<PAGE>   1

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-K/A

            [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:

<TABLE>
<CAPTION>

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


         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.

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


<PAGE>   2




                        U.S. RESTAURANT PROPERTIES, INC.

EXPLANATORY NOTE

U.S. Restaurant Properties, Inc., a Maryland corporation, hereby amends its
Annual Report on Form 10-K for the fiscal year ended December 31, 1997 as filed
in response to a revision request received from the Securities and Exchange
Commission on November 30, 1998.


                                TABLE OF CONTENTS

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<CAPTION>


                                                                                             Page
                                                                                             ----
<S>               <C>                                  <C>                                   <C>
                                                       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
</TABLE>



                                       2

<PAGE>   3



                                     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. and U.S. Restaurant Properties
Operating L.P., formerly Burger King Operating L.P., were 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 and U.S. Restaurant Properties Operating L.P. 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 


                                       3

<PAGE>   4


the Conversion, QSV withdrew as general partner of each of USRP and U.S.
Restaurant Properties 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:

         o        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 





                                       4
<PAGE>   5


                  Grandy's(R) and Taco Cabana(R). 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 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.

         o        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.

         o        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.

         o        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.

         o        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 



                                       5
<PAGE>   6


                  standards in acquiring filling stations as those employed for
                  chain restaurants. 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:

         o        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.

         o        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.

         o        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



                                       6
<PAGE>   7

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

         o        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.



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<PAGE>   9


         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.

<TABLE>
<CAPTION>
                              LEASE EXPIRATION SCHEDULE (1)
                              -----------------------------

                                                             NUMBER            PERCENT
                                                            OF LEASES            OF
                   YEAR                                     EXPIRING            TOTAL
                   ----                                   --------------     ------------
                   <S>                                    <C>                <C>  

                   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%
                                                              ====             =====
</TABLE>


(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>   10



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>   11


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>   12

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>   13

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>   14



         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>   15


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>   16

                                     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 3, 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>


As of February 28, 1998, the Common Stock was held by 1,817 stockholders of
record.

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 98.2 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 prior distributions of net proceeds of capital
transactions); then any distributed cash flow for such year was 



                                       16
<PAGE>   17


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 98.2 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>   18



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:
Revenues
     Rental income                                   $    5,666    $    6,340    $    7,540    $   16,346    $   32,925
     Interest Income                                         65            94            70           194         1,091
     Amortization  of unearned income on                  2,666         2,453         2,240         1,978         1,568
           direct financing leases
                                                     ----------    ----------    ----------    ----------    ----------
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            --            --            --
     REIT Conversion Costs .......................           --            --            --            --           920
     Termination of management contracts .........           --            --            --            --        19,220
                                                     ----------    ----------    ----------    ----------    ----------
Total expenses ...................................   $    3,869    $    3,954    $    4,627    $   11,077    $   45,644

Income (loss) before gain on sale of property and
  minority interest in operating partnership......           --            --         5,223         7,441       (10,060)
Gain on sale of property..........................           --            --            --            32           869
                                                     ----------    ----------    ----------    ----------    ----------
Income (loss) before minority interest in
  operating partnership...........................           --            --         5,223         7,473        (9,191)
Minority interest in operating partnership .......           --            --            --            --          (202)
                                                     ==========    ==========    ==========    ==========    ==========
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 (4) ........................   $    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.

(4)  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



                                       18
<PAGE>   19

     REITs, and, accordingly, may not be comparable to such other REITs. The
     Company's FFO is computed as net income (loss) available to common
     stockholders (computed in accordance with GAAP), 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 enhances
     and is helpful to investors as a measure of the performance of an equity
     REIT because, along with the Company's financial condition, results of
     operations and cash flows, it provides investors with an understanding of
     the ability of the Company to incur and service debt and make capital
     expenditures. In evaluating FFO and the trends it depicts, investors should
     consider the major factors affecting FFO. Growth in FFO will result from
     increases in revenue or decreases in related operating expenses.
     Conversely, FFO will decline if revenues decline or related operating
     expenses increase. FFO does not represent amounts available for
     management's discretionary use because of needed capital replacement or
     expansion, debt service obligations, or other commitments and
     uncertainties. FFO should not be considered as an alternative to net income
     (determined in accordance with GAAP) as an indication of the Company's
     financial performance or to cash flows from operating activities
     (determined in accordance with GAAP) as a measure of the Company's
     liquidity, nor is it indicative of funds available to fund the Company's
     cash needs, including its ability to make distributions.


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.



                                       19
<PAGE>   20

         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.

         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.

         A non-cash accounting charge relating to the termination of the
management contract was recorded on October 15, 1997. The management contract
termination cost was computed as the fair market value of the OP units issued
upon conversion from a Master Limited Partnership to a REIT less QSV's existing
investment basis in USRP. The fair market value of the OP units ($19.00 based on
the market value of a share of Common Stock at that time) was determined by the
average unit price for the five trading days before and after the announcement
of the conversion. This accounting charge increased expenses by $19,220,000 and
was the direct cause of the net loss incurred by the Company for the twelve
months ended December 31, 1997.

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 



                                       20
<PAGE>   21

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. The Company plans to
acquire approximately $200 million in new property acquisitions a year with
approximately $20 million representing development properties. As of December
31, 1997, the Company has non-binding contracts for acquisitions of
approximately $41 million. In addition, the Company expects to spend
approximately $1 million a year to renovate and remodel currently owned
properties. The Company anticipates meeting its future long-term capital needs
through the use of its existing revolving line of credit and 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 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)

         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 



                                       21
<PAGE>   22

to such other REITs. The Company's 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 enhances
and is helpful to investors as a measure of the performance of an equity REIT
because, along with the Company's financial condition, results of operations and
cash flows, it provides investors with an understanding of the ability of the
Company to incur and service debt and make capital expenditures. In evaluating
FFO and the trends it depicts, investors should consider the major factors
affecting FFO. Growth in FFO will result from increases in revenue or decreases
in related operating expenses. Conversely, FFO will decline if revenues decline
or related operating expenses increase. FFO does not represent amounts available
for management's discretionary use because of needed capital replacement or
expansion, debt service obligations, or other commitments and uncertainties. FFO
should not be considered as an alternative to net income (determined in
accordance with GAAP) as an indication of the Company's financial performance or
to cash flows from operating activities (determined in accordance with GAAP) as
a measure of the Company's liquidity, nor is it indicative of funds available to
fund the Company's cash needs, including its ability to make distributions.

         The following table sets forth, for the 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 (a)                  --            --        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>


(a)  The charge for the management contract is an unusual non-cash charge
     against earnings. The Company has no other management contracts and the
     termination of this contract is a one time event and does not relate to the
     ongoing business activity of the Company. Since FFO is intended as a
     supplementary measure of operating performance, this charge has been added
     back to net income in arriving at FFO.


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.



                                       22
<PAGE>   23

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 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 are not adversely affected by the change to the calendar
year 2000. The vendors of the Company's information system and accounting
software represents, and the Information Technology Association of America
("ITAA") certifies through its ITAA*2000 program, that this software is Year
2000 compliant. All owned-property information is maintained in a database which
mandates use of 4-digit year input, thus removing any Year 2000 ambiguity. The
Company currently processes its payroll through ADP, a third party processor.
Our payroll represents, and ITAA certifies that its processing system is Year
2000 compliant.

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

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

         The Company has not finalized its contingency plan as of this date.
However, a formal contingency plan will be developed as any risks are identified
during 1999. The Company does not anticipate any material impact on its results
from operations or its financial condition as a result of any Year 2000
compliance issues. The estimated costs of compliance, consisting primarily of
verification and testing costs, are not expected to exceed $25,000.

         All major vendors and all tenants were surveyed to determine the extent
of their preparedness to meet Y2K challenges and to assess any possible impact
on USRP from a material third-party failure. Vendor responses received do not
identify any major potential problems. Several vendors, including an insurance
provider, an attorney, a printer and two stock handling agencies, have not
responded to our inquiries. Services provided by these vendors can be easily
obtained from other sources. No problems are anticipated in securing these
services.

         Tenant responses to the survey has to date been limited. Of 309
requested responses, 33 have been received. The Company is sending additional
surveys to major tenants to try to determine preparedness. Should adequate
assurances that tenants are prepared not be received, a contingency plan will be
formulated to deal with any payment defaults.

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

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

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

         3. Some properties may experience cash shortages due to failure of
         local banks to become Y2K compliant. This may impede the ability of the
         operator to conduct business and/or pay rent timely until the Federal
         Reserve has taken steps to overcome the problem. This is also likely to
         be corrected quickly to preserve the integrity of the banking system.

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

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




                                       23
<PAGE>   24


   
    

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

ITEM 1.  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.


                                       24
<PAGE>   25

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.


         On October 15, 1997, the Company effected the conversion of U.S.
Restaurant Properties Master L.P. ("USRP") from a master limited partnership to
a self-administered and self-managed REIT (the "Conversion"). The Conversion was
effected through the merger of USRP Acquisition, L.P., an indirectly
wholly-owned Delaware limited partnership subsidiary of the Company, with and
into USRP (the "Merger"). 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 (the "Units") 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."

         The Company operates as a holding company with the business and
operations of the Company being conducted through U.S. Restaurant Properties
Operating L.P., a Delaware limited partnership (the "Operating Partnership").
The Company undertook the Conversion to facilitate access to lower cost debt
financing and to the capital markets, provide greater flexibility for
acquisitions and to reduce administrative burdens associated with operating as a
partnership.

         In connection with the Conversion, QSV withdrew as general partner of
each of USRP and the Operating Partnership effective as of October 15, 1997, and
USRP Managing was substituted as general partner of each of USRP and the
Operating Partnership. In conjunction with such withdrawal, QSV (i) converted
its interests in (a) its allocable share of income, profits, losses and
distributions of the Operating Partnership as general partner thereof and (b)
fees and disbursements for the acquisition and management of the Operating
Partnership's properties (together, the "Operating Partnership General Partner
Interest") payable to it pursuant to the terms of the partnership agreement of
the Operating Partnership and (ii) converted its general partner interest in
USRP (the "USRP Interest") (together with the conversion of its interests in the
Operating Partnership described above, the "Termination") for 1,148,418 units of
beneficial interest of the Operating Partnership ("OP Units") and 126,582 shares
of Common Stock, respectively, and as a result of such conversion will be
eligible to receive additional consideration in the year 2000 (together, the
"Acquisition Price").

         The Acquisition Price consists of two components: (i) the initial share
consideration (the "Initial Share Consideration") and (ii) the contingent share
consideration (the "Contingent Share Consideration"). The Initial Share
Consideration was paid in the form of 1,148,418 OP Units in exchange for the
Operating Partnership General Partner Interest and 126,582 shares of Common
Stock (1% of all shares of Common Stock outstanding immediately following the
Merger) issued by the Company at the effective time of the Merger in exchange
for the USRP Interest. The Contingent Share Consideration is equal to the value
of up to 825,000 shares of Common Stock (subject to adjustment in the event of
certain dilutive events), and shall consist of OP Units (the "Contingent
Shares"). The exact number of Contingent Shares to be issued will be determined
by dividing the amount by which MGP Net Income exceeds $3,612,500 by $2.83. MGP
Net Income is defined as the fees and distributions in excess of $3,612,500
which would otherwise have been payable to QSV for fiscal year ended December
31, 2000 pursuant to the Operating Partnership General Partner Interest and the
USRP Interest less $775,000. QSV will not receive any distributions with respect
to the Contingent Shares, or otherwise have any rights with respect thereto,
until they are issued. The Contingent Shares shall be issued by the Operating
Partnership as soon as practicable following the end of 



                                       25
<PAGE>   26


the year 2000, but in no event later than March 31, 2001. The Company
anticipates that all of the Contingent Shares will be issued.

         The Acquisition Price was determined through negotiations between
management of QSV, the then managing general partner of U.S.R.P., the Company's
predecessor, and a special committee (the "Special Committee") of the board of
directors of the managing general partner, consisting solely of directors who
were neither officers nor stockholders of QSV. The structure of the Acquisition
Price was adopted as a result of the Special Committee's desire to protect the
stockholders of the Company from being diluted by the issuance of the share
consideration. This structure also enabled the Special Committee to establish a
price to be paid for the management contract which was to be terminated and
QSV's interest in U.S.R.P. The Special Committee was appointed to address any
potential conflicts of interest.

         The Special Committee engaged Morgan Keegan & Company, Inc. ("Morgan
Keegan"), an investment banking firm that regularly renders valuations of
businesses and securities in connection with business combinations, as its
financial advisor. The Special Committee and management of QSV conducted
negotiations, with Morgan Keegan's input, from December 30, 1996 to February 5,
1997, when the Special Committee determined to accept the Acquisition Price. The
Special Committee based its determination on the following factors:

         1.       The Morgan Keegan fairness opinion received at the February 5,
                  1997 meeting of the Special Committee.

         2.       The structure of the Acquisition Price, as QSV would receive
                  all or a portion of the contingent shares if and only if the
                  MGP Net Income for the year ending December 31, 2000 reaches
                  or exceeds certain levels. As a result, the contingent share
                  portion of the Acquisition Price provided for a mechanism for
                  the consideration to be paid by the Company to correlate to
                  the obligations of which the Company was being relieved.

         3.       The maximum number of contingent shares that could be issued
                  is capped.


In addition, as of March 15, 1998 QSV holds options (the "Options") to purchase
110,000 shares of Common Stock pursuant to an Option Agreement, dated March 24,
1995, by and between USRP and QSV, which Options were assumed by the Company
pursuant to the Merger. All of the Options are fully vested and exercisable. The
Options are exercisable at an exercise price of $10.33 per share. The Options
are not transferable except by operation of law pursuant to a consolidation,
merger, recapitalization or reorganization of QSV.


Robert J. Stetson owns a 30% interest in QSV and is the Chief Executive Officer,
President and Director of the Company. Fred H. Margolin owns a 30% interest in
QSV and is the Chairman of the Board of Directors, Secretary and a Director of
the Company, David K. Rolph and Darrel L. Rolph, each own a 20% interest in QSV
and are Directors of the Company.

                                     PART IV


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

(a)(1) Financial Statements.


                                       26
<PAGE>   27


                  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.



                                       27
<PAGE>   28



                                   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.


<TABLE>
<CAPTION>

         SIGNATURES                                         TITLE                           DATE
<S>                                                  <C>                                <C>


/s/ Robert J. Stetson                                Chief Executive Officer,           March 3, 1999
---------------------
Robert J. Stetson                                    President and Director
                                                     (Principal Executive Officer)


/s/ Fred H. Margolin                                 Chairman of the Board of           March 3, 1999
 -------------------
Fred H. Margolin                                     Directors, Secretary and
                                                     Director


/s/ Michael D. Warren                                Director of Finance                March 3, 1999
----------------------                               (Principal Accounting Officer)
Michael D. Warren


/s/ Gerald H. Graham                                 Director                           March 3, 1999
--------------------
Gerald H. Graham


/s/ David K. Rolph                                   Director                           March 3, 1999
------------------
David K. Rolph


/s/ Darrel L. Rolph                                  Director                           March 3, 1999
-------------------
Darrel L. Rolph


/s/ Eugene G. Taper                                  Director                           March 3, 1999
-------------------
Eugene G. Taper
</TABLE>




                                       28
<PAGE>   29






                          INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>

<S>                                                                                                  <C>
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
</TABLE>



                                      F-1

<PAGE>   30



                          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>   31



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

<TABLE>
<CAPTION>

                                                                        DECEMBER 31,
                                                               ----------------------------
                                                                   1997            1996
                                                               ------------    ------------
<S>                                                            <C>             <C>         
                                  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
                                                               ============    ============
</TABLE>


                             continued on next page



                                      F-3

<PAGE>   32



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

<TABLE>
<CAPTION>

                                                                                             DECEMBER 31,
                                                                                     ----------------------------
                                                                                         1997            1996
                                                                                     ------------    ------------
            LIABILITIES, STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL
<S>                                                                                  <C>             <C>         
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
                                                                                     ============    ============
</TABLE>

See Notes to Consolidated Financial Statements.



                                       F-4

<PAGE>   33



                        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
       REIT Conversion costs                                      920            --            --
       Termination of management contract                      19,220            --            --
                                                           ----------    ----------    ----------
                                    TOTAL EXPENSES             45,644        11,077         4,627

                                                           ----------    ----------    ----------
INCOME (LOSS) BEFORE GAIN ON SALE OF 
PROPERTY AND MINORITY INTEREST IN OPERATING
   PARTNERSHIP                                                (10,060)        7,441         5,223
Gain on sale of property                                          869            32            --
                                                           ----------    ----------    ----------
INCOME (LOSS) BEFORE MINORITY INTEREST 
   IN OPERATING PARTNERSHIP                                    (9,191)        7,473         5,223
Minority interest in operating partnership                       (202)           --            --
                                                           ----------    ----------    ----------

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>   34
                        U.S. RESTAURANT PROPERTIES, INC.
      CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL
                FOR YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                                PREFERRED STOCK            COMMON STOCK
                                                GENERAL       LIMITED      -------------------------------------------------
                                    UNITS       PARTNERS      PARTNERS       SHARES       PAR VALUE     SHARES     PAR VALUE  
                                 ----------    ----------    ----------    ----------    ----------   ----------   ---------- 
<S>                              <C>           <C>           <C>           <C>           <C>          <C>          <C>        
Balance January 1, 1995               6,953    $    1,308    $   60,361            --    $       --           --   $       -- 
                                                                                                                              
Special general partner                                                                                                       
  interest transfer                                   (13)           (3)                                                      
Net Income                                            104         5,119                                                       
Purchase of partnership units           (45)           --          (547)                                                      
Units issued for property                81            --           985                                                       
Cash distributions                                   (158)       (7,844)                                                      
                                 ----------    ----------    ----------    ----------    ----------   ----------   ---------- 
Balance December 31, 1995             6,989         1,241        58,071            --            --           --           -- 
                                 ----------    ----------    ----------    ----------    ----------   ----------   ---------- 
                                                                                                                              
Net income                                            148         7,325                                                       
Units issued for property               577            --         7,912                                                       
Proceeds from units issued                                                                                                    
  in public offering                  2,700            --        40,203                                                       
Proceeds from exercised                                                                                                       
  unit options                           75            --           775                                                       
Cash distributions                                   (226)      (11,166)                                                      
                                 ----------    ----------    ----------    ----------    ----------   ----------   ---------- 
Balance December 31, 1996            10,341         1,163       103,120            --            --           --           -- 
                                 ----------    ----------    ----------    ----------    ----------   ----------   ---------- 
                                                                                                                              
Net income for the period                                                                                                     
  January 1 through                                                                                                           
  October 15, 1997                                    135         6,678                                                       
Units issued for property               681            --        13,796                                                       
Proceeds from units issued                                                                                                    
  in private placements               1,435            --        25,000                                                       
Proceeds from exercised                                                                                                       
  unit options                           75            --           775                                                       
Cash distributions                                   (240)      (11,776)                                                      
                                 ----------    ----------    ----------    ----------    ----------   ----------   ---------- 
Balance before REIT                  12,532         1,058       137,593            --            --           --           -- 
conversion                                                                                                                    
                                                                                                                              
Conversion to REIT                  (12,532)       (1,058)     (137,593)                                  12,658           13 
Sale of preferred stock                                                         3,680             4                           
Proceeds from exercised                                                                                                       
stock options                                                                                                 40              
Net loss for the period                                                                                                       
  October 16 through                                                                                                          
  December 31, 1997                                                                                                           
Dividends on common stock                                                                                                     
                                 ==========    ==========    ==========    ==========    ==========   ==========   ========== 
Balance December 31, 1997                --    $       --    $       --         3,680    $        4       12,698   $       13 
                                 ==========    ==========    ==========    ==========    ==========   ==========   ========== 
<CAPTION>

                                 ADDITIONAL    DISTRIBUTIONS IN               
                                    PAID          EXCESS OF                    
                                 IN CAPITAL      NET INCOME       TOTAL        
                                 ----------     ------------    ---------      
<S>                              <C>           <C>             <C>
Balance January 1, 1995          $       --       $       --    $  61,669      
                                                                               
Special general partner                                                        
  interest transfer                                                   (16)     
Net Income                                                          5,223      
Purchase of partnership units                                        (547)     
Units issued for property                                             985      
Cash distributions                                                 (8,002)     
                                 ----------       ----------    ---------      
Balance December 31, 1995                --               --       59,312      
                                 ----------       ----------    ---------      
                                                                               
Net income                                                          7,473      
Units issued for property                                           7,912      
Proceeds from units issued                                                     
  in public offering                                               40,203      
Proceeds from exercised                                                        
  unit options                                                        775      
Cash distributions                                                (11,392)     
                                 ----------       ----------    ---------      
Balance December 31, 1996                --               --      104,283      
                                 ----------       ----------    ---------      
                                                                               
Net income for the period                                                      
  January 1 through                                                            
  October 15, 1997                                                  6,813      
Units issued for property                                          13,796      
Proceeds from units issued                                                     
  in private placements                                            25,000      
Proceeds from exercised                                                        
  unit options                                                        775      
Cash distributions                                                (12,016)     
                                 ----------       ----------    ---------
Balance before REIT                      --               --      138,651      
conversion                                                                     
                                                                               
Conversion to REIT                  138,109                          (529)     
Sale of preferred stock              87,618                        87,622      
Proceeds from exercised                                                       
stock options                           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        $  226,140       $  (20,745)   $ 205,412      
                                 ==========       ==========    =========      
</TABLE>


                 See Notes to Consolidated Financial Statements



                                      F-6

<PAGE>   35



                        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>   36




                        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>   37



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>   38



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>   39



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>   40



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>   41



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>   42



4. OTHER BALANCE SHEET INFORMATION

<TABLE>
<CAPTION>

                                                                DECEMBER 31,
                                                     --------------------------------
                                                          1997              1996
                                                     --------------    --------------
                                                     (IN THOUSANDS)    (IN THOUSANDS)
<S>                                                  <C>               <C>           
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
                                                     ==============    ==============
</TABLE>


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>   43



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>   44


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>   45


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, 2000; and $27,500,000 Series B Senior
Secured Guaranteed Notes with a 8.30% interest rate, due January 31, 2002. 



                                      F-17
<PAGE>   46

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):

<TABLE>

<S>               <C>                                <C>      
                  1998.............................. $  26,200
                  1999..............................    62,996
                  2000..............................    12,500
                  2001..............................        --
                  2002..............................    27,500
                                                     ---------
                                                     $ 129,196
                                                     =========
</TABLE>


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>   47
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
                                                                         ==============     ==============


                                                                              1997               1996
                                                                         --------------     --------------
                                                                         (IN THOUSANDS)     (IN THOUSANDS)
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>

<TABLE>
<CAPTION>

                                                                    YEAR ENDED DECEMBER 31,
                                                       -------------------------------------------------
                                                            1997             1996              1995
                                                       --------------    --------------   --------------
                                                       (IN THOUSANDS)    (IN THOUSANDS)   (IN THOUSANDS)
<S>                                                    <C>               <C>              <C>           
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
                                                       ==============    ==============   ==============
</TABLE>

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>   48



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>   49
COMMITMENTS (CONTINUED)

<TABLE>
<CAPTION>

                                                                            CAPITAL         OPERATING
                                                                            LEASES            LEASES
                                                                        --------------    --------------
                                                                        (IN THOUSANDS)    (IN THOUSANDS)
<S>                                                                     <C>               <C>   
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

                                                                        ==============
</TABLE>


(a) Minimum lease obligations have not been reduced by minimum sublease rentals.

<TABLE>
<CAPTION>

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


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>   50



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 #1
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>   51



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):

<TABLE>
<CAPTION>

<S>                                                 <C>      
           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
                                                    =========
</TABLE>


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>   52



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>   53



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>   54



14. PRO FORMA (UNAUDITED) (CONTINUED)

<TABLE>
<CAPTION>

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

<S>                                                               <C>               <C>
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
</TABLE>

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>   55
                        U.S. RESTAURANT PROPERTIES, INC.
              SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION
                             AS OF DECEMBER 31, 1997
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>

                                                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>   56



         (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.



<TABLE>
<CAPTION>

                                                                    COST       DEPRECIATION
                                                                 ----------    ------------
<S>                                <C>                           <C>          <C>
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
                                                                 ==========    ===========
</TABLE>





                                       S-2

<PAGE>   57



                                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