties
at attractive  returns,  (ii) realizing  contractual  rental rate escalations or
percentage rent on existing  leases,  (iii)  selectively  developing  properties
where the  Company  can  secure  leases  prior to  construction  and where  such
development  is  expected  to result in returns on  investment  that the Company
believes  will exceed  returns on  comparable  acquisitions,  and (iv)  actively
managing the  Company's  portfolio,  including  periodically  re-evaluating  all
assets for  strategic  disposition  or  repositioning.  In  pursuing  its growth
strategy,  the Company  intends to  maintain a  conservative  capital  structure
providing it  flexibility  to access  capital  markets when financial and market
conditions   warrant,   thereby   enabling  it  to  take   advantage  of  growth
opportunities as they arise.

 ACQUISITION  STRATEGY.  The Company  seeks to identify and acquire high quality
restaurant  properties.  The Company  believes that it has been able to maximize
returns  on  acquisitions  as a  result  of  its  expertise  in  evaluating  and
capitalizing on the real estate needs of chain restaurant  tenants,  its ability
to identify and acquire financially attractive restaurant properties operated by
major national and regional  restaurant  brands and its expertise in identifying
and  evaluating  restaurant  operators.  The  Company  also seeks to utilize the
extensive personal and business relationships that management has developed over
time  within  the real  estate  and  chain  restaurant  industries  to  identify
prospective  acquisition  opportunities and to consummate favorable acquisitions
prior to the active marketing of the subject properties.

         The Company believes that the ownership of chain restaurant  properties
is  highly  fragmented  and  that  such  fragmentation   often  creates  pricing
inefficiencies  in the sale of such properties.  Chain restaurants are generally
owned  by  numerous  local  operators,  many of whom  own or  operate  a  single
facility. Additionally, the Company believes that numerous chain restaurants are
occupied by owners who desire to focus their investments on and attention to the
operation of their respective restaurants, and not on ownership of real estate.

         Critical  evaluation  of  prospective   property   acquisitions  is  an
essential  component of the  Company's  acquisition  strategy.  When  evaluating
acquisition opportunities, the Company assesses a full range of matters relating
to the  properties,  including  the quality of the  tenant,  the  condition  and
capacity of building  infrastructure,  the remaining lease term and the strength
of the brand  affiliation.  Additionally,  the  Company  believes  its access to
capital  will  provide it with a  competitive  advantage  over  other  potential
property  acquirors  whose offers may be contingent upon obtaining the requisite
financing. To achieve a predictable return while maintaining a low risk profile,
the Company has developed the following acquisition criteria:

-    INVEST IN MAJOR  RESTAURANT  BRANDS.  The  Company  intends to  continue to
     acquire  properties  operated by competent,  financially-stable  multi-unit
     restaurant  operators,  which properties are affiliated with major national
     brands such as Burger  King(R),  Arby's(R),  Dairy  Queen(R),  Hardee's(R),
     Chili's(R),  Pizza  Hut(R)and  Schlotzsky's(R)and  regional  brands such as
     Grandy's(R)and  Taco  Cabana(R).   The  Company  believes  that  successful
     restaurants  operated


                                       4
<PAGE>


     underthese types of brands will continue to offer stable, consistent income
     to the Company with reduced risk of default or non-renewal of the lease and
     franchise  agreement.   The  Company's  strategy  will  continue  to  focus
     primarily on the acquisition of existing chain  restaurant  properties that
     have a  history  of  profitable  operations  with a  remaining  term on the
     current lease of at least five years.  The Company  believes that acquiring
     existing  restaurant  properties  provides a higher  risk-adjusted  rate of
     return to the Company than acquiring newly-constructed restaurants.


-    ACQUIRE   PROPERTIES   SUBJECT  TO  LONG-TERM   LEASES.   The  Company  has
     historically  acquired,  and intends to  continue  to  acquire,  properties
     subject to existing  long-term leases. The average remaining lease term for
     the  Properties  is over ten years.  The  Company  believes  that by having
     long-term  leases in place it avoids the risks  associated  with  trying to
     lease the  property,  including  uncertainty  as to lease  rate and  tenant
     continuity.

-    CONSOLIDATE  SMALLER  PORTFOLIOS.  While the Company  generally focuses its
     acquisition  efforts on the  acquisition  of single  properties and smaller
     portfolios in the $1 million to $10 million range, the Company also pursues
     transactions  involving  portfolios  of  restaurant  properties  (generally
     having a  portfolio  acquisition  price in  excess of $10  million).  These
     smaller  portfolio  transactions  have  historically  resulted  in  a  more
     attractive  valuation for the Company because the size of such transactions
     generally  does not  attract  competition  from other  large  institutional
     property owners. Buyers for these smaller portfolios typically are not well
     capitalized  and may be unable to  compete  for such  transactions.  Larger
     transactions   involving  multiple  properties  generally  attract  several
     institutional bidders, often resulting in a higher purchase price and lower
     investment returns to the purchaser. Since January 1, 1996, the Company has
     closed 89 transactions  involving the acquisition of single properties with
     average  acquisition  prices of less than $1  million  and with an  average
     acquisition capitalization rate of between 11% and 14%. No assurance can be
     given,  however,  that future acquisitions will achieve such capitalization
     rates.  In certain  circumstances,  however,  the Company  has  identified,
     evaluated and pursued  portfolios  valued at up to $50 million that present
     attractive risk/return ratios.

-    SELECTIVELY  DEVELOP CO-BRANDED  SERVICE CENTERS.  The Company has begun to
     develop  co-branded  service centers,  which combine a fast food restaurant
     with a branded  convenience  store and filling  station on one prime retail
     site. The Company's general approach is to place under contract or option a
     prime commercial  parcel,  obtain lease commitments from restaurant and gas
     station/convenience store operators, and then supervise the construction of
     the facility.  In 1997, the Company opened four co-branded service centers.
     In addition,  the Company  currently  has nine  co-branded  service  center
     developments  under  construction which are expected to be completed during
     1998.  The  Company  believes  that its  development  program  may  provide
     investment  yields in the range of 11% to 15%. No  assurance  can be given,
     however,  that future  development will achieve such investment yields. The
     Company expects to invest  approximately $20 million to $24 million,  which
     is approximately  10% to 12% of its total annual  investment  activity,  in
     co-branded service center development over the next 12 months.

-    SELECTIVELY  ACQUIRE  FILLING  STATION  PROPERTIES.  As an extension of its
     co-branded  development  efforts,  the  Company  seeks to  acquire  filling
     station properties which may, in some instances, have restaurant operations
     on  the  property  as  well.   Management  believes  that  filling  station
     properties  possess  many  of  the  favorable  characteristics  that  chain
     restaurant  properties  exhibit.  Management will pursue similar strategies
     and underwriting  standards in acquiring filling stations as those employed
     for chain restaurants.

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     Management is also exploring acquiring selectively other service retailing
     neighbors of restaurants, such as cinemas.

INTERNAL GROWTH. The Company's goal of maximizing  sustainable growth in FFO is
expected to be enhanced by its strategy to achieve  internal growth from several
sources.  A  substantial  number of the  Company's  leases  contain  annual rent
escalations  that are either fixed (ranging from 2% to 3%) or indexed based on a
consumer  price or  other  index.  The  Company  will  seek to  include  similar
escalation  provisions in its future  leases.  The Company also seeks to include
percentage  rent provisions in its leases.  At December 31, 1997,  approximately
55% of the Company's  leases  provided for percentage rent ranging from 2% to 9%
of the gross revenue in excess of a threshold amount generated by the tenant.

OPERATING STRATEGY. Management has endeavored to achieve a consistent return by
employing the strategies  described above while at the same time minimizing loss
risk. The significant risk in the chain restaurant  property business falls into
two  categories:  (i)  default  losses  and/or (ii)  non-renewal  of leases with
accompanying  declines  in rent.  The Company  has  collected  in the last three
years,  more than 99% of all rent due and,  in the last 12 months,  the  average
remaining  lease term on the  Properties  has increased from seven years to more
than ten years.  These  achievements  are the result of the following  operating
strategies which are designed to enhance the  predictability  and sustainability
of the Company's cash flow:

-    RENT PAYMENT PROTECTION.  The Company protects against loss of rent payment
     by employing  strict  underwriting  standards,  such as rent coverage ratio
     analysis, and including terms and conditions in its leases which discourage
     non-payment,  such as master leases covering multi-unit  operations,  cross
     default provisions on other properties,  non-access to restaurant equipment
     and letter of credit and/or personal guaranty requirements.

-    LEASE RENEWAL.  The Company believes that the location of a restaurant is a
     critical  factor  in a  restaurant's  success  and that,  as a result,  its
     tenants,  in most cases,  would experience a loss in the profitability of a
     store and  incur  difficulty  and cost in moving  the store in the event of
     non-renewal of the lease and, as a result,  believes  renewal of the lease,
     on terms  equal to or better  than the  existing  terms,  is more likely to
     occur than the tenant  vacating  the space.  In  addition,  the Company has
     implemented  an early lease renewal  program  pursuant to which the Company
     offers  remodeling  financing to tenants in consideration  for renewing and
     restructuring  existing leases. The Company believes this program will help
     mitigate  the risk of  non-renewals  of leases and will enable the Company,
     where  needed,  to  restructure  the  leases to  require  the  tenant to be
     responsible  for all costs  associated  with  operating the  property.  The
     Company  aggressively pursues lease renewals to take advantage of this need
     by tenants for stability and continuity. Since August 1995, the Company has
     renewed 50 leases.

-    DIVERSIFICATION.   The  Company  believes  its  income  stream  is  further
     protected through the diversification of the Properties by location,  brand
     affiliation and the large number of operators  leasing the Properties.  The
     591 Properties are diversified  geographically in 46 states, with no state,
     except Texas (28%),  accounting for a  concentration  of greater than 6% of
     the Properties.  The Company believes the geographic diversity provides the
     Company with  protection  from  downturns in local and regional  economies.
     Since May 1994,  the Company has  significantly  expanded the number of its
     brand affiliations.  Of the 477 Properties acquired since May 1994, only 94
     are Burger  King(R)restaurants  and the balance are  affiliated  with other
     national and regional chain  restaurants,  such as Arby's(R),  Hardee's(R),
     Pizza Hut(R), Dairy Queen(R), Grandy's(R)and Chili's(R).  Additionally, the
     Company has no tenant that  accounts for greater than 14% of the  Company's
     gross

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<PAGE>

     revenues. As a result, the Company is not materially  dependent  on any one
     operator or any small group of operators.

-    ASSET MANAGEMENT.  The Company analyzes each restaurant property within its
     portfolio   to  identify   opportunities   to  improve  its  return.   Such
     opportunities  may  include  purchasing  property  adjacent  to the current
     property,   working  with  existing   tenants  to  improve  the  sales  and
     performance  of  their  stores  and  in  some  cases  providing  remodeling
     financing toward that end.

FINANCING  STRATEGY.  The  Company  utilizes  its credit  facility  provided by
Comerica  Bank-Texas for short term  financing of the  acquisition of additional
restaurant  properties.  Borrowings  under the credit  facility at December  31,
1997,  bore interest at a rate of London  Interbank  Offered Rate (LIBOR) plus a
margin of 1.80% per annum.  At December  31, 1997,  $63 million was  outstanding
under the Comerica  credit  facility.  On January 17, 1998, the Company  entered
into an  agreement  with  Union  Bank of  Switzerland  (UBS)  to  provide  a new
unsecured  credit facility in the amount of $175 million to replace the Comerica
credit facility.  The UBS credit facility bears interest at a rate of LIBOR plus
a margin of between 1.05% and 1.35% per annum. The Company may also issue Common
Stock or OP Units as consideration for future acquisitions. The Company believes
that its access to capital  should  provide it with a  competitive  advantage in
acquisitions  over other bidders that qualify their bids with financing or other
contingencies.

         The Company  believes that it is best served by a conservative  capital
structure  with  flexibility  to access the capital  markets when  financial and
market conditions  warrant.  The Company's policy is to maintain a debt to total
market  capitalization  ratio (i.e., total consolidated debt of the Company as a
percentage  of market value of its capital stock plus total  consolidated  debt;
for purposes of this calculation, the Series A Preferred Stock will be valued at
the  greater of its  liquidation  preference  or the market  value of the Common
Stock into which it is  convertible)  of less than 50%. As of December 31, 1997,
the Company's  ratio of debt to total market  capitalization  was  approximately
24%.

INDUSTRY

         The Company  invests in properties on which fast food and casual dining
restaurants operate. These are primarily existing, seasoned operations using the
brand names of well known chain restaurants.  The restaurant  industry has grown
significantly  over the past 20 years as a  result  of  population  growth,  the
influence of the baby boom generation, the growth of two-income families and the
growth in consumers'  disposable  income.  According to the National  Restaurant
Association,  the food service  industry  generated an estimated $308 billion of
revenue  representing  approximately  4.1% of the Gross Domestic  Product during
1996.  Total  food  service  industry  sales  during  1997 are  estimated  to be
approximately  $320 billion.  The fast food segment,  which offers value pricing
and convenience and represents approximately 90% of the Company's properties, is
the largest  segment in the  restaurant  industry  with 1997 sales  estimated to
exceed $103 billion or 32% of the  industry's  revenues.  The growth of the fast
food segment has  exceeded  that of the entire  restaurant  industry for over 20
years.  According to the  National  Restaurant  Association,  sales at fast food
restaurants are expected to outpace the overall industry in 1997.

         Demographic  trends  point  toward an  optimistic  outlook for the food
service industry. According to the National Restaurant Association, the aging of
the baby boomers presents an opportunity for the industry,  as people aged 45 to
54 generally have the highest incomes and spend the most money on food away from
home.  Over the next several  years,  the 35 to 54 age group will  experience an
income increase through wage increases and inheritances.  Furthermore, the 15 to
24 age group will begin to expand  again,  reversing  a  ten-year  decline.  The
industry's  product serves the dual income family  particularly well. This group
craves the convenience  due to their job demands and has the financial  capacity
to buy meals outside the home.

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Families with two or more incomes represent over 70% of all family units;  their
real incomes have improved  over the last 20 years while single income  families
experienced an erosion in their earnings.

         The  primary  national  and  regional  brands with which the Company is
affiliated are among the strongest in the country.  The Company owns  properties
operating  under the  Burger  King,  Pizza  Hut(R),  Taco  Bell(R),  Wendy's(R),
Hardee's(R) and KFC(R)  restaurant  brands which are six of the top ten domestic
restaurant  chains  (based on  estimated  1996  system wide sales) in the United
States.  In  addition,  the Company  leases to operators  of  restaurant  chains
falling  in the top 20  domestic  restaurant  chains  such as  Arby's(R),  Dairy
Queen(R) and Jack in the Box(R).

DIVERSIFICATION

         The Company  conducts its operations in such a manner as to enhance the
predictability  and  sustainability  of its cash flows. The Company enhances the
predictability of the operating  performance of the Properties and its financial
position by  diversifying  its  portfolio by  geographic  location and number of
tenants.  The Company  believes that  geographic  diversification  minimizes the
effects on the Company's  financial  position of downturns in regional and local
economics.  The  Properties  are further  diversified  by number of tenants.  At
December  31,  1997,  only one  tenant  accounts  for over 10% of the  Company's
properties. Sybra, Inc., the operator of 77 Arby's(R) restaurants located on the
Properties, accounted for 13% of the Company's properties at December 31, 1997.

LEASES WITH RESTAURANT OPERATORS

         The Company's  strategy is to acquire operating  restaurant  properties
rather than developing new restaurant properties, although the Company has begun
to acquire  newly  constructed  properties.  Typically,  the Company  acquires a
property that has been operated as a fast food or casual dining  restaurant  and
that is  subject  to a lease  with a  remaining  term of five to 20 years  and a
co-terminus franchise agreement. The Company believes that this strategy reduces
the Company's  financial risk because the  restaurant  operated on such property
has a proven  operating record that mitigates the risk of default or non-renewal
under the lease.

         Substantially  all of the Company's  existing  leases are "triple net."
Triple net leases  typically  require  the  tenants  to be  responsible  for the
property operating costs, including property taxes, insurance and maintenance. A
majority of the Company's  leases  provides for a base rent plus a percentage of
the  restaurant's  sales in excess of a threshold  amount.  The triple net lease
structure is designed to provide the Company with a consistent  stream of income
without the obligation to reinvest in the property.  For the twelve months ended
December  31,  1997,  base  rental  revenues  and  percentage   rental  revenues
represented 84% and 16%, respectively, of total gross rental revenues.

         The Company  seeks to renew and  restructure  leases which will provide
for an increase in the  percentage  of total rental  revenues  derived from base
rental  revenues  and a decrease  in the  percentage  of total  rental  revenues
derived  from  percentage  rental  revenues.   In  addition,   the  Company  has
implemented  an early  renewal  program  pursuant  to which the  Company  offers
remodeling  financing to tenants in consideration for renewing and restructuring
leases.  To date, the Company has renewed 33 leases under this program,  with an
aggregate of $1.3 million  paid out by the Company for  remodeling.  The Company
considers  the  remodeling  financing to be prudent  given the  increased  sales
resulting at the remodeled  restaurants and the lower costs incurred  because of
the early lease renewals.  The early renewal program has resulted in an increase
of the average  remaining  lease term of the Properties to over ten years,  thus
mitigating the risk of non-renewal of leases.

                                       8
<PAGE>


         The Company generally acquires  properties from third-party  lessors or
from operators in  sale/leaseback  transactions  in which the operator sells the
property to the Company and then  enters into a long-term  lease  (typically  20
years) with the Company  for such  property.  A  sale/leaseback  transaction  is
attractive  to the operator  because it allows the operator to realize the value
of the real estate while retaining occupancy for the long term. A sale/leaseback
transaction  may also  provide  specific  accounting,  earnings and market value
benefits to the selling operator.  For example, the lease on the property may be
structured by the tenant as an off-balance  sheet  operating  lease,  consistent
with  Financial  Accounting  Standards  Board  rules,  which  may  increase  the
operator's earnings,  net worth and borrowing capacity. The following table sets
forth certain information regarding lease expirations for the Properties.


                          LEASE EXPIRATION SCHEDULE (1)


                                            NUMBER            PERCENT
                                          OF LEASES             OF
       YEAR                                EXPIRING            TOTAL
       ----                               -----------        ---------

       1998 to 2000 .................           72              12.2%
       2001 to 2003 .................          107              18.1%
       2004 to 2006 .................           57               9.6%
       2007 to 2009 .................           32               5.4%
       2010 to 2012 .................           26               4.4%
       2013 to 2015 .................           39               6.6%
       2016 to 2018 .................          234              39.6%
       2019 to 2021 .................           17               2.9%
       2022 to 2024 .................            3               0.5%
       Unleased .....................            4               0.7%
                                            ----------        ---------
       Total ........................          591             100.0%
                                            ==========        =========

(1) The lease expiration schedule does not include lease extension options.

RESTAURANT ALTERATIONS

         The Company believes that improving, expanding, rebuilding or replacing
its restaurant properties from time to time is important.  In addition to normal
maintenance  and  repair  requirements,   each  operator  of  a  Burger  King(R)
restaurant is required under Burger King Corporation's  franchise  agreement and
lease/sublease,  at its own cost and  expense,  to make  such  alterations  to a
Burger  King(R)  restaurant  as  may  be  reasonably  required  by  Burger  King
Corporation  from time to time to modify the  appearance  of the  restaurant  to
reflect the then current image requirements for Burger King(R) restaurants. Most
of the Properties that are operating as Burger King(R)  restaurants are 15 to 20
years  old.  The  Company  believes  that  many  of  these  Properties   require
substantial  improvements  to maximize  sales and that their  condition is below
Burger King Corporation's current image requirements.


                                       9

<PAGE>


OWNERSHIP OF REAL ESTATE INTERESTS

         Of the  591  Properties  included  in  the  Company's  portfolio  as of
December  31,  1997,  the  Company  (i) owned  both the land and the  restaurant
building in fee simple on 447 of such  Properties (the "Fee  Properties"),  (ii)
owned the land,  with the tenant owning the restaurant  building,  on 33 of such
Properties  and (iii) leased the land,  the building or both from a  third-party
lessor  on 111 of  such  Properties  (the  "Leasehold  Properties").  Of the 111
Leasehold Properties, 27 are Properties on which the Company leases from a third
party the underlying  land, the restaurant  building and the other  improvements
thereon (the "Primary Leases") and then subleases the property to the restaurant
operator.  Under the terms of the remaining 84 Leasehold Properties (the "Ground
Leases"), the Company leases the underlying land from a third party and owns the
restaurant  building  and  the  other  improvements  constructed  thereon.  Upon
expiration or termination  of a Primary Lease or Ground Lease,  the owner of the
underlying  land  generally  will  become  the  owner  of the  building  and all
improvements  thereon.  The  remaining  terms of the  Primary  Leases and Ground
Leases range from one to 17 years. With renewal options exercised, the remaining
terms of the Primary  Leases and Ground Leases range from one to 30 years,  with
the average remaining term being 21 years.

         The terms and  conditions  of each Primary  Lease and each Ground Lease
vary  substantially.  Such leases,  however,  have certain provisions in common,
including  that:  (i) the  initial  term is 20 years or less,  (ii) the  rentals
payable  are stated  amounts  that may  escalate  over the terms of the  Primary
Leases and Ground Leases  (and/or during  renewal  terms),  but normally are not
based  upon a  percentage  of sales of the  restaurants  thereon,  and (iii) the
Company is required to pay all taxes and  operating,  maintenance  and insurance
expenses for the Leasehold Properties.  In addition,  under substantially all of
the  leases  the  Company  may  renew the term one or more  times at its  option
(although the provisions  governing any such renewal vary significantly and some
renewal  options are at a fixed  rental  amount  while others are at fair rental
value at the time of renewal).  Several  Primary  Leases and Ground  Leases also
give the  owner  the right to  require  the  Company,  upon the  termination  or
expiration thereof, to remove all improvements situated on the property.

         Although  the Company,  as lessee  under each Primary  Lease and Ground
Lease,  generally has the right to freely assign or sublet all of its rights and
interests  thereunder,  the Company is not  permitted to assign or sublet any of
its rights or interests  under certain of the Primary  Leases and certain of the
Ground Leases without obtaining the lessor's consent or satisfying certain other
conditions.  In  addition,  approximately  20% of the Primary  Leases and Ground
Leases require the Company to use such Leasehold Properties only for the purpose
of  operating  a  Burger  King(R)  restaurant  or  another  specified  brand  of
restaurant  thereon. In any event, no transfer will release the Company from any
of its  obligations  under any  Primary  Lease or Ground  Lease,  including  the
obligation to pay rent.

USE AND OTHER RESTRICTIONS ON THE OPERATION AND TRANSFER OF BURGER KING
RESTAURANT PROPERTIES

         The Company was  originally  formed for the  purpose of  acquiring  all
BKC's interests in the original  portfolio and leasing or subleasing them to BKC
franchisees under the leases/subleases.  Accordingly,  the OP Agreement contains
provisions  that state,  except as expressly  permitted by BKC, that the Company
may not use such  properties for any purpose other than to operate a Burger King
restaurant  during  the  term  of the  lease.  In  furtherance  thereof,  the OP
Agreement:  (i) requires the Company,  in certain  specified  circumstances,  to
renew or  extend a  lease/sublease  and  enter  into a new  lease  with  another
franchisee of BKC, to approve an assignment of a  lease/sublease,  to permit BKC
to assume a  lease/sublease  at any time and to renew a Primary Lease,  and (ii)
imposes certain restrictions and limitations upon the Company's ability to sell,
lease or otherwise  transfer any interest in such  properties.  The OP Agreement
requires the Company to provide BKC notice of default under a lease/sublease and
an opportunity to cure such default prior to taking any remedial action.  The OP
Agreement  also  requires the Company  under  certain


                                       10
<PAGE>

circumstances  to provide tenants with assistance  with remodeling  costs.  Such
terms with respect to such properties imposed on the Company by the OP Agreement
may be less  favorable  than those  imposed  upon other  lessors of Burger  King
restaurants.  BKC has advised the Company that it intends to waive or not impose
certain of the restrictive provisions contained in the OP Agreement.


RECENT DEVELOPMENTS

         RECENT ACQUISITIONS:  Since December 31, 1997, the Company has acquired
35 restaurant  properties for an aggregate  purchase price of approximately  $36
million.  The acquired  properties are leased on a triple net basis to operators
of Burger King(R),  Dairy Queen(R),  Hardee's(R),  Chili's(R),  Schlotzsky's(R),
Pizza  Hut(R),   Grandy's(R),   Taco  Bell(R),   KFC(R)  and  other  brand  name
restaurants.  The Company acquired these properties with cash which was financed
principally by utilizing the Company's line of credit.

         CREDIT FACILITY:  On January 17, 1998 the Company entered into a credit
agreement  with Union Bank of  Switzerland  for a revolving  credit line of $175
million. At February 28, 1998,  approximately $64 million remained available for
borrowings under the UBS credit agreement.

         NOTES  PAYABLE: In January, 1998, the holders of  $40,000,000  in notes
payable  agreed in principle to release the collateral securing the notes.

EMPLOYEES AND MANAGEMENT

         On  February  28,  1998,  the  Company  had 38  employees.  The Company
believes that relations with its employees are good.

COMPETITION

         The  Company   believes   that  it   competes   with   numerous   other
publicly-owned  entities,  some of  which  dedicate  substantially  all of their
assets  and  efforts  to  acquiring,   owning  and  managing  chain   restaurant
properties.   The  Company  also  competes  with  numerous   private  firms  and
individuals for the acquisition of restaurant properties. In addition, there are
other  publicly  owned  entities  that are  dedicated to  acquiring,  owning and
managing  triple  net  lease  properties.   The  majority  of  chain  restaurant
properties  is  owned  by  restaurant   operators  and  real  estate  investors.
Management believes,  based on its industry knowledge and experience,  that this
fragmented   market   provides   the  Company   with   substantial   acquisition
opportunities.  The  Company  also  believes  that the  inability  of most small
restaurant  owners to obtain  funds with which to compete  for  acquisitions  as
timely and  inexpensively as the Company provides the Company with a competitive
advantage when seeking to acquire a restaurant property.

         The  restaurants  operated on the Company's  properties  are subject to
significant competition (including, for example, competition from other national
and  regional  "fast food"  restaurant  chains,  other  Burger King  restaurants
(including mobile restaurants),  local restaurants,  restaurants owned by Burger
King Corporation or affiliated entities, national and regional restaurant chains
that do not  specialize in "fast food" but appeal to many of the same  customers
as do "fast food"  restaurants,  and other competitors such as convenience store
and  supermarkets  that sell  ready-to-eat  food).  The  success of the  Company
depends,  in part, on the ability of the restaurants  operated on the properties
to compete  successfully  with such businesses.  The Company does not anticipate
that it will seek to engage directly in or meet such competition.  Instead,  the
Company  will be  dependent  upon the  experience  and  ability  of the  lessees
operating the  restaurants  located on the  properties  and, with respect to its
Burger King properties,  the Burger King Corporation system generally to compete
with these other restaurants and similar  operations.

                                       11
<PAGE>

The Company  believes  that the ability of its lessees to compete is affected by
their compliance with the image requirements at their restaurants.

REGULATIONS

         The Company,  through its  ownership of interests in and  management of
real estate,  is subject to various  environmental,  health,  land-use and other
regulation by federal,  state and local governments that affects the development
and regulation of restaurant properties. The Company's leases impose the primary
obligation  for  regulatory  compliance  on  the  operators  of  the  restaurant
properties.

ENVIRONMENTAL   REGULATION.   Under  various  federal,  state  and  local  laws,
ordinances  and  regulations,  an owner or operator of real  property may become
liable for the costs of removal or remediation of certain  hazardous  substances
releases on or within its property. Such liability may be imposed without regard
to whether the owner or operator knew of, or caused the release of the hazardous
substances.  In  addition  to  liability  for  cleanup  costs,  the  presence of
hazardous  substances  on a  property  could  result  in the  owner or  operator
incurring  liability as a result of a claim by an employee or another person for
personal injury or a claim by an adjacent property owner for property damage.

         In connection with the Company's acquisition of a new property, a Phase
I  environmental  assessment  is obtained.  A Phase I  environmental  assessment
involves  researching  historical  usages  of a  property,  analyzing  databases
containing registered underground storage tanks and other matters, and including
an on-site  inspection to determine  whether an environmental  issue exists with
respect to the property which needs to be addressed. If the results of a Phase I
environmental  assessment reveal potential issues, a Phase II assessment,  which
may  include  soil  testing,  ground  water  monitoring  or  borings  to  locate
underground storage tanks, is ordered for further evaluation and, depending upon
the  results  of  such  assessment,   the  transaction  is  consummated  or  the
acquisition is terminated.

         The   Company  is  not   currently  a  party  to  any   litigation   or
administrative  proceeding  with  respect  to  any  property's  compliance  with
environmental  standards.  Furthermore,  the Company is not aware of nor does it
anticipate  any such  action,  or the need to expend  any of its  funds,  in the
foreseeable  future in connection  with its  operations or ownership of existing
properties  which  would  have a  material  adverse  affect  upon the  Company's
financial position, operations or cash flow.

         AMERICANS  WITH  DISABILITIES  ACT  ("ADA").  Under the ADA, all public
accommodations,  including  restaurants,  are required to meet  certain  federal
requirements  relating  to  physical  access  and  use by  disabled  persons.  A
determination that the Company or a property of the Company is not in compliance
with the ADA could result in the imposition of fines, injunctive relief, damages
or attorney's  fees. The Company's  leases  contemplate that compliance with the
ADA is the responsibility of the operator.  The Company is not currently a party
to any  litigation  or  administrative  proceeding  with  respect  to a claim of
violation of the ADA and does not anticipate any such action or proceeding  that
would have a material adverse effect upon the Company.

         LAND-USE, FIRE AND SAFETY REGULATIONS. In addition, the Company and its
restaurant  operators are required to operate the properties in compliance  with
various laws,  land-use  regulations,  fire and safety  regulations and building
codes as may be applicable or later adopted by the  governmental  body or agency
having  jurisdiction  over the  location  of the  property  or the matter  being
regulated.  The Company does not believe that the cost of  compliance  with such
regulations and laws will have a material adverse effect upon the Company.

         HEALTH  REGULATIONS.  The restaurant industry is regulated by a variety
of state and local  departments  and  agencies,  concerned  with the  health and
safety of restaurant  customers.  These regulations vary by

                                       12
<PAGE>

restaurant location and type. The Company's leases provide for compliance by the
restaurant operator with all health regulations and inspections and require that
the restaurant  operator  obtain  insurance to cover  liability for violation of
such  regulations  or the  interruption  of  business  due to closure  caused by
failure to comply with such regulations. The Company is not currently a party to
any litigation or administrative  proceeding with respect to the compliance with
health regulations of any property it finances, and does not anticipate any such
action or proceeding that would have a material adverse effect upon the Company.

         INSURANCE.  The  Company  requires  its  lessees to  maintain  adequate
comprehensive  liability,  fire,  flood and extended loss insurance  provided by
reputable companies with commercially reasonable and customary deductibles.  The
Company  also  requires  that it be named as an  additional  insured  under such
policies.  Certain  types and amounts of insurance are required to be carried by
each  restaurant  operator  under the leases with the  Company,  and the Company
actively monitors tenant  compliance with this requirement.  The Company intends
to  require  lessees  of  subsequently  acquired  properties  to obtain  similar
insurance coverage.  There are, however,  certain types of losses generally of a
catastrophic  nature,  such  as  earthquakes  and  floods,  that  may be  either
uninsurable or not economically  insurable, as to which the Company's properties
are at risk  depending on whether  such events occur with any  frequency in such
areas.  An  uninsured  loss  could  result in a loss to the  Company of both its
capital  investment  and  anticipated  profits  from the affected  property.  In
addition, because of coverage limits and deductibles,  insurance coverage in the
event of a substantial loss may not be sufficient to pay the full current market
value  or  current  replacement  cost of the  Company's  investment.  Inflation,
changes in building codes and ordinances, environmental considerations and other
factors also might make using insurance  proceeds to replace a facility after it
has  been  damaged  or  destroyed  infeasible.  Under  such  circumstances,  the
insurance  proceeds  received by the Company  might be inadequate to restore its
economic position with respect to such property.

ITEM 2.  PROPERTIES

GENERAL

         The Company acquires, owns, manages and selectively develops restaurant
properties  that it leases on a triple net basis  primarily to operators of fast
food and casual dining chain restaurants affiliated with national brands such as
Burger King(R), Arby's(R), Dairy Queen(R), Hardee's(R), Chili's(R), Pizza Hut(R)
and  Schlotzsky's(R) and regional brands such as Grandy's(R) and Taco Cabana(R).
During the first year following  acquisition by the Company, the Properties have
historically  provided the Company with an aggregate  first year return on total
investment in excess of 11%. Management believes that the long-term,  triple net
structure of its leases results in a more  predictable  and  sustainable  income
stream than other forms of real estate investments.

PROPERTIES

         As of December 31, 1997,  the Company owned 591  Properties,  including
209 Burger King(R) Properties (out of approximately  6,400 U.S.  locations),  78
Arby's(R)  Properties  (out of  approximately  2,890 U.S.  locations),  41 Dairy
Queen(R) Properties (out of approximately 6,000 U.S. locations),  29 Hardee's(R)
Properties  (out  of  approximately  2,300  U.S.  locations),  22  Pizza  Hut(R)
Properties  (out of  approximately  9,570 U.S.  locations),  24  Schlotzsky's(R)
Properties  (out of  approximately  560 U.S.  locations)  and  eight  Chili's(R)
Properties  (out of  approximately  110  U.S.  locations).  The  Properties  are
diversified  geographically  in 46 states,  with no state,  except  Texas (28%),
accounting  for  greater  than  6% of the  Properties.  Of the  591  Properties,
approximately 99% were leased on a triple net basis as of December 31, 1997.

                                       13

<PAGE>


         The  following  table sets  forth  certain  state-by-state  information
regarding the Properties owned by the Company as of December 31, 1997.

<TABLE>

<CAPTION>
                              BURGER    DAIRY                PIZZA
                     TOTAL     KING     QUEEN    HARDEE'S     HUT     SCHLOTZSKY'S    CHILI'S     ARBY'S    OTHER
                    -------  --------  -------  ----------  -------  --------------  ---------  ---------  -------

<S>                 <C>      <C>       <C>      <C>         <C>      <C>             <C>        <C>        <C>
Alabama .........       5         3                  1        1
Arkansas ........       9         7                                                       1                    1
Arizona .........      15        13                           1             1
California ......      15        13                                                                            2
Colorado ........       9         4                                         3                                  2
Connecticut .....       3         3
Delaware ........       1                                                                                      1
Florida .........      34         7                  1                                               10       16
Georgia .........      34         8                 23        1                                                2
Iowa ............       8         2                                                                            6
Idaho ...........       1                                                                 1
Illinois ........      11         1                  1        2                                                7
Indiana .........      13         4                                         2                                  7
Kansas ..........       2         2
Kentucky ........       4         3                                         1
Louisiana .......       8                                     2                                                6
Massachusetts ...       5         4                                                                            1
Maryland ........       4         3                           1
Maine ...........       4         4
Michigan ........      30         4                                         1                        24        1
Minnesota .......      20         2                           2                                               16
Missouri ........       8         3                  1                                                         4
Mississippi .....       2         2
Montana .........       1         1
North Carolina ..      21        12                                         5                                  4
North Dakota ....       2                                                                                      2
Nebraska ........       2         1                                                       1
New Jersey ......       6         6
New Mexico ......       7         2                                         1             1                    3
Nevada ..........       1         1
New York ........      35        18                           4                                               13
Ohio ............       9         9
Oklahoma ........      20         3                           1                                               16
Oregon ..........       6         6
Pennsylvania ....      19        13                           1                                       5
South Carolina ..      13         9                  2                      1                                  1
South Dakota ....       1                                                                                      1
Tennessee .......      15         8                           2             2                                  3
Texas ...........     164        12       41                  2             7             2          38       62
Utah ............       1                                                                 1
Virginia ........       2                                     1                                       1
Vermont .........       1         1
Washington ......       7         7
Wisconsin .......       9         6                                                                            3
West Virginia ...       3         2                           1
Wyoming .........       1                                                                 1
                    -------  --------  -------  --------  ---------  --------------  ---------  ---------  -------
Total ...........     591       209       41        29       22            24             8          78      180
                    -------  --------  -------  --------  ---------  --------------  ---------  ---------  -------

</TABLE>

                                       14


<PAGE>


         The Company intends to continue to acquire  properties  affiliated with
major  national  brands  such as  Burger  King(R),  Arby's(R),  Dairy  Queen(R),
Hardee's(R),  Chili's(R),  Pizza Hut(R) and  Schlotzsky's(R) and regional brands
such   as   Grandy's(R)   and   Taco    Cabana(R),    operated   by   competent,
financially-stable  multi-unit restaurant  operators.  The Company believes that
successful  restaurants  operated  under these types of brands will  continue to
offer stable,  consistent  income to the Company with reduced risk of default or
non-renewal  of the lease and  franchise  agreements.  The Company  believes its
income stream is further protected through the increasing diversification of the
Properties by brand  affiliation.  Since existing  management assumed control of
the Company in May 1994,  the Company has  significantly  expanded the number of
its brand  affiliations.  Of the 477 Properties acquired since May 1994, only 94
are  Burger  King(R)  restaurants  and the  balance  are  affiliated  with other
national and regional chain restaurants.


ITEM 3.  LEGAL PROCEEDINGS

         The Company is not presently involved in any material  litigation,  nor
to its knowledge is any material  litigation  threatened  against the Company or
its Properties,  other than routine litigation arising in the ordinary course of
business.

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

         There were no matters  submitted to  Stockholders  in the quarter ended
December 31, 1997.



                                       15

<PAGE>


                                     PART II


ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

         The  Company's  Common  Stock is traded on the New York Stock  Exchange
under the symbol "USV".  Quarterly  distributions are declared for payment early
in the next  calendar  quarter.  The high and low sales prices of the shares and
the  distributions  paid  during  each  calendar  quarter of 1996 and 1997,  and
through  February 28, 1998 are set forth below (market prices and  distributions
per share have been  adjusted to reflect the impact of the  three-for-two  stock
split effected on October 30, 1997):


<TABLE>
<CAPTION>
                                           MARKET PRICE                             DIVIDENDS AND
                             HIGH               LOW              CLOSE              DISTRIBUTIONS
                         -------------    ---------------   ----------------     ---------------------

<S>                      <C>                <C>              <C>                 <C>     
          1996


First Quarter             $ 15.5833          $ 13.0000        $ 15.5833           $     0.2933
Second Quarter              16.6667            14.4167          15.3333                 0.3133
Third Quarter               17.0833            14.3333          16.5000                 0.3200
Fourth Quarter              18.8333            15.0833          18.5000                 0.3233
                                                                                 ---------------------
                                                                                  $     1.2499

          1997

First Quarter             $ 20.5833          $ 17.8333        $ 18.0000           $     0.3333
Second Quarter              19.7917            17.6667          19.6667                 0.3433
Third Quarter               23.4167            19.6667          22.9583                 0.3500
Fourth Quarter              25.6667            21.6250          23.9375                 0.3575
                                                                                 ---------------------
                                                                                  $     1.3841

          1998

First Quarter             $ 26.4375          $ 23.8750        $ 26.1250           $     0.3700
    (Through February 28)

</TABLE>


DISTRIBUTIONS AND ALLOCATIONS

         Prior to October 15, 1997 the Company  operated in the form of a master
limited  partnership,  and cash distributions and allocations of net income were
made in accordance  with the terms of the Partnership  Agreement.  Distributions
took the form of Cash Flow  Distributions  and  Distributions  of Proceeds  from
Capital Transactions and were allocated along with operating income as follows.

         CASH FLOW  DISTRIBUTIONS.  Net cash flow from operations of the Company
that was  distributed  was allocated  98.02 percent to the  Unitholders and 1.98
percent to the Managing General Partner until the Unitholders  received a simple
(non-cumulative)  annual  return  for  such  year  equal  to 12  percent  of the
Unrecovered  Capital Per Partnership Unit (i.e.,  $20.00 (the original  offering
price in 1986)  reduced by any

                                       16
<PAGE>

prior  distributions  of  net  proceeds  of  capital  transactions);   then  any
distributed  cash  flow  for  such  year  was  allocated  75.25  percent  to the
Unitholders  and  24.75  percent  to the  Managing  General  Partner  until  the
Unitholders received a total simple (non-cumulative) annual return for such year
equal to 17.5 percent of the Unrecovered  Capital per Partnership Unit; and then
any excess distributed cash flow for such year was allocated 60.4 percent to the
Unitholders and 39.6 percent to the Managing General Partner.

         DISTRIBUTIONS OF PROCEEDS FROM CAPITAL TRANSACTIONS.  Net proceeds from
financing  and  sales or  other  dispositions  of the  Properties  (interim  and
liquidating) were allocated 98.02 percent to the Unitholders and 1.98 percent to
the Managing  General Partner until the Unitholders  received an amount equal to
the Unrecovered  Capital Per Partnership Unit (initially $20.00 per Unit) plus a
cumulative,  simple  return  equal  to  12  percent  of  the  balance  of  their
Unrecovered  Capital Per Partnership  Unit outstanding from time to time (to the
extent  not   previously   received   from   distributions   of  prior   capital
transactions);   then  such  proceeds  were  allocated   75.25  percent  to  the
Unitholders  and  24.75  percent  to the  Managing  General  Partner  until  the
Unitholders received a total cumulative,  simple return equal to 17.5 percent of
the  Unrecovered  Capital Per  Partnership  Unit;  and then such  proceeds  were
allocated  60.4  percent to the  Unitholders  and 39.6  percent to the  Managing
General Partner.

         TAX ALLOCATIONS. Operating income and loss of the Company for each year
generally was allocated between the Managing General Partner and the Unitholders
in the same aggregate ratio as cash flow was distributed for that year. Gain and
loss from a capital  transaction  generally was allocated  among the Partners in
the  same  aggregate  ratio  as net  proceeds  of the  capital  transaction  was
distributed   except  to  the  extent   necessary  to  reflect  capital  account
adjustments.  In the case of both operating income or loss and gain or loss from
capital transactions, however, the amount of such income, gain or loss allocated
to the  Managing  General  Partner  and the  Unitholders  for the year would not
necessarily equal the total cash distributed to the Managing General Partner and
the  Unitholders  for such year.  Upon the transfer of a Partnership  Unit,  tax
items  allocable  thereto  generally would be allocated among the transferor and
the  transferee  based  on the  period  during  the year  that  each  owned  the
Partnership  Unit,  with  each  Unitholder  on the last day of the  month  being
treated as a Unitholder for the entire month.

         Subsequent to October 15, 1997  distributions  were made in the form of
dividends to common  stockholders and distributions to holders of OP units. As a
REIT,   the  Company  is  required  to  distribute  95%  of  taxable  income  to
shareholders in the form of dividends.

PAYMENTS TO THE MANAGING GENERAL PARTNER

         Prior to October 15, 1997 the Company  compensated the Managing General
Partner  for its  efforts  and  increased  internal  expenses  with  respect  to
additional  properties.  The Company paid the  Managing  General  Partner,  with
respect to each additional  property purchased:  (i) a one-time  acquisition fee
equal to one percent of the purchase  price for such property and (ii) an annual
fee equal to one percent of the purchase price for such  property,  adjusted for
increases  in the  Consumer  Price  Index.  For  1997  and  1996,  the  one-time
acquisition  fee  equaled  $1,401,000  and  $1,043,000  respectively,  which was
capitalized, and the increase in the non-accountable annual fee equaled $498,000
and $495,000  respectively.  In addition,  if the Rate of Return (as defined) on
the Partnership's  equity on all additional  properties  exceeded 12 percent per
annum for any fiscal year, the Managing  General  Partner was paid an additional
fee  equal  to 25  percent  of the  cash  flow  received  with  respect  to such
additional  properties in excess of the cash flow representing a 12 percent Rate
of Return  thereon.  For 1996, this additional fee equaled $93,000 and there was
no such fee paid in 1997 or in  1995.  These  fees  were  discontinued  with the
termination of the management contract between QSV and USRP on October 15, 1997.

                                       17

<PAGE>


ITEM 6.  SELECTED FINANCIAL DATA.

The  following  information  should be read in  conjunction  with the  Company's
consolidated financial statements and notes thereto.

<TABLE>

<CAPTION>
                                                                           YEARS ENDED DECEMBER 31,
                                                ---------------------------------------------------------------------------
                                                        (IN THOUSANDS, EXCEPT PER UNIT/SHARE AND PROPERTY DATA)
                                                   1993          1994           1995            1996             1997
                                                ------------  ------------  -------------   --------------   --------------
<S>                                             <C>           <C>           <C>             <C>              <C>
STATEMENT OF INCOME:
Total revenues .............................     $ 8,397       $ 8,887       $  9,850        $   18,518         $  35,584
Expenses:                                   
  Rent .....................................       1,295         1,348          1,405             2,080             2,488
  Depreciation and amortization ............       1,383         1,361          1,541             3,978             9,415
  Taxes, general and administrative ........       1,008         1,144          1,419             2,461             3,590
  Interest expense (2) .....................         109            90            262             2,558            10,011
  Provision for write down or
      disposition of properties ............          74            11             -                 -                -
                                                ------------  ------------  -------------   --------------   --------------
Total expenses .............................       3,869         3,954          4,627            11,077            25,504
Minority interest in operating partnership..          -             -              -                 -               (202)
Gain on sale of property ...................          -             -              -                 32               869
REIT Conversion Costs ......................          -             -              -                 -               (920)
Termination of management contract .........          -             -              -                 -            (19,220)
                                                ------------  ------------  -------------   --------------   --------------
Net income (loss) ..........................     $ 4,528       $ 4,933       $  5,223         $   7,473         $  (9,393)
                                                ============  ============  =============   ==============   ==============
Net income (loss) allocable to
    Unitholders/Shareholders (1) ...........     $ 4,437       $ 4,834       $  5,119         $   7,325         $ (10,261)
Weighted average units/shares outstanding (3):
    Basic ..................................       6,953         6,953          6,957             8,984            11,693
    Diluted ................................       6,953         6,953          7,015             9,190            11,693
Earnings per unit/share (3):
    Basic ..................................     $  0.64       $  0.70       $   0.74         $    0.82         $   (0.88)
    Diluted ................................     $  0.64       $  0.70       $   0.73         $    0.80         $   (0.88)
Dividends/distributions per unit/share (3)       $  0.99       $  1.07       $   1.14         $    1.25         $    1.38
BALANCE SHEET DATA:
Total assets ...............................     $65,322       $62,889       $ 71,483         $ 177,418         $ 359,149
Line of credit and long term debt ..........          -             -          10,931            69,486           129,196
Capitalized lease obligations ..............         966           775            563               362               170
General partners' capital ..................       1,357         1,308          1,241             1,163               N/A
Limited partners' capital ..................      62,757        60,361         58,071           103,120               N/A
Stockholders' equity and minority interest..         N/A           N/A            N/A               N/A           204,544

Other Data:
Funds From Operations ......................     $ 7,119       $ 7,638       $  8,314         $  13,111         $  20,744
Cash distributions declared per Unit/Share
    applicable to respective period (1).....     $  0.99       $  1.07       $   1.14         $    1.25         $    1.38
Cash flow from operating activities ........     $ 7,475       $ 6,990       $  9,288         $  13,852         $  19,334
Cash flow from (used in) investing activities    $ 1,130                     $(12,039)        $(100,978)        $(174,017)
Cash flow from (used in) financing activities    $(8,302)      $(7,569)      $  2,077         $  87,500         $ 155,406
Number of properties .......................         123           123            139               322               591

</TABLE>

--------------------------------
(1)  Prior to October  15,  1997 the  Company  operated  in the form of a master
     limited  partnership.  Amounts  shown for years  prior to 1997  reflect net
     income  allocable to partnership  unitholders,  net income per  partnership
     unit, and cash distributions declared per partnership unit.
(2)  Interest  expense is net of interest  income for all periods  except for
     1997  amounts.  Interest income was immaterial for all years prior to 1997.
(3)  Weighted      average     number     of      units/shares      outstanding,
     dividends/distributions  per unit/share  and earnings per  unit/share  have
     been  adjusted to reflect the  three-for-two  split of the Common Stock and
     calculation of earnings per unit/share in accordance with SFAS 128.

                                       18
<PAGE>


ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

RESULTS OF OPERATIONS.

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

     On October 15, 1997 the Company  changed its form of business from a master
limited  partnership to a REIT (Real Estate Investment  Trust). U. S. Restaurant
Properties,  Inc.  became the  successor  entity to U.S.  Restaurant  Properties
Master L.P. The results of operations  for the year ended  December 31, 1997 are
presented as the continuation of the operations of the predecessor entity.

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

COMPARISON  OF THE TWELVE  MONTHS ENDED  DECEMBER 31, 1997 TO THE TWELVE  MONTHS
ENDED DECEMBER 31, 1996

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

         Revenues  in  the  twelve  months  ended   December  31,  1997  totaled
$35,584,000,  an  increase  of 92% when  compared  to the  twelve  months  ended
December 31, 1996.  The increase was due primarily to increases in the number of
properties  owned  during  this  period as  compared to the same period in 1996.
Through  December 31, 1997,  approximately  16% of the Company's rental revenues
resulted  from  percentage  rents (rents  determined  as a percentage  of tenant
sales),  down from 33% for the year ended  December 31, 1996.  Thus,  during the
twelve months ended December 31, 1997, the impact of  fluctuations in restaurant
sales had a  diminishing  impact on total  rental  revenues.  Also  included  in
revenues is interest income  relating to secured notes and mortgages  receivable
from tenants and related parties. Interest income was $1,091,000 in 1997.

         Rent  expense for the twelve  months  ended  December  31, 1997 totaled
$2,488,000, an increase of 20% when compared to the twelve months ended December
31, 1996.  Depreciation  and  amortization  expenses in the twelve  months ended
December 31, 1997 totaled  $9,415,000,  an increase of 137% when compared to the
twelve  months  ended  December  31,  1996.  The  increase  in rent  expense and
depreciation  and  amortization   expenses  directly  relates  to  the  property
acquisitions.

         Taxes, general and administrative  expenses for the twelve months ended
December 31, 1997 totaled  $3,590,000,  an increase of 56% when  compared to the
twelve months ended December 31, 1996. The increase was a result of the costs of
the increased  infrastructure,  including additional employees,  required by the
Company to manage and maintain the  Company's  rate of growth and an increase in
management fees paid to the managing general partner prior to October 15, 1997.

                                       19
<PAGE>


         Interest  expense for the twelve months ended December 31, 1997 totaled
$10,011,000,  an increase of 368%,  when  compared  to the twelve  months  ended
December 31,  1996.  The increase in interest  expense  directly  relates to the
additional debt associated with the acquisitions.

         Minority  interest in net income of the OP of $202,000 for 1997 related
to OP units held by QSV after  October 15, 1997.  Gain on sale of  properties of
$869,000 in 1997 related primarily to the sale of five restaurant properties for
cash of $3,960,000.  REIT conversion costs of $920,000 consisted of direct costs
associated  with the conversion of the Company to a REIT on October 15, 1997. In
conjunction  with the  conversion,  the Company  recorded a  one-time,  non-cash
accounting charge of $19.2 million relating to the termination of the management
contract with QSV, the former managing general partner.

COMPARISON OF THE YEAR ENDED DECEMBER 31, 1996 TO THE YEAR ENDED
DECEMBER 31, 1995

         The Company owned 139 Properties  prior to January 1, 1996. The Company
acquired 184  properties and sold one from January 1, 1996 to December 31, 1996,
the  operations  of which are  included  in the  periods  presented  from  their
respective dates of acquisition..

         Revenues  for  the  twelve  months  ended  December  31,  1996  totaled
$18,518,000,  an  increase  of 88% when  compared  to the  twelve  months  ended
December 31, 1995. The increase in revenues was primarily due to the acquisition
of restaurant properties in 1996.

         Rent  expense for the twelve  months  ended  December  31, 1996 totaled
$2,080,000, an increase of 48% when compared to the twelve months ended December
31, 1995.  Depreciation  and  amortization  expenses for the twelve months ended
December 31, 1996 totaled  $3,978,000,  an increase of 158% when compared to the
twelve  months  ended  December  31,  1995.  This  increase in rent  expense and
depreciation  and  amortization  expenses  directly  correlates  to the property
acquisitions in 1996.

         Taxes, general and administrative  expenses for the twelve months ended
December 31, 1996 totaled  $2,299,000,  an increase of 62% when  compared to the
twelve  months ended  December 31, 1995.  An increase in the  management  fee of
$585,000 and  expenses  that  directly  correspond  to the active  growth of the
Company  were the primary  reasons  for  increased  general  and  administrative
expenses for the year ended December 31, 1996 as compared to December 31, 1995.

         Interest  expense  for  the  twelve  months  ended  December  31,  1996
increased to $2,720,000  from $262,000 for the twelve months ended  December 31,
1995.  The increase in interest  expense  directly  correlates to the additional
debt associated with the acquisitions.

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  needs is used to reduce
amounts  outstanding  under the  Company's  credit  agreements.  Currently,  the
Company's  primary source of funding for acquisitions is its existing  revolving
line of credit.  The Company  anticipates  meeting its future long-term  capital
needs through the issuance of additional debt or equity,  including the issuance
of  additional OP units,  along with cash  generated  from internal  operations.
During 1997 the Company paid  dividends  (distributions  prior to October 15) of
$1.3841 per share,  or an aggregate of  $16,970,944 to common  stockholders  and
minority interests.

         On January 17, 1998 the Company entered into a credit  agreement with a
syndicate of banks for an unsecured revolving credit line of $175 million.  This
line of credit  replaced the Company's  existing line of

                                       20
<PAGE>

credit.  As of February  28,  1998,  the Company has  approximately  $64 million
available  under the new  unsecured  line of credit.  The  Company  may  request
advances  under this line of credit to finance  the  acquisition  of  restaurant
properties,  to repair and update restaurant properties and for working capital.
The banks will also  issue  standby  letters  of credit  for the  account of the
Company under this loan facility.  This credit agreement  expires on January 15,
2001 and provides that  borrowings  thereunder bear interest at the then current
LIBOR  plus a margin  spread of either  1.05%,  1.20% or 1.35%,  dependent  on a
leverage ratio formula. As of February 28, 1998 the margin spread was 1.05%.

         On January 31, 1997 the Company  issued 8.06%  Series A Senior  Secured
Guaranteed  Notes due January 31, 2000 in the amount of  $12,500,000,  and 8.30%
Series B Senior Secured  Guaranteed  Notes due January 31, 2002 in the amount of
$27,500,000.  In January, 1998 the note holders agreed to release the collateral
for these notes.

         On August 15, 1997 the Company  entered  into a credit  agreement  with
Pacific Mutual Life Insurance  Company for $30,000,000 of adjustable rate senior
secured notes bearing  interest at LIBOR plus a margin spread of 2.30%.  Amounts
borrowed  under the  agreement  are due and  payable on or before May 20,  1998.
Total  outstanding  loans under this agreement were  $26,200,000 at December 31,
1997.

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

FUNDS FROM OPERATIONS (FFO)

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


                                       21

<PAGE>


         The following  table sets forth,  for the years ended  December 31, the
calculation of FFO:

<TABLE>

<CAPTION>
(AMOUNTS IN THOUSANDS)                            1995           1996           1997

<S>                                               <C>            <C>            <C>
Net income (loss) allocable to
         Common stock/unit holders                 $ 5,119        $ 7,325        $ (10,261)

Direct financing lease payments                      1,866          2,041            2,286
Capital lease principal payments                      (212)          (201)            (169)
Depreciation and amortization                        1,541          3,978            9,415
Income allocable to minority interest                                                  202
Gain on sale of property                                 -            (32)            (869)
REIT Conversion costs                                    -              -              920
Termination of management contract                                                  19,220

                                                  ----------     ----------     ------------
Funds from operations (FFO)                        $ 8,314        $ 13,111       $  20,744
                                                  ==========     ==========     ============

Total shares/units applicable to FFO                 7,015           9,190          12,179
                                                  ==========     ==========     ============
</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 restaurant  operator to
pay for some or all operating  expenses,  property  taxes,  property  repair and
maintenance costs and insurance, some or all of the inflationary impact of these
expenses will be borne by the restaurant operator and not by the Company.

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

SEASONALITY

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

NEW ACCOUNTING PRONOUNCEMENTS

         In February, 1998, Statement of Financial Accounting Standards No. 132,
"Employers'  Disclosures  about  Pensions  and Other  Postretirement  Benefits,"
("SFAS 132") was issued, effective for fiscal years beginning after December 15,
1997. This Statement does not apply to the Company as of December 31, 1997 since
the  Company  does not have  either a pension  or other  postretirement  benefit
plans.

         In June,  1997,  Statement of Financial  Accounting  Standards No. 131,
"Disclosures  about Segments of an Enterprise and Related  Information,"  ("SFAS
131") was issued,  effective for fiscal years beginning

                                       22
<PAGE>


after  December  15,  1997.   This  Statement   requires  that  public  business
enterprises report financial and descriptive  information about their reportable
operating segments. The Company will adopt the provisions of SFAS 131 in 1998 as
required,  but it does not expect such adoption to have a material impact on its
results of operations, financial position or cash flows.

         In June,  1997,  Statement of Financial  Accounting  Standards No. 130,
"Reporting  Comprehensive Income," (SFAS 130") was issued,  effective for fiscal
years  beginning after December 15, 1997. This Statement would have no effect on
the Company's current consolidated financial statements.

YEAR 2000 SYSTEMS CONVERSION

         The Company has recognized the need to ensure that its data  processing
systems  and  operations  will not be  adversely  affected  by the change to the
calendar year 2000. The Company has taken steps to identify  potential  areas of
risk,  and has begun to address these risk factors in its  planning,  purchasing
and daily operations. The cost of converting all internal systems and operations
is not expected to be material. Estimated costs relating to the failure of third
party  service  providers  and  vendors  to  prepare  for the  year  2000 is not
available.  However,  the Company is attempting to identify those risks,  and is
requiring third party service providers and vendors to provide evidence of their
systems ability to incorporate the change to the year 2000.

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

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

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

         Not applicable.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

         The financial  information and supplementary  data begin on page F-1 of
this Annual Report on Form 10-K.  Such  information is incorporated by reference
into this Item 8.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE.

         None.
                                    PART III

                                       23
<PAGE>


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

         The information required by this item will be incorporated by reference
from the Company's  definitive  Proxy  Statement for its 1998 Annual  Meeting of
Stockholders to be filed with the Securities and Exchange Commission pursuant to
Regulation 14A under the Securities Exchange Act of 1934.

ITEM 11. EXECUTIVE COMPENSATION.

         The information required by this item will be incorporated by reference
from the Company's  definitive  Proxy  Statement for its 1998 Annual  Meeting of
Stockholders to be filed with the Securities and Exchange Commission pursuant to
Regulation 14A under the Securities Exchange Act of 1934.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

         The information required by this item will be incorporated by reference
from the Company's  definitive  Proxy  Statement for its 1998 Annual  Meeting of
Stockholders to be filed with the Securities and Exchange Commission pursuant to
Regulation 14A under the Securities Exchange Act of 1934.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         The information required by this item will be incorporated by reference
from the Company's  definitive  Proxy  Statement for its 1998 Annual  Meeting of
Stockholders to be filed with the Securities and Exchange Commission pursuant to
Regulation 14A under the Securities Exchange Act of 1934.



                                       24

<PAGE>


                                     PART IV


ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a)(1)   Financial Statements.

         For a list of the consolidated financial statements  of the Registrant
         filed as part of this  Annual  Report  on Form  10-K,  see page F-1,
         herein.


(a)(2)   Financial Statement Schedules.

         Schedule III Real Estate and Accumulated Depreciation.

         All other schedules have been omitted because the required information
         of such other  schedules is not present,  is not present in amounts
         sufficient  to require  submission  of  the  schedule  or is  included
         in  the consolidated financial statements.

(b)      Reports on Form 8-K.

         A report on Form 8-K and 8-K/A  dated July 25, 1997 was filed with the
         Securities and Exchange Commission on October 15, 1997 and October 27,
         1997, respectively, reporting information  regarding  the  acquisition
         of 37 properties.

         A report on Form 8-K/A dated March 31, 1997 was filed with the 
         Securities and Exchange  Commission on November 24, 1997  reporting
         information regarding the acquisition of 122 properties.

         A report on Form 8-K dated  November  26,  1997 was filed with the
         Securities and Exchange  Commission on December  9,  1997,   reporting
         information regarding the acquisition of 26 restaurant properties.

(c)      Exhibits.

         The Exhibits filed as part of this Annual Report on Form 10-K are
         submitted as a separate section.


                                       25
<PAGE>


                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange  Act of 1934,  the  Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                        U.S. Restaurant Properties, Inc.


                                        By: /s/ Robert J. Stetson
                                           ------------------------------
                                             Robert J. Stetson
                                             Chief Executive Officer and
                                             President

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this report has been signed by the following persons on behalf of U.S Restaurant
Properties, Inc. and in the capacities and on the dates indicated.

    SIGNATURES                         TITLE                        DATE

 /s/ Robert J. Stetson
-----------------------      Chief Executive Officer,           March 20, 1998
 Robert J. Stetson           President and Director
                             (Principal Executive Officer)


 /s/ Fred H. Margolin        Chairman of the Board of           March 20, 1998
-----------------------      Directors, Secretary and
 Fred H. Margolin            Director


 /s/ Michael D. Warren       Director of Finance                March 20, 1998
-----------------------      (Principal Accounting Officer)
 Michael D. Warren

 /s/ Gerald H. Graham        Director                           March 20, 1998
-----------------------
 Gerald H. Graham


 /s/ David K.Rolph           Director                           March 20, 1998
-----------------------
 David K. Rolph


 /s/ Darrel L. Rolph         Director                           March 20, 1998
-----------------------
  Darrel L. Rolph


 /s/ Eugene G. Taper         Director                           March 20, 1998
-----------------------
 Eugene G. Taper


                                       26

<PAGE>




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<PAGE>





                                              
                          INDEX TO FINANCIAL STATEMENTS


U.S. RESTAURANT PROPERTIES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
 Independent Auditors' Report...........................................  F - 2
 Consolidated Balance Sheets as of December 31, 1997 and 1996...........  F - 3
 Consolidated Statements of Income for the years ended 
   December 31, 1997, 1996 and 1995.....................................  F - 5
 Consolidated Statement of Stockholders' Equity and Partners'
   Capital for the years ended December 31, 1997, 1996 and 1995.........  F - 6
 Consolidated Statements of Cash Flows for the years ended
   December 31, 1997, 1996 and 1995.....................................  F - 7
 Notes to Consolidated Financial Statements.............................  F - 9

The following financial statement  supplementary  schedule of the Registrant and
its subsidiaries required to be included in Item 14(a)(2) is listed below:

 Schedule III - Real Estate and Accumulated Depreciation................  S - 1




<PAGE>


                          INDEPENDENT AUDITORS' REPORT



The Board of Directors and Shareholders
U.S. Restaurant Properties, Inc.


We have audited the accompanying  consolidated balance sheets of U.S. Restaurant
Properties,  Inc. and its subsidiaries (the Company)  (formerly U.S.  Restaurant
Properties  Master  L.P.) as of  December  31,  1997 and 1996,  and the  related
consolidated  statements of income,  stockholders'  equity and partners' capital
and cash flows for each of the three  years in the  period  ended  December  31,
1997. Our audits also included the financial  statement  schedule  listed in the
Index at Item 14 (a) (2). These  financial  statements  and financial  statement
schedule are the responsibility of the Company's management.  Our responsibility
is to express an opinion on the financial  statements  and  financial  statement
schedule based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.

In our opinion,  such consolidated  financial  statements present fairly, in all
material respects,  the financial position of U.S. Restaurant  Properties,  Inc.
and  subsidiaries  as of December  31,  1997 and 1996,  and the results of their
operations  and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting  principles.
Our  audits  were  made for the  purpose  of  forming  an  opinion  on the basic
consolidated  financial  statements.  In our opinion,  such financial  statement
schedule,  when  considered  in  relation  to the basic  consolidated  financial
statements  taken as a whole,  presents  fairly  in all  material  respects  the
information set forth therein.



DELOITTE & TOUCHE LLP


Dallas, Texas
March 19, 1998


                                      F-2
<PAGE>


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


                                                      DECEMBER 31,
                                            -----------------------------------
                                                 1997              1996
                                            -----------------------------------
                ASSETS
Property, net
  Land                                       $ 109,515         $   61,340
  Building and leasehold improvements          211,200             80,528
  Machinery and equipment                        4,813              3,244
                                            -----------------------------------
                                               325,528            145,112
  Less:  Accumulated depreciation              (13,438)            (5,453)
                                            -----------------------------------
                                               312,090            139,659

Cash and cash equivalents                        1,104                381
Rent and other receivables, net
  (includes $523 and $188 from
  related parties)                               4,791              2,653
Prepaid expenses and purchase deposits           1,967              1,311
Notes receivable
  (includes $5,406 and $2,738
  from related parties)                          8,518              4,046
Mortgage loan receivable                         5,947                 --
Net investment in direct financing leases       13,764             17,105
Intangibles and other assets, net               10,968             12,263
                                            -----------------------------------
            TOTAL ASSETS                     $ 359,149         $  177,418
                                            ===================================


                             continued on next page



                                      F-3

<PAGE>


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

                                                      DECEMBER 31,
                                            -----------------------------------
                                                  1997             1996
                                            -----------------------------------

      LIABILITIES, STOCKHOLDERS' EQUITY
      AND PARTNERS' CAPITAL
Accounts payable and accrued liabilities
  (includes $121 and $416 due to
  related parties)                           $   4,193         $    2,697
Deferred gain on sale of property                  642                590
Lines of credit                                 89,196             69,486
Notes payable                                   40,000                 --
Capitalized lease obligations                      170                362
                                            -----------------------------------
           TOTAL LIABILITIES                   134,201             73,135

COMMITMENTS AND CONTINGENCIES 
  (NOTES 8 AND 9)

MINORITY INTEREST IN OPERATING
  PARTNERSHIP                                   19,536                 --

STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value per
  share; 50,000 shares authorized,
  Series A - 3,680 shares issued and
  outstanding  as of December 31, 1997
  and no shares issued as of December
  31, 1996 (aggregate liquidation
  value of $92,000)                                  4                 --
Common stock, $.001 par value per 
  share; 100,000 shares authorized,
  12,698 shares issued and outstanding
  as of December 31, 1997 and no shares
  issued as of December 31, 1996                    13                 --
Additional paid in capital                     226,140                 --
Excess stock, $.001 par value per
  share, 15,000 shares authorized, no
  shares issued                                     --                 --
Distributions in excess of net income          (20,745)                --

PARTNERS' CAPITAL

General Partners' capital                           --              1,163
Limited partners' capital                           --            103,120
                                            -----------------------------------
        TOTAL STOCKHOLDERS' EQUITY AND
          PARTNERS' CAPITAL                    205,412            104,283
                                            -----------------------------------
        TOTAL LIABILITIES, STOCKHOLDERS'
         EQUITY AND PARTNERS' CAPITAL        $ 359,149          $ 177,418
                                            ===================================


See Notes to Consolidated Financial Statements.



                                      F-4

<PAGE>


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


<TABLE>

<CAPTION>
                                                       YEAR ENDED DECEMBER 31,
                                             --------------------------------------------
                                                  1997           1996           1995
                                             --------------------------------------------
<S>                                          <C>             <C>            <C>
REVENUES
  Rental income                               $  32,925       $  16,346      $  7,540
  Interest income                                 1,091             194            70
  Amortization of unearned income on
    direct financing leases                       1,568           1,978         2,240
                                             --------------------------------------------
                    TOTAL REVENUES               35,584          18,518         9,850

EXPENSES
  Rent                                            2,488           2,080         1,405
  Depreciation and amortization                   9,415           3,978         1,541
  Taxes, general and administrative               3,590           2,299         1,419
    Interest expense                             10,011           2,720           262
                                             --------------------------------------------
                   TOTAL EXPENSES                25,504          11,077         4,627

                                             --------------------------------------------
INCOME BEFORE GAIN ON SALE OF PROPERTY,
MINORITY INTERESTS AND UNUSUAL ITEMS             10,080           7,441         5,223

Minority interest in operating partnership         (202)             --            --
Gain on sale of property                            869              32            --
REIT conversion costs                              (920)             --            --
Termination of management contract              (19,220)             --            --
                                             --------------------------------------------
NET INCOME (LOSS)                                (9,393)          7,473         5,223

Dividends on Preferred Stock/General
  Partner interest                                 (868)           (148)         (104)
                                             --------------------------------------------

Net income (loss) allocable to
       Common stockholders/unit holders       $ (10,261)      $   7,325      $  5,119
                                             ============================================

Weighted average shares/units outstanding
       Basic                                     11,693           8,984         6,957
       Diluted                                   11,693           9,190         7,015
Net income (loss) per share/unit
       Basic                                     $(0.88)          $0.82         $0.74
       Diluted                                   $(0.88)          $0.80         $0.73


</TABLE>


See Notes to Consolidated Financial Statements.


                                      F-5
<PAGE>

<TABLE>

<CAPTION>
                                                                 U.S. RESTAURANT PROPERTIES, INC.
                                               CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL
                                                         FOR YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
                                                                          (IN THOUSANDS)


                                                     PREFERRED STOCK     COMMON STOCK      ADDITIONAL  DISTRIBUTIONS
                              GENERAL    LIMITED    --------------------------------------     PAID     IN EXCESS        
                     UNITS    PARTNERS   PARTNERS    SHARES   PAR VALUE  SHARES  PAR VALUE  IN CAPITAL  OF NET INCOME       TOTAL
                   --------  ----------  ---------- --------  ---------  ------  ---------  ----------  -------------  ------------
<S>                <C>       <C>         <C>        <C>       <C>        <C>     <C>        <C>         <C>            <C> 
Balance January
 1, 1995             6,953   $   1,308   $  60,361        --   $     --      --   $     --   $      --   $         --   $   61,669
Special general
 partner interest
 transfer                          (13)         (3)                                                                            (16)
Net Income                         104       5,119                                                                           5,223
Purchase of
 partnership units     (45)         --        (547)                                                                           (547)
Units issued for
 property               81          --         985                                                                             985
Cash distributions                (158)     (7,844)                                                                         (8,002)
                   --------  ----------  ---------- --------  ---------  ------  ---------  ----------  -------------  ------------
Balance December
 31, 1995            6,989       1,241      58,071        --         --      --         --          --             --       59,312
                   --------  ----------  ---------- --------  ---------  ------  ---------  ----------  -------------  ------------
Net income                         148       7,325                                                                           7,473
Units issued for
 property              577          --       7,912                                                                           7,912
Proceeds from 
 units issued in
 public offering     2,700          --      40,203                                                                          40,203
Proceeds from 
 exercised unit
 options                75          --         775                                                                             775
Cash distributions                (226)    (11,166)                                                                        (11,392)
                   --------  ----------  ---------- --------  ---------  ------  ---------  ----------  -------------  ------------
Balance December
 31, 1996           10,341       1,163     103,120        --         --      --         --          --             --      104,283
                   --------  ----------  ---------- --------  ---------  ------  ---------  ----------  -------------  ------------
Net income for
 the period 
 January 1
 through October
 15, 1997                          135       6,678                                                                           6,813
Units issued for
 property              681          --      13,796                                                                          13,796
Proceeds from
 units issued in
 private 
 placements          1,435          --      25,000                                                                          25,000
Proceeds from
 exercised unit
 options                75          --         775                                                                             775
Cash distributions                (240)    (11,776)                                                                        (12,016)
                   --------  ----------  ---------- --------  ---------  ------  ---------  ----------  -------------  ------------
Balance before
 REIT conversion    12,532       1,058     137,593        --         --      --         --          --             --      138,651
Conversion to
 REIT              (12,532)     (1,058)   (137,593)                      12,658         13     138,109                        (529)
Sale of preferred
 stock                                                 3,680          4                         87,618                      87,622
Proceeds from
 exercised stock
 options                                                                     40                    413                         413
Net loss for the
 period October
 16 through 
 December 31, 1997                                                                                           (16,206)      (16,206)
Dividends on 
 common stock                                                                                                 (4,539)       (4,539)
                   --------  ----------  ---------- --------  ---------  ------  ---------  ----------  -------------  ------------
Balance December
 31, 1997                --  $      --   $      --     3,680   $      4  12,698   $     13   $ 226,140   $   (20,745)   $  205,412
                   ========  ==========  ========== ========  =========  ======  =========  ==========  =============  ============

</TABLE>

                 See Notes to Consolidated Financial Statements

                                      F-6

<PAGE>




                                                                                
                        U.S. RESTAURANT PROPERTIES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
<TABLE>

<CAPTION>
                                                               YEAR ENDED DECEMBER 31,
                                                     --------------------------------------------
                                                            1997          1996          1995
                                                     --------------------------------------------
<S>                                                  <C>             <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:

  Net income (loss)                                   $    (9,393)    $    7,473     $     5,223
  Adjustments to reconcile net income (loss) to
    net cash from operating activities:
    Depreciation and amortization                           9,415          3,978           1,541
    Amortization of deferred financing costs                  385            162              --
    Minority interest in operating partnership                202             --              --
    Gain on sale of property                                 (869)           (32)             --
    Termination of management contract                     19,220             --              --
    Increase in rent and other receivables, net            (2,365)        (1,702)           (236)
    Increase in prepaid expenses                           (1,043)           (88)           (192)
    Reduction in net investment in direct
      financing leases                                      2,286          2,041           1,866
    Increase in accounts payable and accrued
      liabilities                                           1,496          2,020             232
    Other, net                                                 --             --             854
                                                     --------------------------------------------
                                                           28,727          6,379           4,065
                                                     --------------------------------------------
         Cash provided by operating activities             19,334         13,852           9,288

CASH FLOWS FROM INVESTING ACTIVITIES:

    Proceeds from sale of property and equipment            4,107            122              --
    Purchase of property                                 (166,123)       (95,918)         (9,746)
    Purchase of machinery and equipment                    (1,569)        (3,032)           (232)
    Purchase deposits (paid) used                             387            884          (1,792)
    Increase in notes receivable                           (4,872)        (3,034)           (269)
    Increase in mortgage loan receivable                   (5,947)            --              --
                                                     --------------------------------------------
        Cash used in investing activities                (174,017)      (100,978)        (12,039)


</TABLE>

                             continued on next page


See Notes to Consolidated Financial Statements.


                                      F-7
<PAGE>



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

<TABLE>

<CAPTION>
                                                               YEAR ENDED DECEMBER 31,
                                                     --------------------------------------------
                                                            1997          1996          1995
                                                     --------------------------------------------
<S>                                                  <C>             <C>            <C> 
CASH FLOWS FROM FINANCING ACTIVITIES:

    Proceeds from line of credit                          133,530        104,805          12,453
    Payments on line of credit                           (113,820)       (46,250)         (1,522)
    Distributions to minority interest                       (415)            --              --
    Cash distributions to stockholders/partners           (16,555)       (11,392)         (8,002)
    Proceeds from sale of common stock/units               26,188         40,978              --
    Proceeds from sale of preferred stock                  87,622             --              --
    Proceeds from notes payable                            40,000             --              --
    Financing costs and other intangibles                    (975)          (440)            (77)
    Payments on capitalized lease obligations                (169)          (201)           (212)
    Purchase of partnership units                              --             --            (547)
    Purchase of special general partner interest               --             --             (16)
                                                     --------------------------------------------
        Cash flows provided by financing activities       155,406         87,500           2,077
                                                     --------------------------------------------

 Increase (decrease) in cash and cash equivalents             723            374            (674)
 Cash and cash equivalents at beginning of year               381              7             681
                                                     ============================================
 Cash and cash equivalents at end of year             $     1,104     $      381     $         7
                                                     ============================================
SUPPLEMENTAL DISCLOSURE:
   Interest paid during the year                      $     9,073     $    2,431     $       256
                                                     ============================================
NON-CASH INVESTING ACTIVITIES:
   Units issued for property purchases                $    13,796     $    7,912     $       985
                                                     ============================================
   Deferred gain on sale of property                  $        52     $      590     $        --
                                                     ============================================
   Notes received on sale of property                 $     1,661     $      743     $        --
                                                     ============================================
   Property purchased for note receivable             $     2,061     $       --     $        --
                                                     ============================================
   Property purchased for accounts receivable         $       227     $       --     $        --
                                                     ============================================
   Sale of property on capital lease                  $        23     $       --     $        --
                                                     ============================================
   Sale of  property on direct financing lease        $        --     $      225     $        --
                                                     ============================================

</TABLE>

See Notes to Consolidated Financial Statements.


                                      F-8

<PAGE>


Notes to Consolidated Financial Statements

1. ORGANIZATION

U.S.  Restaurant  Properties,  Inc. (the  "Company")  is a Maryland  corporation
formed  to  continue  the  restaurant  property   management,   acquisition  and
development  operations,  related  business  objectives  and  strategies of U.S.
Restaurant  Properties  Master,  L.P.  (collectively,   with  its  subsidiaries,
"USRP").  The Company became a  self-administered  real estate  investment trust
("REIT") on October 15, 1997 as defined under the Internal Revenue Code of 1986,
as amended.  This  conversion was effected  through the merger (the "Merger") of
USRP Acquisition,  L.P. a partnership  subsidiary of U.S. Restaurant Properties,
Inc., with and into U.S.  Restaurant  Properties  Master L.P. As a result of the
Merger,  all  holders of common  units  (Units) of  beneficial  interest in USRP
became  stockholders  of the Company on a one unit for one share of Common Stock
basis.   Accordingly,   information  contained  in  the  consolidated  financial
statements  relating to the equity ownership of USRP following  October 15, 1997
is presented as ownership of shares of Common Stock of the Company.

The Company is authorized to issue up to 100,000,000 shares of Common Stock, par
value  $.001 per share (the  "Common  Stock"),  50,000,000  shares of  Preferred
Stock, par value $.001 per share (the "Preferred  Stock") and 15,000,000  shares
of Excess Stock, par value $.001 per share (the "Excess Stock"). Pursuant to the
Company's Articles of Incorporation (the "Articles"),  any purported transfer of
shares of Common Stock or Preferred  Stock that would result in a person  owning
shares of Common Stock or Preferred Stock in excess of certain limits set out in
the Articles will result in the shares subject to such purported  transfer being
automatically  exchanged  for an equal  number of shares  of  Excess  Stock.  On
October 30,  1997 the REIT  effected a  three-for-two  stock  split.  All of the
historical  units and per unit  information  has been  restated  to reflect  the
conversion to Common Stock and this stock split.

In connection with the conversion to a REIT, the management contract between QSV
Properties Inc. ("QSV"), the former General Partner of USRP, was terminated. The
contract  termination and QSV's partnership  interests in USRP were converted to
126,582  shares of  Common  Stock of the  Company  and  1,148,418  units of U.S.
Restaurant  Properties  Operating,  L.P. ("OP"). An additional 825,000 shares of
Common Stock of the Company or its  equivalent  in OP units may be issued to QSV
if  certain  earnings  targets  are met by the year 2000  (see  note 11).  QSV's
principal stockholders are Mr. Robert J. Stetson and Mr. Fred H. Margolin.

The business and operations of the Company are conducted  primarily  through the
OP. The  Company  owns 91.71% of and  controls  the OP. Each OP unit can only be
converted  to  one  share  of  Common  Stock  and   participates   in  any  cash
distributions  made by the OP in an amount equivalent to a 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.  The units do not have voting  rights with  respect to the Company and
are not traded on an open market.

The Company has 12,698,113 shares of Common Stock outstanding as of December 31,
1997. USRP had 10,341,004 units outstanding as of December 31, 1996.

                                      F-9

<PAGE>


2. ACCOUNTING POLICIES

CONSOLIDATION

The consolidated  financial statements reflect the accounts of the Company after
elimination of all material  inter-company  transactions and the accounts of the
OP and its 17 wholly-owned subsidiaries.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents  include  short-term,  highly liquid  investments with
maturities at the date of purchase of three months or less.

RENT RECOGNITION

Rent  revenues  and  expenses  under  operating   leases  are  recognized  on  a
straight-line basis.

DEPRECIATION AND AMORTIZATION

Depreciation is computed using the  straight-line  method over estimated  useful
lives of 6 to 20 years for  financial  reporting  purposes.  Deferred  financing
costs and organizational costs are amortized using the straight-line method over
the life of the loans (1 to 6 years) and five years for organizational costs.

USE OF ESTIMATES

The preparation of financial  statements,  in conformity with generally accepted
accounting  principles,  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.

LONG-LIVED ASSETS

Long-lived assets include real estate,  direct financing leases, and intangibles
which are evaluated on an individual  property basis.  The Company's  management
routinely  reviews its investments for impairment  whenever events or changes in
circumstances  indicate  that  the  carrying  amount  of an  asset  may  not  be
recoverable.   Based  on  the  Company's  policy  for  reviewing  impairment  of
long-lived  assets, no valuation  allowance was recorded as of December 31, 1997
and 1996.

An intangible  asset was recorded for the excess of cost over the net investment
in direct  financing leases in 1986. This intangible asset is being amortized on
a straight-line basis over 40 years. The Company's  management routinely reviews
the carrying amount of intangibles  based on projected cash flows.  Based on the
Company's  policy  for  evaluating  impairment  of  intangibles,   no  valuation
allowance was recorded as of December 31, 1997 and 1996.



                                      F-10
<PAGE>


ACCOUNTING POLICIES (CONTINUED)

INCOME TAXES

Prior to October 15, 1997 no federal or, in most cases,  state  income taxes are
reflected  in the  consolidated  financial  statements  because  USRP  was not a
taxable entity.  The partners  reported their allocable shares of taxable income
or loss in their individual income tax returns.  The Company elected to be taxed
as a REIT for Federal income tax purposes effective October 15, 1997 as provided
under the Internal  Revenue Code of 1986, as amended.  As a result,  the Company
generally will not be subject to Federal income  taxation if it distributes  95%
of its REIT taxable  income to its  stockholders  and  satisfies  certain  other
requirements. The Company believes it qualified as a REIT for the taxable period
ended  December  31, 1997 and  anticipates  that its method of  operations  will
enable it to continue to satisfy the requirements for such qualification.

NET INCOME PER SHARE OF COMMON STOCK

At December  31, 1997,  the Company  adopted  Statement of Financial  Accounting
Standards No. 128 that requires the reporting of both basic and diluted earnings
per share. Basic earnings per share is based upon the weighted average number of
common shares outstanding.

Diluted  earnings per share  reflects the dilutive  effect of stock  options and
stock on which the price is guaranteed  ("Guaranteed  Stock") when  appropriate.
Such options and  Guaranteed  Stock did not have a dilutive  effect in 1997 (See
Note 6 and 11). Prior periods have been restated to reflect the new standard.

A reconciliation  of net income (loss) per share and the weighted average shares
outstanding for calculating  basic and diluted net income (loss) per share is as
follows:

<TABLE>

<CAPTION>
                                                                   YEAR ENDED DECEMBER 31,
                                                         ---------------------------------------------
                                                              1997            1996           1995
                                                         ---------------- -------------- -------------

<S>                                                      <C>              <C>            <C>        
Net Income                                                $     (9,393)    $     7,473    $     5,223
Dividends/distributions on preferred
  stock/General partner interest                                  (868)           (148)          (104)
                                                         ---------------- -------------- -------------

Net Income applicable to share/unitholders                $    (10,261)    $     7,325    $     5,119
                                                         ================ ============== =============

Net Income per share/unit - Basic                         $      (0.88)    $      0.82    $      0.74
                                                         ================ ============== =============

Net Income per share/unit - Diluted                       $      (0.88)    $      0.80    $      0.73
                                                         ================ ============== =============

Basic
  Weighted average shares/units outstanding-Basic               11,693           8,984          6,957
                                                         ================ ============== =============
Diluted
      Weighted average shares outstanding - Basic               11,693           8,984          6,957
      Dilutive effect of outstanding options                        --             198             54
      Dilutive effect of Guaranteed Stock                           --               8              4
                                                         ================ ============== =============
 Weighted average shares/units outstanding-Dilutive             11,693           9,190          7,015
                                                         ================ ============== =============

</TABLE>


                                      F-11
<PAGE>


ACCOUNTING POLICIES (CONTINUED)

EQUITY-BASED COMPENSATION

In 1995,  Statement of Financial  Accounting  Standards No. 123, "Accounting for
Stock-Based  Compensation," ("SFAS 123") was issued,  effective for fiscal years
beginning  after December 15, 1995.  This Statement  establishes a new method of
accounting to use recognized option pricing models to estimate the fair value of
equity based  compensation,  including  options.  This Statement also applies to
transactions  in which an entity issues its equity  instruments to acquire goods
or services from  non-employees.  Those transactions must be accounted for based
on the fair value of the consideration  received or the fair value of the equity
instruments issued, whichever is more reliably measurable.

The Company has elected, as provided by SFAS 123, not to recognize  compensation
expense for employee equity based compensation as calculated under SFAS 123, but
will  recognize  any related  expense in accordance  with the  provisions of APB
Opinion No. 25.  Disclosure of amounts required by SFAS 123 are included in Note
6.

MINORITY INTEREST

Minority  interest  is  recorded  for the  1,148,418  OP units  not owned by the
Company issued in conjunction  with the conversion to a REIT and the termination
of the  management  contract  (See Note 1). The units are  recorded at carryover
basis for the 1% General Partner interest of QSV in the OP and the fair value of
the units  ($19.00 based on the market value of a share of Common Stock) for the
additional units issued for the termination of the management contract (See Note
11).

ENVIRONMENTAL REMEDIATION COSTS

The  Company  accrues  for  losses  associated  with  environmental  remediation
obligations when such losses are probable and reasonably estimable. Accruals for
estimated  losses  from  environmental  remediation  obligations  generally  are
recognized no later than completion of the remediation  feasibility  study. Such
accruals are adjusted as further information  develops or circumstances  change.
Recoveries of environmental remediation costs from other parties are recorded as
assets when their receipt is deemed probable. Company management is not aware of
any  environmental  remediation  obligations  which would materially  affect the
operations,  financial  position or cash flows of the Company as of December 31,
1997.

RECLASSIFICATIONS

Certain prior year amounts have been reclassified to conform to the current year
presentation.

NEW ACCOUNTING PRONOUNCEMENTS

In  February,  1998,  Statement  of  Financial  Accounting  Standards  No.  132,
"Employers'  Disclosures  about  Pensions  and Other  Postretirement  Benefits,"
("SFAS 132") was issued, effective for fiscal years beginning after December 15,
1997. This Statement does not apply to the Company as of December 31, 1997 since
the  Company  does not have  either a pension  or other  postretirement  benefit
plans.

                                      F-12

<PAGE>


ACCOUNTING POLICIES (CONTINUED)

In June, 1997, Statement of Financial Accounting Standards No. 131, "Disclosures
about  Segments of an  Enterprise  and Related  Information,"  ("SFAS  131") was
issued,  effective  for fiscal years  beginning  after  December 15, 1997.  This
Statement  requires  that  public  business  enterprises  report  financial  and
descriptive  information about their reportable operating segments.  The Company
will  adopt  the  provisions  of SFAS 131 in 1998 as  required,  but it does not
expect  such  adoption to have a material  impact on its results of  operations,
financial position or cash flows.

In June, 1997,  Statement of Financial  Accounting Standards No. 130, "Reporting
Comprehensive  Income,"  (SFAS  130") was  issued,  effective  for fiscal  years
beginning  after December 15, 1997.  This Statement  would have no effect on the
Company's current consolidated financial statements.

3. FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS

The following  disclosure of estimated  fair value was determined by the Company
using available  market  information and  appropriate  valuation  methodologies.
However, considerable judgment is necessary to interpret market data and develop
the related estimates of fair value. Accordingly, the estimates presented herein
are not  necessarily  indicative  of the  amounts  that could be  realized  upon
disposition  of  the  financial   instruments.   The  use  of  different  market
assumptions  and/or  estimation  methodologies may have a material effect on the
estimated fair value amounts.

Cash and cash equivalents,  receivables (including deferred rent receivable) and
accounts payable  (including  deferred rent payable) are carried at amounts that
approximate  their fair value based on their short term,  highly liquid  nature.
The line of credit is carried at an amount that  approximates fair value because
it represents short term variable rate debt.

The fair value of notes and mortgage loan receivables  totaling  $14,465,000 and
$4,046,000 as of December 31, 1997 and 1996, respectively,  have a fair value of
$12,973,000  and $3,672,000,  respectively,  based upon interest rates for notes
with similar terms and remaining maturities.

The fair value of notes payable  totaling  $40,000,000  as of December 31, 1997,
have a fair  value of  $41,250,000,  based  upon  interest  rates for notes with
similar terms and remaining maturities.

The fair value estimates presented herein are based on information  available to
management as of December 31, 1997 and 1996. Although management is not aware of
any factors that would  significantly  affect the estimated  fair value amounts,
such  amounts  have not been  comprehensively  revalued  for  purposes  of these
financial  statements  since that date, and current  estimates of fair value may
differ significantly from the amounts presented herein.


                                      F-13

<PAGE>


4. OTHER BALANCE SHEET INFORMATION

                                                   DECEMBER 31,
                                        ------------------------------------
                                               1997              1996
                                        ------------------------------------
                                         (IN THOUSANDS)    (IN THOUSANDS)

RENT AND OTHER RECEIVABLES, NET         
Accounts receivable and other           $        2,913    $        2,234        
Deferred rent receivable                         2,048               536
 Less allowance for doubtful accounts             (170)             (117)
                                        ------------------------------------
                                        $        4,791    $        2,653
                                        ====================================

INTANGIBLES AND OTHER ASSETS, NET
 Intangibles                            $       26,630    $       27,003
 Less accumulated amortization                 (15,662)          (14,740)
                                        ====================================
                                        $       10,968    $       12,263
                                        ====================================

Total purchase  deposits of $521,000 and $908,000 at December 31, 1997 and 1996,
respectively,   included  $285,000  and  $167,000  of  non-refundable  deposits,
respectively.

During 1997, the Company acquired a $6,000,000 note receivable  secured by first
mortgages on 14 properties  from a third party.  This  mortgage note  receivable
earns  interest at 11% with  principal  and  interest  payments of $818,000  due
annually through August 26, 2012.

5. PROPERTY

In March, 1995, USRP's  Partnership  agreement was amended to expand the purpose
of USRP and allow for the  diversification of the restaurant  property portfolio
through the  acquisition  of additional  fast-food and casual dining  restaurant
properties.  Since the  amendment in March,  1995,  the Company has acquired 477
restaurant properties.

ACQUISITIONS

During 1997, the Company completed the purchase of 277 restaurant properties for
an  aggregate  purchase  price of  $182,396,000  including  the value of 680,696
shares of Common Stock  ($13,796,000)  issued as part of the aggregate  purchase
price.  Twenty-nine  restaurant  properties were purchased with a combination of
cash and Common Stock and 244  restaurant  properties  were  purchased with only
cash. The 277 restaurant  properties  include 78 Arby's  restaurants,  45 Burger
King restaurants,  18 Kettle  restaurants,  17 Bruegger's Bagel restaurants,  18
Schlotzsky's restaurants, 11 Pizza Hut restaurants,  10 Embers restaurants,  six
Taco  Cabana  restaurants,   5  Wendy's  and  69  national  and  regional  brand
restaurants and other  properties.  The 680,696 shares of Common Stock issued in
two of these transactions have guaranteed values (See Note 6).


                                      F-14

<PAGE>


PROPERTY (CONTINUED)

During 1996, the Company completed the purchase of 184 restaurant properties for
an  aggregate  purchase  price of  $105,336,000  including  the value of 577,254
shares of Common Stock  ($7,912,000)  issued as part of the  aggregate  purchase
price. Three restaurant properties were purchased with only stock; 15 restaurant
properties  were  purchased  with a  combination  of  cash  and  stock;  and 166
restaurant  properties  were  purchased  with  only  cash.  The  184  restaurant
properties include 45 Burger King restaurants,  40 Dairy Queen  restaurants,  30
Grandy's restaurants, 25 Hardee's restaurants, 12 Pizza Hut restaurants, two KFC
restaurants,  six  Schlotzsky's  restaurants,  six  Chili's  restaurants  and 18
regional brand restaurants. The 577,254 shares of Common Stock issued in four of
these transactions have guaranteed values (See Note 6).

DISPOSITIONS

During 1997, the Company sold five restaurant properties for cash of $3,960,000,
net of  closing  costs  resulting  in a gain of  $801,000.  In  addition,  three
restaurant  properties were sold for cash of $147,000,  net of closing costs and
notes  receivable of  $1,661,000.  One note of $972,000  earns interest at 9.25%
with interest only  payments due monthly  through June 1, 2000,  when it matures
and one note of $689,000 earns interest at 9.75% with interest only payments due
monthly  through  September  1,  2001,  when it  matures.  Each note  receivable
requires all unpaid principal balances to be paid on the dates indicated herein.
During 1996, the Company sold one restaurant property for $815,000.  The Company
received cash of $72,000 and a note from the buyer of $743,000.  This note earns
interest at 9.25% with interest only  payments due monthly  through  November 1,
1998 when it matures.  In  accordance  with  Statement of  Financial  Accounting
Standards  No. 66,  "Accounting  for Real Estate  Sales",  the Company  recorded
deferred gains on these sales aggregating  $642,000 and $590,000 at December 31,
1997 and 1996, respectively.

PROPERTY CHARACTERISTICS

On December  31,  1997 the  Company  (i) owned both the land and the  restaurant
building in fee simple on 447 of such  Properties (the "Fee  Properties"),  (ii)
owned the land,  with the tenant owning the restaurant  building,  on 33 of such
Properties  and (iii) leased the land,  the building or both from a  third-party
lessor  on 111 of  such  Properties  (the  "Leasehold  Properties").  Of the 111
Leasehold Properties, 27 are Properties on which the Company leases from a third
party the underlying  land, the restaurant  building and the other  improvements
thereon (the "Primary Leases") and then subleases the property to the restaurant
operator.  Under the terms of the remaining 84 Leasehold Properties (the "Ground
Leases"), the Company leases the underlying land from a third party and owns the
restaurant  building  and  the  other  improvements  constructed  thereon.  Upon
expiration or termination  of a Primary Lease or Ground Lease,  the owner of the
underlying  land  generally  will  become  the  owner  of the  building  and all
improvements  thereon.  The  remaining  terms of the  Primary  Leases and Ground
Leases range from one to 17 years. With renewal options exercised, the remaining
terms of the Primary  Leases and Ground Leases range from one to 30 years,  with
the average remaining term being 21 years.

A total of 100  buildings  are leased  primarily  to  franchisees  under  direct
financing  leases.  The net investment in the direct financing leases represents
the present value of the future minimum lease receipts for these 100 buildings.

On December 31, 1997 and 1996,  there were 587 and 321 Company  restaurant sites
respectively,   in  operation,  and  there  were  four  and  one  closed  sites,
respectively.   The  Company   continues  to  seek  suitable   tenants  for  the
non-operating remaining sites. No write-downs were recorded in 1997 or 1996.

                                      F-15
<PAGE>


PROPERTY (CONTINUED)

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

On December 31, 1997, earnest money purchase deposits amounting to $521,000 were
on deposit for the purchase of 21 El Chico restaurant  properties,  four Wendy's
restaurants, and 11 other properties.

6. STOCK OPTIONS AND GUARANTEED STOCK PRICE

During 1997,  680,696 shares of Common Stock were used to purchase 29 properties
in two separate  transactions.  Of the 680,696  shares of Common  Stock  issued,
177,869  shares of Common Stock are  guaranteed to have a market value of $16.87
on the second  anniversary  date of the closing,  502,827 shares of Common Stock
are  guaranteed  to have a market value of $24.00 two years from the date of the
transaction.  These  properties  were  recorded at the  guaranteed  value of the
Common Stock  discounted  to reflect the present value on the date the shares of
Common Stock were issued.

During 1996,  577,254 shares of Common Stock were used to purchase 18 properties
in four  separate  transactions.  Of the 577,254  shares of Common Stock issued,
486,862  shares of Common Stock are guaranteed to have a market value of $16 per
share two years from the  transaction  date,  42,392  shares of Common Stock are
guaranteed  to have a market  value of $15.33  per share  three  years  from the
transaction  date and 48,000  shares of Common  Stock are  guaranteed  to have a
value of $16.67 per share two years from the  transaction  date.  The accounting
described in the paragraph above was used to record these transactions.

Three  restaurant   properties  were  acquired  on  October  10,  1995,  with  a
combination  of cash and 81,250 shares of Common Stock.  The stock is guaranteed
to have a value of $16 per share  three  years from the  transaction  date.  The
share price on the date issued was $12.25. Any difference between the guaranteed
value and the actual  value of the shares at the end of the three year period is
to be paid in cash.

The Company does not believe that  additional  shares of stock will be issued or
cash paid as a result of the guaranteed stock prices discussed above.

The  Company  has one fixed  stock  option  plan.  Under this plan USRP  limited
partners on March 17, 1995  granted QSV options to acquire up to 600,000  shares
of  Common  Stock  of  the  Company,   subject  to  certain   adjustments  under
anti-dilution  provisions.  The exercise price of each option is $10.33 which is
the average  closing price of the  depository  receipts for the shares of Common
Stock on the New York Stock Exchange for the five trading days immediately after
the date of grant. The options are  non-transferable  except by operation of law
and vest and became exercisable in March 1996. The term of the options expire in
March 2005. As of December 31, 1997, QSV has exercised  190,000 stock options at
the option price of $10.33 for a total purchase price of $1,963,000.

In  accordance  with SFAS 123, the fair value of each option is estimated on the
date of the grant using the  binomial  option-pricing  model with the  following
weighted-average  assumptions:  dividend  yield of 7.3  percent  for all  years;
expected volatility of 17.8 percent,  risk free interest rate of 5.7 percent for
the options; and expected lives of 4 years for the plan options.

                                      F-16

<PAGE>


STOCK OPTIONS AND GUARANTEED STOCK PRICE (CONTINUED)

As of March 17, 1995, the 600,000  options which are described  above had a fair
value as of the grant date of $724,000 representing a value per option of $1.21.

Under the fixed option plan, if these options were  considered as  compensation,
net income would have been $7,292,000 and $4,680,000 as of December 31, 1996 and
1995,  respectively.  No compensation  would have been recognized in 1997. Basic
net income per share  would  have been  $0.81 and $0.67 and  diluted  income per
share  would  have  been  $0.80  and  $0.66 as of  December  31,  1996 and 1995,
respectively.

7. LINES OF CREDIT AND NOTES PAYABLE

LINES OF CREDIT

On December 31, 1997 and 1996,  $62,996,000 and $65,396,000,  respectively,  had
been drawn on the Company's primary line of credit. The Company's line of credit
was  increased  to $110  million in June 1997 and matures on June 27,  1999.  At
December 31, 1997  substantially  all properties  were included as collateral on
this line of credit.  The interest  rate on this debt floats at 180 basis points
above LIBOR.  The  effective  interest  rate at December 31, 1997,  was 7.6125%.
There was an unused  line of credit fee of .25% per annum on the  average  daily
excess  of the  commitment  amount  over the  aggregate  unpaid  balance  of the
revolving loan which was charged and was payable on a quarterly basis. This line
of credit was refinanced in January 1998. The Company's  management  believes it
is in compliance  with all loan provision  requirements as of December 31, 1997.
On December  31,  1997,  the  balance  available  on the line of credit  equaled
$47,003,000 (considers $1.4 million subject to outstanding letter of credit).

On August 15,  1997, a  wholly-owned  subsidiary  of the Company  entered into a
short term  borrowing  facility (the "Pacific  Mutual  Facility") of $30 million
which  matures on May 20, 1998 and  provides  that  borrowings  thereunder  bear
interest at LIBOR plus 2.30% per annum. There is an unused fee of 1.0% per annum
on the unused  commitment.  The Pacific Mutual Facility is secured by the pledge
of 1,351,618  shares of unissued  Common  Stock of the Company.  On December 31,
1997,  the  outstanding  balance was  $26,200,000  and the  available  borrowing
balance was $3,800,000.  The collateral is pari passu with the revolving  credit
facility.

A revolving  credit  facility of  $20,000,000  was  established  with a national
mortgage  company on April 29, 1996.  The interest rate on this credit  facility
was LIBOR plus 300 basis points which resulted in an interest rate of 8.5625% at
December 31, 1996. This revolving  credit facility was secured by  approximately
63 properties.  On December 31, 1996,  the total amount due equaled  $4,090,000.
This  revolving  credit  facility  was  paid  in  full in  January  1997  and no
additional draws are available.

On January 17, 1998 the Company entered into a credit  agreement with Union Bank
of  Switzerland  for an  unsecured  revolving  credit line of $175  million.  At
February 28, 1997,  approximately $56 million remained  available for borrowings
under the UBS credit agreement.

NOTES PAYABLE

On February 26, 1997,  the Company issued  $40,000,000 in privately  placed debt
which consists of $12,500,000  Series A Senior Secured  Guaranteed  Notes with a
8.06%  interest  rate,  due January 31,

                                      F-17
<PAGE>


2000;  and  $27,500,000  Series B Senior Secured  Guaranteed  Notes with a 8.30%
interest rate,  due January 31, 2002. At December 31, 1997,  these notes and the
revolving credit facility were collateralized by substantially all the assets of
the Company. In January, 1998, the note holders agreed to release the collateral
for these notes.

PRINCIPAL DEBT MATURITIES

Lines of credit and notes payable  principal  debt  maturities for the next five
years at December 31, 1997 are as follows (in thousands):

                 1998..............................  $       26,200
                 1999..............................          62,996
                 2000..............................          12,500
                 2001..............................              --
                 2002..............................          27,500
                                                     ---------------
                                                     $      129,196
                                                     ===============


8. INVESTMENTS AND COMMITMENTS AS LESSOR

The Company leases land and buildings to a variety of national and regional fast
food chain and casual dining restaurants.  The building portions on 100 of these
properties,  which are leased by BKC  franchisees,  are  accounted for as direct
financing  leases while the land  portions are  operating  leases.  These leases
generally  provide  for a term of 20  years  from  the  opening  of the  related
restaurant, and do not contain renewal options. The Company, however, has agreed
to renew a franchise lease if BKC or any of the other franchise chains renews or
extends the lessee's franchise agreement.

As of December 31, 1997,  the remaining  lease terms of all leases  described in
the above  paragraph  and Note 5 ranged from 1 to 27 years and  include  various
renewal options. The leases provide for minimum rents and contingent rents based
on a percentage of each  restaurant's  sales,  and require the franchisee to pay
executory costs.


                                      F-18

<PAGE>


INVESTMENTS AND COMMITMENTS AS LESSOR (CONTINUED)

<TABLE>

<CAPTION>
                                                                             DIRECT            OPERATING
                                                                        FINANCING LEASES        LEASES
                                                                       ---------------------------------------
                                                                         (IN THOUSANDS)      (IN THOUSANDS)
<S>                                                                    <C>                  <C>
MINIMUM FUTURE LEASE RECEIPTS FOR YEARS ENDING DECEMBER 31:
 1998                                                                   $        3,516       $       37,521
 1999                                                                            2,834               37,279
 2000                                                                            1,955               36,691
 2001                                                                            1,267               35,633
 2002                                                                              760               34,695
 Later                                                                             478              361,839
                                                                       ---------------------------------------
                                                                        $       10,810       $      543,658
                                                                       =======================================
</TABLE>


<TABLE>

<CAPTION>
                                                                              1997               1996
                                                                       ---------------------------------------
                                                                         (IN THOUSANDS)      (IN THOUSANDS)
<S>                                                                    <C>                  <C>
NET INVESTMENT IN DIRECT FINANCING LEASES AT DECEMBER 31:
 Minimum future lease receipts                                          $       10,810       $       15,449
 Estimated unguaranteed residual values                                          6,920                7,437
 Unearned amount representing interest                                          (3,966)              (5,781)
                                                                       =======================================
                                                                        $       13,764       $       17,105
                                                                       =======================================
</TABLE>


                                            Year ended December 31,
                               ------------------------------------------------
                                   1997             1996              1995
                               ------------------------------------------------
                               (IN THOUSANDS)   (IN THOUSANDS)   (IN THOUSANDS)
RENTAL INCOME:
  Minimum rental income        $      27,570    $      11,022    $       3,584
  Contingent rental income             5,355            5,324            3,956
                               ================================================
                               $      32,925    $      16,346    $       7,540
                               ================================================

If Burger King properties are not adequately  maintained  during the term of the
tenant  leases of which there are 209,  such  properties  may have to be rebuilt
before  the  leases  can be  renewed,  either  by the  Company  as it  considers
necessary or pursuant to Burger King's successor  policy.  The successor policy,
which is subject to change  from time to time in Burger  King's  discretion,  is
intended to encourage the  reconstruction,  expansion,  or other  improvement of
older Burger King  restaurants  and generally  affects  properties that are more
than ten years old or are the subject of a franchise  agreement that will expire
within five years.

Under the  current OP  agreement,  Burger  King can  require  that a  restaurant
property be rebuilt.  If the tenant does not elect to undertake the  rebuilding,
the Company would be required to make the required improvement itself.  However,
as a  condition  to  requiring  the  Company to  rebuild,  Burger  King would be
required to pay the Company its  percentage  share  ("Burger  King's  Percentage
Share") of the rebuilding costs. Such percentage share would be equal to (i) the
average  franchise  royalty  fee  percentage  rate  payable to Burger  King with
respect  to such  restaurant,  divided  by (ii) the  aggregate  of such  average
franchise royalty fee percentage rate and the average percentage rate payable to
the Partnership with respect

                                      F-19

<PAGE>


8. INVESTMENTS AND COMMITMENTS AS LESSOR (CONTINUED)

to such restaurant property.  The Company believes that Burger King's Percentage
Share would typically be 29% for a restaurant property.

Management  believes it is unlikely  that any material  amount of  rebuilding of
Burger King restaurant properties will be required in the next several years, if
ever.

The Company  believes  that  improving,  expanding,  rebuilding or replacing its
restaurant  properties  from time to time is  important.  In  addition to normal
maintenance  and repair  requirements,  each  franchisee is required under BKC's
franchise  agreement and  lease/sublease,  at its own cost and expense,  to make
such  alterations to a Burger King  restaurant as may be reasonably  required by
BKC from time to time to modify the  appearance of the restaurant to reflect the
then  current  image  requirements  for  Burger  King  restaurants.  Most of the
properties that are operating as Burger King restaurants are 15 to 20 years old.
The  Company  believes  that  many  of  these  properties  require   substantial
improvements  to maximize sales and that their  condition is below BKC's current
image requirements.

To  encourage  the early  renewal  of  existing  leases/subleases,  the  Company
recently  established an "early renewal program" whereby the Company has offered
to certain  tenants the right to renew  existing  leases/subleases  for up to an
additional 20 years in consideration  for remodeling  financing.  The purpose of
this program is to extend the term of existing leases/subleases prior to the end
of the lease  term and  enhance  the  value of the  underlying  property  to the
Company. As a result of this program, the Company has extended the lease term on
51 leases/subleases as a result of remodel grants and lease riders. One lease in
1997 and two leases in 1996,  respectively were renewed with loans.  During 1997
and  1996,  the  Company  paid  remodeling  costs of  $888,000  and  $1,118,000,
respectively in conjunction with this Program.

9. COMMITMENTS

The  land  at 111  restaurant  properties  and  the  land  and  buildings  at 13
restaurant  properties are leased by the Company from third party  lessors.  The
building  portions of the leases are  generally  capital  leases  while the land
portions are operating  leases.  These leases provide for an original term of 20
years and most are renewable at the Company's  option.  As of December 31, 1997,
the remaining lease terms  (excluding  renewal option terms) ranged from 1 to 14
years. If all renewal options are taken into account, the terms ranged from 5 to
35 years.  Rents  payable may  escalate  during the  original  lease and renewal
terms.  For eight  properties,  the leases provide for contingent  rent based on
each restaurant's sales.


                                      F-20


<PAGE>


COMMITMENTS (CONTINUED)

                                                 CAPITAL          OPERATING
                                                  LEASES            LEASES
                                              ---------------------------------
                                               (IN THOUSANDS)    (IN THOUSANDS)
MINIMUM FUTURE LEASE OBLIGATIONS FOR YEARS
 ENDING DECEMBER 31:

 1998                                             $     119       $      2,745
 1999                                                    60              2,579
 2000                                                     4              2,351
 2001                                                     1              1,939
 2002                                                    --              1,628
 Later                                                   --              4,114

                                              ---------------------------------
Total minimum obligations (a)                          184        $     15,356
                                                                 ==============
Amount representing interest                           (14)
                                              -----------------
Present value of minimum obligations              $    170
                                              =================

(a) MINIMUM LEASE OBLIGATIONS HAVE NOT
    BEEN REDUCED BY MINIMUM SUBLEASE RENTALS.


                                           YEARS ENDED DECEMBER 31,
                              -------------------------------------------------
                                  1997             1996              1995
                              -------------------------------------------------
                              (IN THOUSANDS)   (IN THOUSANDS)    (IN THOUSANDS)
RENTAL EXPENSE
 Minimum rental expense       $       2,434    $       1,992     $       1,304
 Contingent rental expense               54               88               101
                              ------------------------------------------------
                              $       2,488    $       2,080     $       1,405
                              ================================================

On October 15, 1997, the Company  entered into four-year  employment  agreements
with its two executive officers for which the aggregate  compensation of the two
executive officers is $500,000. Under such agreements, the Company is liable for
the  compensation  benefits  for three years of the  agreements  if an executive
officer were to be terminated without cause, as defined.

10. RELATED PARTY TRANSACTIONS

Prior to October 15, 1997, the Managing  General Partner of USRP was responsible
for managing the  business and affairs of USRP.  USRP paid the Managing  General
Partner  a  non-accountable  annual  allowance  (adjusted  annually  to  reflect
increases in the Consumer Price Index and additions to the property  portfolio),
plus reimbursement of out-of-pocket costs incurred to other parties for services
rendered to USRP.  The  allowance  for the period ended October 15, 1997 and the
years ended  December  31,  1996,  and 1995,  was  $1,826,000,  $1,175,000,  and
$585,000, respectively. The Company's accounts payable balance includes $121,000
and $416,000 for this allowance as of December 31, 1997 and 1996,  respectively.
The Managing  General  Partner paid no  out-of-pocket  costs to other parties on
behalf of USRP during 1997, 1996, and 1995.

                                      F-21

<PAGE>


RELATED PARTY TRANSACTIONS (CONTINUED)

USRP  compensated  the Managing  General  Partner for its efforts and  increased
internal expenses with respect to additional properties.  USRP paid the Managing
General  Partner,  with respect to each  additional  property  purchased:  (i) a
one-time  acquisition  fee equal to one percent of the  purchase  price for such
property and (ii) an annual fee equal to one percent of the  purchase  price for
such  property,  adjusted for increases in the Consumer  Price Index.  For 1997,
1996 and 1995, the one-time  acquisition fee equaled $1,401,000,  $1,043,000 and
$109,000,   respectively,  which  was  capitalized,  and  the  increase  in  the
non-accountable annual fee equaled $498,000,  $495,000 and $29,000 respectively.
In addition,  if the Rate of Return (as defined) on the Partnership's  equity on
all additional properties exceeded 12 percent per annum for any fiscal year, the
Managing  General  Partner was paid an additional fee equal to 25 percent of the
cash flow received with respect to such  additional  properties in excess of the
cash flow  representing  a 12 percent  Rate of Return  thereon.  For 1996,  this
additional  fee  equaled  $93,000  and there was no fee paid in 1997 or in 1995.
These fees were  discontinued  with the  termination of the management  contract
between QSV and USRP on October 15, 1997.

A note receivable of $261,000 and $267,000 is due from Arkansas  Restaurants #10
L.P. (Arkansas) at December 31, 1997 and 1996, respectively. The note receivable
is due on  September  1, 1998,  and has an interest  rate of 9.0% per annum.  At
December 31, 1997 and 1996,  tenant and other  receivables  from  Arkansas  were
$158,000  and  $63,000,  respectively.  In  addition,  during  1997 and 1996 the
Company paid remodel  costs of $53,000 and $443,000,  respectively  on behalf of
Arkansas  for  three  restaurants  operated  by  Arkansas  under  the  Company's
early-renewal  program  (See Note 8). The Managing  General  Partner of Arkansas
Restaurants  #10 L.P.  is owned by an officer of the  Company,  but  receives no
compensation for this role.

During 1996, the Company agreed to make available to USRP Development  Company a
revolving  line of credit in the  principal  amount  of  $5,000,000,  to be used
solely for paying for the acquisition  and development of restaurant  properties
which will be purchased by the Company upon completion of the  development.  The
line of credit is secured by certain  development  properties and bears interest
at an annual  rate of 9%. The line of credit is payable in monthly  installments
beginning  July 1997 and matures in October  2001.  At December  31,  1997,  the
outstanding  balance was  $3,920,000  and is included  in Notes  Receivable.  In
March, 1998, the Company assumed the operations of USRP Development Company.

As of December 31, 1997 and 1996,  notes  receivable of $1,070,000  and $920,000
were due from Southeast Fast Food Partners, L.P. (SFF), respectively.  The notes
receivable are due on July 1, 1998  ($207,000)  and July 1, 1999  ($863,000) and
have an interest  rate of 9.0% per annum.  As of December  31, 1997 and 1996,  a
note  receivable of $136,000 is due from the owners of SFF. This note receivable
is due on July 1, 1999 and has an interest  rate of 9.0% per annum.  At December
31,  1997 and 1996,  tenant and other  receivables  from SFF were  $362,000  and
$125,000,   respectively.   In  addition,  during  1996,  the  Company  incurred
remodeling  costs of $180,000 on behalf of SFF for  restaurants  operated by SFF
under the Company's early - renewal  program (See Note 8). The Managing  General
Partner of  Southeast  Fast Food  Partners,  L.P.  is owned by an officer of the
Company.

In 1997  and  1996,  two  sale/leaseback  transactions  and  one  sale/leaseback
transaction,  respectively  were completed by the Company with Carlos O'Kelly's,
Inc. Carlos O'Kelly's, Inc. is owned by a director of the Company.

                                      F-22

<PAGE>


11. STOCKHOLDERS' EQUITY, MINORITY INTEREST AND PARTNERS' CAPITAL

COMMON STOCK

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


MINORITY INTEREST

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

Minority  interest in the OP consists of the  following at December 31, 1997 (in
thousands):


           Termination of management
             contract and issuance of OP units    $    19,749
           Distributions                                 (415)
           Income allocated to minority interest          202
                                                  ------------
           Balance at December 31, 1997           $    19,536
                                                  ============


SHELF REGISTRATION

On August  22,  1997,  the  Company  filed a shelf  registration  statement  for
$150,000,000  in shares of Common or Preferred  Stock.  The amount of securities
available for issuance under this shelf  registration  statement at December 31,
1997 is $58,000,000.

                                      F-23

<PAGE>


STOCKHOLDERS' EQUITY, MINORITY INTEREST AND PARTNERS' CAPITAL (CONTINUED)

PREFERRED STOCK

On November 12, 1997, the Company sold  3,680,000  shares of Series A Cumulative
Convertible Preferred Stock ("Series A") with a liquidation preference of $25.00
per share  under the August 22,  1997 shelf  registration  statement.  Shares of
Series A are  convertible,  in whole or in part,  at the option of the holder at
any  time,  unless  previously  redeemed,  into  shares  of  Common  Stock  at a
conversion price of $26.64 per share of Common Stock (equivalent to a conversion
rate of .9384 shares of Common Stock).  Distributions on Series A are cumulative
and  are  equal  to the  greater  of (i)  $1.93  per  annum  or  (ii)  the  cash
distribution  paid or payable on the number of shares of Common Stock into which
a share of Series A is  convertible.  As of December 31, 1997 no Series A shares
have been converted into Common Stock.  Holders of Preferred  Stock are entitled
to receive dividends in preference to any dividends to Common Stockholders or OP
unit holders.

DISTRIBUTIONS TO COMMON AND PREFERRED STOCKHOLDERS

For  the  period  October  15  through  December  31,  1997,  the  Company  paid
distributions of $4,954,000 to its Common  Stockholders  and minority  interests
(or $0.3575 per share of Common Stock),  of which 6.07%  represented a return of
capital,  16.43%  represented  a long-term  capital gain and 77.50%  represented
ordinary  taxable  dividend  income.  As of December 31, 1997, no dividends have
been declared to Preferred Stockholders.

DISTRIBUTIONS AND ALLOCATIONS AS UNITHOLDERS

Under the amended USRP partnership agreement,  cash flow from operations and net
proceeds from capital  transactions of USRP each year were distributed 98.02% to
the unitholders and 1.98% to the general partners until the unitholders received
a 12% simple  (noncumulative)  annual  return  for such year on the  unrecovered
capital per unit ($20.00,  reduced by any prior distributions of net proceeds of
capital  transactions);  then any cash flow for such year was distributed 75.25%
to the unitholders and 24.75% to the general partners until the unitholders have
received a total simple  (noncumulative) annual return for such year of 17.5% on
the  unrecovered  capital per unit;  and then any excess cash flow for such year
was distributed  60.40% to the  unitholders and 39.60% to the general  partners.
The unitholders  received 98.02% of all cash flow  distributions  for the period
January 1 through October 15, 1997 (date of REIT conversion), 1996 and 1995.

There were no capital  transactions  in the period January 1 through October 15,
1997 (date of REIT conversion) and 1996 or 1995.

All  operating  income and loss of USRP for each year  generally  was  allocated
among the partners in the same aggregate  ratio as cash flow was distributed for
that year.  Gain and loss from a capital  transaction  was  generally  allocated
among the  partners  in the same  aggregate  ratio as  proceeds  of the  capital
transactions were distributed  except to the extent necessary to reflect capital
account  adjustments.  For the period  ended  October 15, 1997 and for the years
ended December 31, 1996 and 1995,  distributions to USRP unitholders amounted to
$12,016,000, $11,392,000 and $8,002,000, respectively.

                                      F-24


<PAGE>


12. EMPLOYEE BENEFIT PLAN

Effective  October 15, 1997, the U.S.  Restaurant  Properties,  Inc. 401(k) plan
(the "Plan") was established as a savings plan for the Company's employees.  The
Plan is a  voluntary  defined  contribution  plan.  Employees  are  eligible  to
participate in the Plan on the earlier of January 1, April 1, July 1 and October
1 immediately following the later of the (i) six months after their first day of
employment with the Company or (ii) the date an employee  attains the age of 21,
as defined.  Each  participant may make  contributions to the Plan by means of a
pre-tax  salary  deferral  in an  amount up to 15% of the  participant's  annual
compensation  (not to exceed $9,500 per annum for 1997).  The Company will match
up to 25% of participating annual employee contributions. The Company's matching
contributions  are made in Company stock,  which is purchased by the Plan on the
open market,  and are subject to specified  years-of-service  for vesting of the
Company's  portion  of  contributions  to the Plan.  Employer  contributions  of
approximately $7,000 have been accrued as of December 31, 1997.

13. PRO FORMA (UNAUDITED)

The  following  pro forma  information  was  prepared  by  adjusting  the actual
consolidated  results of the Company for the years ended  December  31, 1997 and
1996 for the effects of:


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


b.   the purchase of 184  restaurant  properties on various dates during 1996
     for an aggregate  purchase  price of  $105,336,000  including  the value of
     577,254  USRP  Units  issued  to  sellers  and  other   related   financing
     transactions including the sale of 2,700,000 USRP Units in June 1996.


These  pro forma  results  are not  necessarily  indicative  of what the  actual
results  of  operations  of the  Company  would  have been  assuming  all of the
restaurant  properties  were  acquired  as of  January  1,  1996 and they do not
include gains on property  dispositions and they do not purport to represent the
results of operations for future periods.

                                      F-25

<PAGE>


14. PRO FORMA (UNAUDITED) (CONTINUED)

                                               YEAR ENDED DECEMBER 31,
                                        --------------------------------------
                                               1997               1996
                                        --------------------------------------
                                           (IN THOUSANDS)     (IN THOUSANDS)
TOTAL REVENUES                            $      48,198      $      48,436
                                        ======================================
NET INCOME (LOSS)                         $      (1,896)     $      18,822

Dividends on Preferred
  Stock/General Partner interest                 (7,102)            (7,102)
                                        --------------------------------------

Net income (loss) allocable to
  Common shareholders/unit holders        $      (8,998)     $      11,720
                                        ======================================

Weighted average shares/units
  outstanding
       Basic                                     12,631             12,514
       Diluted                                   12,631             12,789
Net income (loss) per share/unit
       Basic                                     $(0.71)             $0.94
       Diluted                                   $(0.71)             $0.92



15. SUMMARY BY QUARTER (UNAUDITED)

<TABLE>
   
<CAPTION>
                                                                  QUARTER                                
                                       ---------------------------------------------------------------    TOTAL
                                            FIRST         SECOND           THIRD          FOURTH           YEAR
                                       -----------------------------------------------------------------------------
<S>                                    <C>             <C>             <C>             <C>               <C> 
1997
Revenues                                $     6,265     $    8,556      $     9,775     $   10,988        $  35,584

Net income                                    1,952          2,147            2,532        (16,024)          (9,393)

Allocable net income                          1,913          2,105            2,482        (16,761)         (10,261)

Earnings per common share

Basic Net income (loss) per share       $      0.18     $     0.18      $      0.20     $    (1.30)       $   (0.88)
Diluted Net income (loss) per share     $      0.18     $     0.18      $      0.20     $    (1.30)       $   (0.88)

1996
Revenues                                $     2,971     $    4,348      $     5,821     $    5,378        $  18,518

Net income                                    1,323          1,862            2,590          1,698            7,473

Allocable net income                          1,296          1,825            2,539          1,665            7,325

Earnings per common share

Basic Net income (loss) per share       $      0.18     $     0.23      $      0.25     $     0.16        $    0.82
Diluted Net income (loss) per share     $      0.17     $     0.22      $      0.24     $     0.16        $    0.80

</TABLE>


                                      F-26



<PAGE>


<TABLE>

                                                                              
<CAPTION>
                                                                 U.S. RESTAURANT PROPERTIES, INC.
                                                       SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION
                                                                      AS OF DECEMBER 31, 1997
                                                                          (IN THOUSANDS)


                                          INITIAL COST TO COMPANY AND                   ACCUMULATED DEPRECIATION
                                       GROSS AMOUNT AT DECEMBER 31, 1997                   AT DECEMBER 31, 1997
                                 ------------------------------------------------   -----------------------------------
                      NO. OF
   STORE TYPE       PROPERTIES      LAND      BUILDINGS   EQUIPMENT       TOTAL     BUILDINGS   EQUIPMENT      TOTAL
-----------------   -----------  ----------  -----------  ----------  ------------  ----------  ----------  -----------

<S>                 <C>          <C>          <C>          <C>         <C>           <C>         <C>         <C>              
ARBY'S                    78      $  9,762     $ 37,370     $    --     $  47,132     $ 1,256    $     --     $  1,256
BRUEGGER'S BAGEL          17         2,422        9,478          --        11,900         364          --          364
BURGER KING              209        35,742       58,797         242        94,781       4,966          56        5,022
CHILI'S                    8         4,204        7,983          --        12,187         567          --          567
DAIRY QUEEN               41         2,908        8,628         875        12,411         499         209          708
EMBERS                    10         1,029        2,485         598         4,112          43          30           73
GRANDY'S                  30        12,758           --          --        12,758          --          --           --
HARDEE'S                  29         3,105       18,238       2,069        23,412       1,579         418        1,997
KETTLE                    18         1,860        4,299          --         6,159          22          --           22
KFC                        3           350          871          --         1,221          62          --           62
PIZZA HUT                 22         2,638        6,765          --         9,403         339          --          339
SCHLOTZSKY'S              24         6,354       11,864          --        18,218         395          --          395
TACO BELL                  5           560        1,034          --         1,594          21          --           21
WENDY'S                    5           728        2,280          --         3,008          54          --           54
OTHER REGIONAL
  BRANDS                  92        25,095       41,108         696        66,899       2,443          51        2,494
OTHER ASSETS              --            --           --         333           333          --          64           64
                    -----------  ----------  -----------  ----------  ------------  ----------  ----------  -----------
                         591      $109,515     $211,200     $ 4,813     $ 325,528     $12,610    $    828     $ 13,438
                    ===========  ==========  ===========  ==========  ============  ==========  ==========  ===========


</TABLE>


                                      S-1


<PAGE>


                                                                                

    (1) Substantially all property is restaurant property.
    (2) Substantially all property is collateral for the line
        of credit and notes payable. 
    (3) Depreciation is computed over the estimated useful
        life of 15 to 20 years for the restaurant buildings
        and improvements and 10 years for the restaurant
        equipment.
    (4) Burger King restaurant  properties  include the land
        values of 100 restaurant  properties in which the 
        building and  improvements are accounted for as direct
        financing leases.
    (5) Transactions   in  real  estate  and  equipment  and 
        accumulated depreciation during 1997 and 1996 are
        summarized below.



                                                   Cost       Depreciation
                                               ------------ ----------------
Balance, December 31, 1995                      $  38,270    $     2,653

                     Acquisitions                 106,862
                     Cost of real estate sold         (20)
                     Depreciation expense              --          2,800
                                               ------------ ----------------

Balance, December 31, 1996                        145,112          5,453

                     Acquisitions                 183,686             --
                     Cost of real estate sold      (3,270)          (245)
                     Depreciation expense              --          8,230
                                               ------------ ----------------

Balance, December 31, 1997                      $ 325,528    $    13,438
                                               ============ ================



                                      S-2
<PAGE>


                                                                            
                                INDEX TO EXHIBITS

Exhibit
Number
-------

2.1  First  Amendment   dated  April  18,  1997  to  Asset  Purchase   Agreement
     (originally dated December 23, 1996) between Sybra, Inc., Valcor,  Inc. and
     U.S. Restaurant Properties Master L.P.

2.2  Agreement of Purchase and Sale dated  December 4, 1997 between  Burger King
     Limited Partnership I and U.S. Restaurant Properties Operating L.P.

2.3  Agreement of Purchase and Sale dated  December 4, 1997 between  Burger King
     Limited Partnership III and U.S. Restaurant Properties Operating L.P.

2.4  Purchase and Sale Agreement dated July 31, 1997, among Home Run Associates,
     Saratoga Associates,  Lathpar Corporation,  Delpar Corporation,  Schenecpar
     Corporation,  M  &  D  Development,   Westmere  Associates  and  Wolf  Road
     Enterprises,  (known  collectively  as  the  "Midon  Companies")  and  U.S.
     Restaurant Properties Master L.P.

2.5  Agreement  and Plan of Merger  dated  October  14,  1997 by and among  U.S.
     Restaurant Properties Master L.P., U.S. Restaurant  Properties,  Inc., USRP
     Acquisition, L.P., USRP Managing, Inc., and QSV Properties, Inc.

10.1 Withdrawal  Agreement  dated October 15, 1997 by and among U.S.  Restaurant
     Properties,  Inc., U.S. Restaurant  Properties Master L.P., U.S. Restaurant
     Properties Operating L.P. and QSV Properties, Inc.

10.2 Fourth  Amended  and  Restated  Agreement  of Limited  Partnership  of U.S.
     Restaurant Properties Operating L.P.

10.3 Revolving  Credit  Agreement  dated  January 9, 1998 among U.S.  Restaurant
     Properties Operating L.P., the institutions from time to time party thereto
     as Lenders and as Co-agents and Union Bank of Switzerland

10.4 Employment  Agreement dated October 15, 1997 by and between U.S. Restaurant
     Properties, Inc. and Robert J. Stetson

10.5 Employment  Agreement dated October 15, 1997 by and between U.S. Restaurant
     Properties, Inc. and Fred H. Margolin

12.1 Ratios of Earnings to Combined Fixed Charges and Preferred Stock Dividends

21.1 U.S.  Restaurant  Properties,  Inc. List of Subsidiaries as of December 31,
     1997

23.1 Independent  Auditors'  Consent letter dated March 12, 1998 from Deloitte &
     Touche LLP

27.1 Financial Data Schedule


                                      E-1