<PAGE>

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

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

                                    FORM 10-Q

                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2003 Commission File Number 1-6249

             First Union Real Estate Equity and Mortgage Investments
             -------------------------------------------------------
             (Exact name of registrant as specified in its charter)

             Ohio                                       34-6513657
-------------------------------             ------------------------------------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)

       125 Park Avenue, 14th Floor
          New York, New York                               10017
----------------------------------------                ----------
(Address of principal executive offices)                (Zip Code)

Registrant's telephone number, including area code:   (212) 949-1373

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

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

                         Yes [X]         No [ ]

         Indicate by check mark whether the registrant is an accelerated filer
(as defined in rule 12b-2 of the Exchange Act).

                         Yes [ ]         No [X]

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

        26,058,913 Common Shares of Beneficial Interest outstanding as of
                                November 1, 2003
--------------------------------------------------------------------------------

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

               Total number of pages contained in this report: 29

<PAGE>

                         PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

FIRST UNION REAL ESTATE EQUITY and MORTGAGE INVESTMENTS

Combined Balance Sheets

<TABLE>
<CAPTION>
                                                                                  September 30,
                                                                                      2003       December 31,
          (In thousands, except share data)                                        (Unaudited)      2002
                                                                                    ---------     ---------
<S>                                                                               <C>            <C>
ASSETS
Investments in real estate, at cost
  Land                                                                              $   6,086     $   6,086
  Buildings and improvements                                                           65,494        64,867
                                                                                    ---------     ---------
                                                                                       71,580        70,953
  Less - Accumulated depreciation                                                     (13,584)      (12,057)
                                                                                    ---------     ---------
    Investments in real estate, net                                                    57,996        58,896

Other assets
  Cash and cash equivalents - unrestricted                                             16,328         3,897
                            - restricted                                                1,862         1,968
  Accounts receivable and prepayments, net of allowances
      of $263 and $601, respectively                                                    1,344         1,625
  Investments                                                                          68,937       103,974
  Inventory, net of reserve                                                               371         1,033
  Unamortized debt issue costs, net                                                       223           278
  Other                                                                                   143           154
                                                                                    ---------     ---------
    Total assets                                                                    $ 147,204     $ 171,825
                                                                                    =========     =========

LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities
  Mortgage loan                                                                     $  41,533     $  41,781
  Note payable                                                                             68            80
  Senior notes                                                                         12,538        12,538
  Accounts payable and accrued liabilities                                              6,908         8,332
  Dividends payable                                                                       516           516
  Deferred items                                                                          386           471
                                                                                    ---------     ---------
    Total liabilities                                                                  61,949        63,718
                                                                                    ---------     ---------

Shareholders' equity
  Convertible preferred shares of beneficial interest, $25 per share liquidation
    preference, 2,300,000 shares authorized, 983,082 shares outstanding at
    September 30, 2003 and December 31, 2002                                           23,131        23,131
  Shares of beneficial interest, $1 par, unlimited authorized,
    26,058,913 and 34,814,361 outstanding at September 30, 2003
    and December 31, 2002                                                              26,059        34,814
  Additional paid-in capital                                                          199,968       207,634
  Accumulated distributions in excess of net income                                  (163,903)     (157,472)
                                                                                    ---------     ---------
    Total shareholders' equity                                                         85,255       108,107
                                                                                    ---------     ---------
Total liabilities and shareholders' equity                                          $ 147,204     $ 171,825
                                                                                    =========     =========
</TABLE>

                   See Notes to Combined Financial Statements.

                                       2

<PAGE>

FIRST UNION REAL ESTATE EQUITY and MORTGAGE INVESTMENTS

Combined Statements of Operations

<TABLE>
<CAPTION>
                                                         Three Months Ended         Nine Months Ended
   Unaudited (In thousands, except per share data)          September 30,              September 30,
                                                        ---------------------     ---------------------
                                                          2003         2002         2003         2002
                                                        --------     --------     --------     --------
<S>                                                     <C>          <C>          <C>          <C>
Revenues
     Rents                                              $  3,476     $  3,309     $ 10,256     $ 10,013
     Sales                                                   372          602        1,816        2,194
     Interest                                                172          421          682        1,318
     Other income                                              -          475            -          475
                                                        --------     --------     --------     --------
                                                           4,020        4,807       12,754       14,000
                                                        --------     --------     --------     --------

Expenses
     Property operating                                    1,239        1,489        3,762        3,946
     Cost of goods sold                                      788        1,049        2,754        3,538
     Real estate taxes                                       225          213          674          674
     Depreciation and amortization                           552          512        1,612        1,540
     Interest                                              1,237        1,480        3,608        3,885
     General and administrative                              762        1,079        5,281        4,220
                                                        --------     --------     --------     --------
                                                           4,803        5,822       17,691       17,803
                                                        --------     --------     --------     --------

Loss before gain on sale                                    (783)      (1,015)      (4,937)      (3,803)
     Gain on sale                                             54            -           54            -
                                                        --------     --------     --------     --------
Net loss                                                    (729)      (1,015)      (4,883)      (3,803)
     Preferred dividend                                     (516)        (517)      (1,548)      (1,551)
                                                        --------     --------     --------     --------
Net loss applicable to shares of beneficial interest    $ (1,245)    $ (1,532)    $ (6,431)    $ (5,354)
                                                        ========     ========     ========     ========

Per share data

Basic:
Net loss applicable to shares of beneficial interest    $  (0.04)    $  (0.04)    $  (0.20)    $  (0.15)
                                                        ========     ========     ========     ========

Diluted:
Net loss applicable to shares of beneficial interest    $  (0.04)    $  (0.04)    $  (0.20)    $  (0.15)
                                                        ========     ========     ========     ========

Basic weighted average shares                             28,141       34,806       32,474       34,806
                                                        ========     ========     ========     ========
Diluted weighted average shares                           28,141       34,806       32,474       34,806
                                                        ========     ========     ========     ========
</TABLE>

                   See Notes to Combined Financial Statements.

                                       3

<PAGE>

FIRST UNION REAL ESTATE EQUITY and MORTGAGE INVESTMENTS

Combined Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                           Nine Months
               Unaudited (In thousands)                                                Ended September 30,
                                                                                   ---------------------------
                                                                                      2003            2002
                                                                                   -----------     -----------
<S>                                                                                <C>             <C>
Cash used for operating activities
  Net loss                                                                         $    (4,883)    $    (3,803)
  Adjustments to reconcile net loss to net cash used
    in operating activities
      Depreciation and amortization                                                      1,612           1,540
      Gain on sale of VenTek parking business                                              (54)              -
      Decrease in deferred items                                                           (85)           (338)
      Net changes in other operating assets and liabilities                               (487)            126
                                                                                   -----------     -----------
        Net cash used in operating activities                                           (3,897)         (2,475)
                                                                                   -----------     -----------

Cash provided by investing activities
  Purchase of investments                                                           (1,134,273)     (1,146,175)
  Proceeds from maturity of investments                                              1,169,310       1,159,202
  Net proceeds from sale of VenTek parking business                                         60               -
  Investments in building and tenant improvements                                         (646)           (482)
                                                                                   -----------     -----------
        Net cash provided by investing activities                                       34,451          12,545
                                                                                   -----------     -----------

Cash used in financing activities
  Decrease in note payable                                                                 (12)            (12)
  Repayment of mortgage loan - principal payments                                         (248)           (228)
  Repurchase of shares of beneficial interest                                          (16,421)              -
  Dividends paid on shares of beneficial interest                                            -          (6,962)
  Dividends paid on preferred shares of beneficial interest                             (1,548)         (1,551)
                                                                                   -----------     -----------
        Net cash used in financing activities                                          (18,229)         (8,753)
                                                                                   -----------     -----------
Increase in cash and cash equivalents                                                   12,325           1,317
Cash and cash equivalents at beginning of period                                         5,865           4,724
                                                                                   -----------     -----------
Cash and cash equivalents at end of period                                         $    18,190     $     6,041
                                                                                   ===========     ===========
Supplemental Disclosure of Cash Flow Information
   Interest Paid                                                                   $     3,329     $     4,163
                                                                                   ===========     ===========

Supplemental Disclosure of Non-Cash Investing and Financing Activities
   Dividends accrued on preferred shares of beneficial interest                    $       516     $       517
                                                                                   ===========     ===========
   Loan receivable in connection with the sale of VenTek parking business          $       133     $         -
                                                                                   ===========     ===========
   Transfer of inventory in connection with the sale of VenTek parking business    $       158     $         -
                                                                                   ===========     ===========
   Net transfer of receivables and payables in connection with the sale of
      VenTek parking business                                                      $        19     $         -
                                                                                   ===========     ===========
</TABLE>

                   See Notes to Combined Financial Statements.

                                       4

<PAGE>

             FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
                          FORM 10-Q SEPTEMBER 30, 2003
                     NOTES TO COMBINED FINANCIAL STATEMENTS

General

         The accompanying financial statements represent the combined results of
the registrant, First Union Real Estate Equity and Mortgage Investments (the
"Trust") and First Union Management Inc. (the "Company"). Under a trust
agreement, the common shares of the Company are held for the benefit of the
shareholders of the Trust. Accordingly, the financial statements of the Company
and the Trust have been combined.

         The combined financial statements included herein have been prepared by
the Trust, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted pursuant to such rules and regulations, although the Trust
believes that the disclosures contained herein are adequate to make the
information presented not misleading. These combined financial statements should
be read in conjunction with the combined financial statements and the notes
thereto included in the Trust's latest annual report on Form 10-K.

         The combined financial statements reflect, in the opinion of the Trust,
all adjustments (consisting of normal recurring adjustments) necessary to
present fairly the combined financial position and results of operations for the
respective periods in conformity with accounting principles generally accepted
in the United States of America consistently applied.

Accounting Policies

         In April 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 145, "Rescission of
FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13 and
Technical Corrections," which updates, clarifies and simplifies existing
accounting pronouncements. In part, this statement rescinds SFAS No. 4,
"Reporting Gains and Losses from Extinguishment of Debt." FASB No. 145 is
effective for fiscal years beginning after May 15, 2002. Upon adoption,
enterprises must reclassify prior period items that do not meet the
extraordinary item classification criteria in Accounting Principles Board
("APB") No. 30. The adoption of this statement on January 1, 2003 had no impact
on the Trust's combined financial statements.

         In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 requires companies to
recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan.
Examples of costs covered by the standard include lease termination costs and
certain employee severance costs that are associated with a restructuring,
discontinued operation, plant closing or other exit or disposal activity. SFAS
No. 146 is effective prospectively for exit and disposal activities initiated
after December 31, 2002.

         In November 2002, the FASB issued Interpretation No. 45, "Guarantors'
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others." The Interpretation elaborates on the
disclosures to be made by a guarantor in its financial statements about its
obligations under

                                       5

<PAGE>

certain guarantees that it has issued. It also clarifies that a guarantor is
required to recognize, at the inception of a guarantee, a liability for the fair
value of the obligation undertaken in issuing the guarantee. This Interpretation
does not prescribe a specific approach for subsequently measuring the
guarantor's recognized liability over the term of the related guarantee. The
disclosure provisions of this Interpretation were effective for the Trust's
December 31, 2002 combined financial statements. The initial recognition and
initial measurement provisions of this Interpretation are applicable on a
prospective basis to guarantees issued or modified after December 31, 2002. This
Interpretation had no effect on the Trust's combined financial statements. The
Trust's guarantees are disclosed in the combined financial statements.

         In January 2003, the FASB issued Interpretation No. 46, "Consolidation
of Variable Interest Entities." This Interpretation clarifies the application of
existing accounting pronouncements to certain entities in which equity investors
do not have the characteristics of a controlling financial interest or do not
have sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. The provisions of
the Interpretation are immediately effective for all variable interests in
variable interest entities created after January 31, 2003, and the Trust will
need to apply its provisions to any existing variable interests in variable
interest entities no later than the first reporting period beginning after
December 15, 2003. The Trust does not anticipate that this Interpretation will
have any effect on the combined financial statements.

         In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." The
statement improves the accounting for certain financial instruments that under
previous guidance, issuers could account for as equity. The new statement
requires that those instruments be classified as liabilities in statements of
financial position. SFAS No. 150 affects the issuer's accounting for three types
of freestanding financial instruments. One type is mandatorily redeemable
shares, which the issuing company is obligated to buy back in exchange for cash
or other assets. A second type, which includes put options and forward purchase
contracts, involves instruments that do or may require the issuer to buy back
some of its shares in exchange for cash or other assets. The third type of
instruments that are liabilities under this statement is obligations that can be
settled with shares, the monetary value of which is fixed, tied solely or
predominantly to a variable such as a market index, or varies inversely with the
value of the issuers' shares. SFAS No. 150 does not apply to features embedded
in a financial instrument that is not a derivative in its entirety. In addition
to its requirements for the classification and measurement of financial
instruments in its scope, SFAS No. 150 also requires disclosures about
alternative ways of settling the instruments and the capital structure of
entities, all of whose shares are mandatorily redeemable. Most of the guidance
in SFAS No. 150 is effective for all financial instruments entered into or
modified after May 31, 2003, and otherwise is effective at the beginning of the
first interim period beginning after June 15, 2003. This statement had no effect
on the Trust's combined financial statements.

                                       6

<PAGE>

Earnings Per Share

The computation of basic and diluted earnings per share is as follows (in
thousands, except per share data):

<TABLE>
<CAPTION>
                                                         Three Months Ended         Nine Months Ended
                                                            September 30,             September 30,
                                                        ---------------------     ---------------------
                                                          2003         2002         2003         2002
                                                        --------     --------     --------     --------
<S>                                                     <C>          <C>          <C>          <C>
Basic
Net loss                                                $   (729)    $ (1,015)    $ (4,883)    $ (3,803)
Preferred dividend                                          (516)        (517)      (1,548)      (1,551)
                                                        --------     --------     --------     --------

Net loss applicable to shares of beneficial interest    $ (1,245)    $ (1,532)    $ (6,431)      (5,354)
                                                        ========     ========     ========     ========

Basic weighted average shares                             28,141       34,806       32,474       34,806
                                                        ========     ========     ========     ========

Net loss per share                                      $  (0.04)    $  (0.04)    $  (0.20)    $  (0.15)
                                                        ========     ========     ========     ========

Diluted
Net loss                                                $   (729)    $ (1,015)    $ (4,883)    $ (3,803)
Preferred dividend                                          (516)        (517)      (1,548)      (1,551)
                                                        --------     --------     --------     --------

Net loss applicable to shares of beneficial interest    $ (1,245)    $ (1,532)    $ (6,431)    $ (5,354)
                                                        ========     ========     ========     ========

Basic weighted average shares                             28,141       34,806       32,474       34,806
Convertible preferred shares                                   -            -            -            -
                                                        --------     --------     --------     --------

Diluted weighted average shares                           28,141       34,806       32,474       34,806
                                                        ========     ========     ========     ========

Net loss per share                                      $  (0.04)    $  (0.04)    $  (0.20)    $  (0.15)
                                                        ========     ========     ========     ========
</TABLE>

The preferred shares are not included in the diluted earnings per share
calculation for the three and nine months ended September 30, 2003 and 2002,
because they are anti-dilutive.

Share Options

         The Trust accounts for stock option awards in accordance with APB No.
25, "Accounting for Stock Issued to Employees" and has adopted the
disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation." Consequently, compensation cost has not been recognized for the
share option plans except for the options granted in 1999 which had an exercise
price that was less than the grant date per share market price. Had the Trust
applied the expense recognition provisions of SFAS No. 123, there would have
been no impact on the results of operations for the periods ended September 30,
2003 and 2002.

Dividends

         The Trust declared a dividend of $0.5 million ($0.525 per share) to
Series A Cumulative Preferred Shareholders in both the first, second and third
quarters of 2003. The first quarter dividends were paid April 30, 2003 to
shareholders of record at the close of business on March 31, 2003. The second
quarter dividends were paid July 31, 2003 to shareholders of record at the close
of business on June 30, 2003. The third quarter dividends were paid October 31,
2003 to shareholders of record at the close of business on September 30, 2003.

                                       7

<PAGE>

Termination of Proposed Transaction

         On February 13, 2002, the Trust entered into a definitive agreement of
merger and contribution with, among others, Gotham Partners, L.P. ("Gotham
Partners"), a shareholder of the Trust that is controlled by affiliates of
William A. Ackman, who was at the time Chairman of the Board of Trustees of the
Trust, and Gotham Golf Corp. ("Gotham Golf"), a Delaware corporation controlled
by Gotham Partners, pursuant to which the Trust agreed to merge with and into
Gotham Golf. The parties subsequently adopted Amendment No. 1 to the merger
agreement on April 24, 2002, Amendment No. 2 to the merger agreement on
September 24, 2002 and Amendment No. 3 to the merger agreement on October 24,
2002.

         The proposed transaction was approved by the Trust's common
shareholders at a special meeting held on November 27, 2002.

         In November 2002, the plaintiff in the preferred shareholder litigation
(see "Legal Proceedings") filed with the New York Supreme Court for New York
County an Order to Show Cause why the transaction should not be enjoined. The
court held a hearing on that issue on November 20. On November 21, 2002, the
court issued an order denying the defendants' motion to dismiss the complaint
and granting plaintiff's motions for preliminary injunction and expedited
discovery in connection with the proposed merger. Following hearings with
respect to the plaintiff's motions, the court issued an order in December 2002
granting a preliminary injunction barring the proposed merger of the Trust with
and into Gotham Golf. The Trust appealed the court's order barring the
transaction in the Appellate Division of the New York Supreme Court. Oral
argument on the appeal was heard by the Appellate Division on March 11, 2003.

         On June 25, 2003 the Trust entered into a Settlement, Termination and
Standstill Agreement (the "Agreement") with, among others, Gotham Partners. The
Agreement provided for the termination of the merger agreement regarding the
merger of the Trust with Gotham Golf, the purchase by the Trust of 5,841,233
common shares of the Trust owned by Gotham Partners and its affiliates for
approximately $11.1 million and a termination payment to Gotham Partners of $2.4
million. The Agreement also provides that neither Gotham Partners nor any
affiliate will enter into or agree to enter into any form of business
combination, acquisition or other transaction involving the Trust or any
majority-owned affiliate for a period of five years from the date of the
Agreement. The termination payment was recognized as a general and
administrative expense during the three months ended June 30, 2003.

         On September 4, 2003, the Appellate Division, First Department of the
New York Supreme Court, issued its ruling on the appeal by the Trust and the
other defendants of the trial court's order barring the merger transaction. The
five-member Appellate Division panel unanimously found that the legal standard
for the granting of the injunction had not been satisfied and, accordingly, the
order of the trial court granting the injunction was reversed and the injunction
vacated. Plaintiff preferred shareholders have not sought to appeal from this
decision. As the transaction had already been terminated prior to the issuance
of the opinion, the opinion had no effect on the terminated transaction.

         The Trust is pursuing the goal of obtaining dismissal with prejudice by
order of the court or, in the alternative, to settle by dismissal with prejudice
for outside of court and, thus, terminate the proceedings. To that end, the
Trust has filed a motion for summary judgment in the Kimeldorf case.

                                       8

<PAGE>

         The Board of Trustees has continued to operate the Trust as an ongoing
enterprise since the termination of the merger transaction with a focus on
reducing operating expenses whenever possible. The Board of Trustees continues
to examine other suitable operating and investment alternatives with respect to
the Trust.

Share Repurchase

         The Trust authorized a share repurchase plan in July 2003. The plan
allows for the Trust to purchase up to $10.0 million of its common and preferred
shares in the market or through private transactions. Through November 14, 2003,
the Trust repurchased 2,914,215 common shares for $5,323,348.

Legal Proceedings

Preferred Shareholder Lawsuit

         Kimeldorf v. First Union, et al. On April 15, 2002, the Trust was
served with a complaint filed in the Supreme Court of New York in New York
County on behalf of a purported holder of the Trust's convertible preferred
shares. Among the allegations made by the plaintiff is that the proposed
transaction with Gotham Golf was approved by the Trust's Board of Trustees in
violation of fiduciary duties owed to the holders of the Trust's convertible
preferred shares. The suit seeks, among other things, unspecified damages, an
injunction of the proposed transaction and the court's certification of the
lawsuit as a class action. Named as defendants in the lawsuit were the Trust,
its then five trustees and Gotham Partners. (For a summary of the proceedings in
this suit to date, see "Termination of Proposed Transaction," above).

         In November 2002, First Carolina Investors, Inc. ("First Carolina") a
holder of preferred shares, filed a separate lawsuit in New York Supreme Court
for New York County, naming the same defendants as in the Kimeldorf case. In
December 2002, plaintiffs Kimeldorf and First Carolina filed a consolidated
amended complaint, styled Kimeldorf et al. v. First Union, et al, alleging,
among others, breach of contract; aiding and abetting breach of contract;
tortious interference with the contract; breach of fiduciary duties; aiding and
abetting of breach of fiduciary duties; and unconscionability against the
defendants. This consolidated amended complaint essentially consolidated the
separate First Carolina complaint, filed in November 2002, with the complaint of
Mr. Kimeldorf, filed in April 2002.

         On April 30, 2003, the trial court granted the plaintiff's motion to
certify the litigation as a class action. However, plaintiff never submitted an
order identifying the certified class, and the court has issued an order
nullifying the grant of class certification.

         In July 2003, plaintiffs Kimeldorf and First Carolina each filed
separate motions with the trial court seeking to hold the defendants in contempt
as a result of the execution and performance of the Termination Agreement (see
"Termination of Proposed Transaction", above). The plaintiffs contend that these
actions violated the trial court's injunction against the consummation of the
merger between the Trust and Gotham Golf. Defendants filed a brief in opposition
to the motions. The trial court heard oral argument with respect to these
motions in July 2003 and has taken them under advisement.

         In September 2003, the Appellate Division, First Department of the New
York Supreme Court vacated the preliminary injunction, the violation of which
was the subject of plaintiff's motions for contempt. Although not dispositive of
the matter, the Trust believes but cannot assure that there is a reasonable
likelihood that the

                                       9

<PAGE>

plaintiff preferred shareholders will not prevail on motions seeking the trial
court to hold the Trust and the other defendants in contempt of a vacated
preliminary injunction.

         The Trust is pursuing the goal of obtaining dismissal with prejudice by
order of the court or, in the alternative, to settle by dismissal with prejudice
outside of court and, thus, terminate the proceedings. To that end, the Trust
has filed a motion for summary judgment in the Kimeldorf case.

         The Trust regards the lawsuit as being without merit and will
vigorously defend against the asserted claims.

Common Shareholders Lawsuits

         Fink v. First Union. On or about January 24, 2003, the Trust was served
with a complaint filed in the Supreme Court of New York, New York County on
behalf of a purported holder of the Trust's common shares, on behalf of himself
and the common shareholders as a class. The lawsuit seeks a declaration that the
lawsuit is maintainable as a class action and a certification that the
plaintiff, Robert Fink, is the representative of the class. Named as defendants
in the lawsuit are the Trust, Gotham Partners, the companies affiliated with
Gotham Partners and the Trust that are parties to the Merger Agreement, William
Ackman and the four current Trustees of the Trust. Among the allegations
asserted are breach of fiduciary duty and aiding and abetting thereof in
connection with the transactions contemplated by the Merger Agreement. The
relief requested by the plaintiff includes an injunction preventing the
defendants from proceeding with consummation of the merger, rescission of the
merger if it occurs, an accounting for any profits realized by the defendants as
a result of the actions complained of, an order permitting the creation of a
shareholders' committee composed of the Trust common shareholders and their
representatives to manage the affairs of the Trust, compensatory damages and the
costs and disbursements of plaintiff's counsel.

         On or about February 14, 2003, the parties to this lawsuit stipulated
that the defendants need not answer or otherwise respond to the complaint for an
indefinite period of time. The stipulation is revocable by the plaintiff at any
time. The Trust believes that the purpose of the stipulation was to delay court
proceedings in this lawsuit until the outcome of the appeal of the injunction
entered in the Kimeldorf case (see "Termination of Proposed Transaction," above)
is decided by the Appellate Division.

         On or about July 3, 2003, the Plaintiff filed an amended complaint
which seeks additional relief based upon the termination agreement, including a
request that the defendants be required to return to the Trust the termination
fee paid to Gotham Partners as well as the consideration paid for Gotham
Partners' shares in the Trust. As with the original complaint, the parties have
stipulated that the defendants need not answer or otherwise respond to the
amended complaint for an indefinite period of time. The stipulation is revocable
by the plaintiff at any time.

         Following the decision of the Appellate Division, First Department of
the New York Supreme Court in the Kimeldorf case, counsel for the Trust and the
other defendants have requested that the plaintiff voluntarily dismiss its suit
with prejudice. If the plaintiff common shareholder does not voluntarily dismiss
the Fink case with prejudice, the Trust and the other defendants intend to file
a motion with the trial court to dismiss the case.

         The Trust regards the lawsuit as without merit and plans to vigorously
defend against the allegations.

                                       10

<PAGE>

         K-A & Company, LTD. v. First Union. On or about February 12, 2003, a
complaint was filed in the Court of Common Pleas, Cuyahoga County, Ohio, by a
purported holder of the Trust's common shares, on behalf of itself and the Trust
common shareholders as a class. Named as defendants in the lawsuit are the
Trust, Gotham Partners, William Ackman and four of the current Trustees of the
Trust. The allegations made and the relief requested in the K-A suit are
substantially identical to those of the Fink suit referenced above. This lawsuit
was removed by notice filed by defendants to the United States District Court,
Northern District of Ohio, Eastern Division (Case No. 1:03 CV 0460).

         On April 10, 2003, the plaintiff filed a motion for a preliminary
injunction seeking an order preventing the defendants from consummation of the
merger. The defendants filed a motion requesting the court to stay consideration
of the plaintiff's motion pending a decision on the appeal of the preliminary
injunction entered by the New York Supreme Court for New York County in
Kimeldorf, described above.

         Following the issuance of the Appellate Division, First Department of
the New York Supreme Court of its reversal of the order granting the injunction,
and the vacating of the injunction, granted in the Kimeldorf case, the
plaintiffs in the K-A & Company, LTD. case have voluntarily dismissed their
complaint with prejudice; accordingly, that case has been disposed of.

Peach Tree Mall Litigation

         The Trust, as one Plaintiff in a class action composed of numerous
businesses and individuals, has pursued legal action against the State of
California associated with the 1986 flood of Sutter Buttes Center, formerly
Peach Tree Mall. In September 1991, the court ruled in favor of the plaintiffs
on the liability portion of the inverse condemnation suit, which the State of
California appealed. In the third quarter of 1999, the 1991 ruling in favor of
the Trust and the other plaintiffs was reversed by the State of California
Appeals Court, which remanded the case to the trial court for further
proceedings. After the remand to the trial court, the Trust and the other
plaintiffs determined to pursue a retrial before the court. The retrial of the
litigation commenced February 2001 and was completed July 2001. In November
2001, the trial court issued a decision that generally held in favor of the
State of California. In February 2002, the Plaintiffs in the case filed a notice
of appeal of the ruling of the trial court in the California Court of Appeals.
The appellate briefing was completed in May 2003. The Trust is unable to predict
at this time whether or not it will recover any amount of its damage claims in
this legal proceeding.

Indemnity to Imperial Parking Corporation

         In 1999, Newcourt Financial Ltd. ("Newcourt") brought a claim in
Ontario against an affiliate of the Trust and Imperial Parking Limited alleging
a breach of a contract between the Trust affiliate and Newcourt's
predecessor-in-interest, Oracle Credit Corporation and Oracle Corporation
Canada, Inc. The Trust affiliate and Imperial Parking Limited brought a separate
action in British Columbia against Newcourt, Oracle Credit Corporation and
Oracle Corporation Canada claiming, among other things, that the contract at
issue was not properly authorized by the Trust's board of trustees and the
Imperial Parking Limited board of directors. On March 27, 2000, in connection
with the spinoff of Imperial Parking Corporation (the successor in interest to
Imperial Parking Limited) to the Trust's shareholders, the Trust granted a full
indemnity to Imperial Parking Corporation in respect of all damages arising from
the outstanding actions.

         Numerous attempts to settle this matter have not been successful. The
Trust has reserved $600,000 in its combined financial statements for this claim.
The reserved amount consists of the face amount of the contract

                                       11

<PAGE>

of $425,000 and estimated costs of $175,000. The amount of the claim, $825,000,
includes Newcourt's calculation of interest on the amount due at the default
rate under the contract. The Trust believes that, due to the failure of
attempted settlement negotiations, discovery will commence, and the matter will
become more actively litigated. The Trust intends to defend vigorously against
the claims brought against the parties that it has indemnified and to pursue
their separate claims with respect to this matter.

Mountaineer Mall Claim

         The Trust was named as a defendant in a lawsuit filed in connection
with a contractor's claim relative to the construction of a portion of the
Mountaineer Mall, located in Morgantown, West Virginia. The construction of the
mall commenced in 1993 and was completed in 1995. The mall was sold in July
1999. A trial on the merits of the lawsuit was held in 1997.

         In October 2002, the court issued findings of fact and conclusions of
law providing that the claimant was entitled to recover from the Trust the
principal amount of $266,076 in damages plus various interest amounts, which,
when added to the principal amount, would result in an aggregate damage award of
$494,382 against the Trust. The court's order provided, however, that the amount
of the damage award was subject to offset by the amount of legal fees and
expenses reasonably and necessarily incurred by the Trust in defending a certain
mechanic's lien claim asserted by the plaintiff in the lawsuit. The court
further directed that the plaintiff and the Trust negotiate in good faith as to
the amount of such expense and that, if the parties were unable to agree as to
the appropriate offset, the court would schedule an evidentiary hearing for the
purpose of resolving the issue.

         In July 2003, the Trust and the plaintiff entered into a settlement
agreement and paid $350,000 to the plaintiff in full settlement of the claim.

Contingencies

VenTek

         The Company's subsidiary, VenTek International, Inc. ("VenTek"), a
manufacturer of transit ticketing equipment, continues to incur significant
operating losses. The Trust has provided performance bond guarantees entered
into with respect to two contracts of VenTek with transit authorities, which
contracts are in the amounts of $6.2 million and $5.3 million. These contracts
are for the manufacture, installation and maintenance of transit ticket vending
equipment by VenTek. The guarantees are expected to expire within the next
fifteen months based on the commencement of contractual warranty and maintenance
periods now in effect under both contracts. As of November 1, 2003, no amounts
have been drawn against these guarantees. If VenTek is unable to perform in
accordance with these contracts, the Trust may be responsible for payment under
these guarantees. In connection with one of the contracts, VenTek settled a
claim for liquidated damages for approximately $0.1 million during the nine
months ended September 30, 2003. During the third quarter, VenTek entered into a
new contract for $2.2 million with one of the transit authorities to manufacture
additional ticket vending machines. In connection with the contract, the Trust
provided cash collateral equal to 50 percent of the contract value to secure a
Letter of Credit required by the bonding company.

                                       12

<PAGE>

Park Plaza Mall

         Two department stores owned and operated by Dillard's Department
Stores, Inc. ("Dillard's") are the anchor stores at Park Plaza Mall. Dillard's
owns its facilities in Park Plaza Mall and has a Construction, Operation and
Reciprocal Easement Agreement with a subsidiary of the Trust that contains an
operating covenant requiring Dillard's to operate these facilities continuously
as retail department stores until July 2003. Dillard's and its partner, Simon
Property Group, own a parcel of land of nearly 100 acres in the western part of
Little Rock, Arkansas and have announced, at various times over the last several
years, their intention to build in this new location. During the first quarter
of 2001, the Little Rock board of directors approved a change in zoning that
would allow the construction of an approximately 1.3 million square foot
regional enclosed mall on this site. The zoning on this site reverted to its
prior status as a residential use property pursuant to a court order in 2002;
however, the proponents of the regional enclosed mall have filed a notice of
appeal of this ruling in the Supreme Court of Arkansas. A hearing of the appeal
was held on October 30, 2003, with no decision expected before December 2003. In
the event that a large-scale retail facility is built on this site, Dillard's
may cease operating its stores at Park Plaza Mall. In the event Dillard's closes
one or both of its stores at Park Plaza Mall, it is unlikely that it would sell
or lease its two stores to comparable anchor tenants. Accordingly, the value of
Park Plaza Mall would be materially and adversely affected due to the decline in
traffic and sales volume at Park Plaza Mall, and the rights of many of the
tenants to terminate their leases or to pay less rent triggered by the closure
of one or both of the anchor stores. The Park Plaza Mall property is financed by
a mortgage loan. The loss of an anchor tenant or a significant number of other
mall tenants could result in an event of default under this mortgage.

Regardless of whether the proposed new mall is built at the site in question,
under the terms of the operating covenant, Dillard's has no obligation to
maintain its operations at Park Plaza Mall beyond July 2003. Dillard's has been
approached to extend the operating covenant at the Park Plaza Mall. To date, it
has declined to do so, however, under the terms of the operating covenant,
Dillard's is permitted to continue operations at Park Plaza Mall through 2031.
If Dillard's does not maintain its presence as an anchor store at Park Plaza
Mall, the Park Plaza Mall would experience a loss of revenue and likely an event
of default under the mortgage, thereby causing the value of the Park Plaza Mall
to be materially and adversely affected. In such circumstances, there would be
an impairment of the value of the property and a loss could be recognized. There
can be no assurance that Dillard's will maintain its presence as an anchor store
at Park Plaza Mall.

Other Contingency

         Revenue Canada has commenced a tax audit of the Trust's March 2000 spin
off of Imperial Parking Corp. of Canada (IPK, Amex). The Trust cannot determine
at this time what effect, if any, the tax audit will have on the financial
position or results of operations of the Trust. The Trust does not anticipate
that the liability, if any, would exceed $0.7 million.

Sale of VenTek Parking Business

         On August 1, 2003, VenTek sold substantially all the assets of its
parking ticketing equipment business to an unrelated third party for
approximately $0.4 million. VenTek received approximately $0.1 million in cash,
a note receivable for approximately $0.1 million and transferred approximately
$0.2 million in liabilities. The Trust recognized a gain of $54,000.

                                       13

<PAGE>

Business Segments

         The Trust's and Company's business segments include ownership of a
shopping center, an office building, and a parking and transit ticket equipment
manufacturing company. Management evaluates performance based upon net operating
income. With respect to property assets, net operating income is property rent
less property operating expense, and real estate taxes. With respect to VenTek,
a manufacturer of transit and parking ticketing equipment, net operating income
is sales revenue less cost of goods sold. Corporate assets consist primarily of
cash and cash equivalents, investments and deferred issue costs for senior
notes. The parking ticket equipment business was sold on August 1, 2003. All
intercompany transactions between segments have been eliminated (see table of
business segments).

                                       14

<PAGE>

Business Segments (in thousands)

<TABLE>
<CAPTION>
                                       Three Months Ended September 30,    Nine Months Ended September 30,
                                       --------------------------------    -------------------------------
                                         2003                    2002        2003                   2002
                                       --------                --------    --------               --------
<S>                                    <C>                     <C>         <C>                    <C>
Rents and Sales
       Shopping Centers                $  3,097                $  2,934    $  9,074               $  8,824
       Office Buildings                     367                     342       1,070                  1,026
       VenTek                               372                     602       1,816                  2,194
       Corporate                             12                      33         112                    163
                                       --------                --------    --------               --------
                                          3,848                   3,911      12,072                 12,207

Less - Operating Expenses and
  Costs of Goods Sold
       Shopping Centers                   1,065                   1,163       3,134                  3,232
       Office Buildings                     174                     185         562                    546
       VenTek                               788                   1,049       2,754                  3,538
       Corporate                              -                     141          66                    168
                                       --------                --------    --------               --------
                                          2,027                   2,538       6,516                  7,484

Less - Real Estate Taxes
       Shopping Centers                     203                     203         607                    619
       Office Buildings                      22                      22          67                     67
       Corporate                              -                     (12)          -                    (12)
                                       --------                --------    --------               --------
                                            225                     213         674                    674

Net Operating Income (Loss)
       Shopping Centers                   1,829                   1,568       5,333                  4,973
       Office Buildings                     171                     135         441                    413
       VenTek                              (416)                   (447)       (938)                (1,344)
       Corporate                             12                     (96)         46                      7
                                       --------                --------    --------               --------
                                          1,596                   1,160       4,882                  4,049

Less - Depreciation and Amortization        552                     512       1,612                  1,540

Less - Interest Expense                   1,237                   1,480       3,608                  3,885

Corporate Income (Expense)
       Interest                             172                     421         682                  1,318
       Other income (VenTek)                  -                     475           -                    475
       General and administrative          (762)                 (1,079)     (5,281)                (4,220)
                                       --------                --------    --------               --------

Net Loss before Gain on Sale and
  Preferred Dividend                   $   (783)               $ (1,015)   $ (4,937)              $ (3,803)
                                       ========                ========    ========               ========
</TABLE>

                                       15

<PAGE>

Business Segments (Continued)

<TABLE>
<CAPTION>
                          Three Months Ended September 30,   Nine Months Ended September 30,
                          -------------------------------    ------------------------------
                                2003            2002               2003           2002
                          ---------------  --------------    ---------------  -------------
<S>                       <C>              <C>               <C>              <C>
Capital Expenditures
       Shopping Centers         $448            $240               $499           $256
       Office Buildings           55              73                129            219
       VenTek                     16               3                 18              7
                                ----            ----               ----           ----
                                $519            $316               $646           $482
                                ====            ====               ====           ====
</TABLE>

<TABLE>
<CAPTION>
                                     September 30,
                               ------------------------
                                 2003            2002
                               --------        --------
<S>                            <C>             <C>
Identifiable Assets
       Shopping Centers        $ 57,505        $ 57,841
       Office Buildings           2,185           2,358
       VenTek                     1,091           2,904
       Corporate                 86,423         109,076
                               --------        --------
Total Assets                   $147,204        $172,179
                               ========        ========
</TABLE>

                                       16

<PAGE>

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

2002 TRANSACTION

THE PROPOSED TRANSACTION

         On February 13, 2002, the Trust entered into a definitive agreement of
merger and contribution with, among others, Gotham Partners, L.P., ("Gotham
Partners") a shareholder of the Trust that is controlled by affiliates of
William A. Ackman, who was at the time Chairman of the Board of Trustees of the
Trust, and Gotham Golf Corp. ("Gotham Golf"), a Delaware corporation controlled
by Gotham Partners, pursuant to which the Trust agreed to merge with and into
Gotham Golf. On October 24, 2002, the parties adopted the last of three
amendments to the merger agreement.

         The proposed transaction was approved by the Trust's common
shareholders at a special meeting held on November 27, 2002.

         In November 2002, the plaintiff in the preferred shareholder litigation
(see "Legal Proceedings") filed with the New York Supreme Court for New York
County an Order to Show Cause why the transaction should not be enjoined. The
court held a hearing on that issue on November 20. On November 21, 2002, the
court issued an order denying the defendants' motion to dismiss the complaint
and granting plaintiff's motions for preliminary injunction and expedited
discovery in connection with the proposed merger. Following hearings with
respect to the plaintiff's motions, the court issued an order in December 2002
granting a preliminary injunction barring the proposed merger of the Trust with
and into Gotham Golf. The Trust appealed the court's order barring the
transaction in the Appellate Division of the New York Supreme Court. Oral
argument on the appeal was heard by the Appellate Division on March 11, 2003.

         On June 25, 2003 the Trust entered into a Settlement, Termination and
Standstill Agreement (the "Agreement") with, among others, Gotham Partners. The
Agreement provided for the termination of the merger agreement regarding the
merger of the Trust with Gotham Golf, the purchase by the Trust of 5,841,233
common shares of the Trust owned by Gotham Partners and its affiliates for
approximately $11.1 million and a termination payment to Gotham Partners of $2.4
million. The Agreement also provides that neither Gotham Partners nor any
affiliate will enter into or agree to enter into any form of business
combination, acquisition or other transaction involving the Trust or any
majority-owned affiliate for a period of five years from the date of the
Agreement. The termination payment was recognized as a general and
administrative expense during the three months ended June 30, 2003.

         On September 4, 2003, the Appellate Division, First Department of the
New York Supreme Court, issued its ruling on the appeal by the Company and the
other defendants of the trial court's order barring the merger transaction. The
five-member Appellate Division panel unanimously found that the legal standard
for the granting of the injunction had not been satisfied and, accordingly, the
order of the trial court granting the injunction was reversed and the injunction
vacated. Plaintiff preferred shareholders have not sought to appeal from this
decision. As the transaction had already been terminated prior to the issuance
of the opinion, the opinion had no effect on the terminated transaction.

                                       17

<PAGE>

         The Board of Trustees has continued to operate the Trust as an ongoing
enterprise since the termination of the merger transaction with a focus on
reducing operating expenses whenever possible. The Board of Trustees continues
to examine other suitable operating and investment alternatives with respect to
the Trust.

OTHER MATTERS

         The Trust could be affected by declining economic conditions as a
result of various factors that affect the real estate business including the
financial condition of tenants, competition, and increased operating costs. The
Trust expects that its insurance costs will increase when its policies are
renewed at the end of November 2003. The Trust's Directors' and Officers'
insurance was renewed in June 2003. The rates increased in excess of 100% upon
renewal.

         The Trust authorized a share repurchase plan in July 2003. The plan
allows for the Trust to purchase up to $10.0 million of its common and preferred
shares in the market or private transactions.

         The Trust's most critical accounting policy relates to the evaluation
of the carrying value of real estate. The Trust evaluates the need for an
impairment loss on its real estate assets when indicators of impairment are
present and the undiscounted cash flows are not sufficient to recover the
asset's carrying amount. The impairment loss is measured by comparing the fair
value of the asset to its carrying amount. In addition, estimates are used when
accounting for the allowance for doubtful accounts, potentially excess and
obsolete inventory, product warranty reserves, the percentage of completion
method of recognizing revenue and contingent liabilities, among others. These
estimates are susceptible to change and actual results could differ from these
estimates. The effects of changes in these estimates are recognized in the
period they are determined.

SHAREHOLDER LITIGATION

         Three separate lawsuits were filed, and one has since been dismissed
with prejudice, with respect to the proposed transactions between the Trust and
Gotham Partners relative to the Merger Agreement of February 13, 2002, which
Merger Agreement was terminated effective June 25, 2003. (See "Part II, Item 1.
Legal Proceedings").

PARK PLAZA MALL

         Two Dillard's department stores are the anchor stores at Park Plaza
Mall. Dillard's owns its facilities in Park Plaza Mall and has a Construction,
Operation and Reciprocal Easement Agreement with a subsidiary of the Trust that
contains an operating covenant requiring Dillard's to operate these facilities
continuously as retail department stores until July 2003. Dillard's and its
partner, Simon Property Group, own a parcel of land of nearly 100 acres in the
western part of Little Rock, Arkansas and have announced, at various times over
the last several years, their intention to build in this new location. During
the first quarter of 2001, the Little Rock board of directors approved a change
in zoning that would allow the construction of an approximately 1.3 million
square foot regional enclosed mall on this site. The zoning on this site
reverted to its prior status as a residential use property pursuant to a court
order in 2002; however, the proponents of the regional enclosed mall have filed
a notice of appeal of this ruling in the Supreme Court of Arkansas. A hearing of
the appeal was held on October 30, 2003, with no decision expected before
December 2003. In the event that a large-scale retail facility is built on this
site, Dillard's may cease operating its stores at Park Plaza Mall. In the event
Dillard's closes one or both of its stores at Park Plaza Mall, it is unlikely
that it would sell or lease its two stores to

                                       18

<PAGE>

comparable anchor tenants. Accordingly, the value of Park Plaza Mall would be
materially and adversely affected due to the decline in traffic and sales volume
at Park Plaza Mall, and the rights of many of the tenants to terminate their
leases or to pay less rent triggered by the closure of one or both of the anchor
stores. The Park Plaza Mall property is financed by a mortgage loan. The loss of
an anchor tenant or a significant number of other mall tenants could result in
an event of default under this mortgage.

         Regardless of whether the proposed new mall is built at the site in
question, under the terms of the operating covenant, Dillard's has no obligation
to maintain its operations at Park Plaza Mall beyond July 2003. Dillard's has
been approached to extend the operating covenant at the Park Plaza Mall. To
date, it has declined to do so, however, under the terms of the operating
covenant, Dillard's is permitted to continue operations at Park Plaza Mall
through 2031. If Dillard's does not maintain its presence as an anchor store at
Park Plaza Mall, the Park Plaza Mall would experience a loss of revenue and
likely an event of default under the mortgage, thereby causing the value of the
Park Plaza Mall to be materially and adversely affected. In such circumstances,
there would be an impairment of the value of the property and a loss could be
recognized. There can be no assurance that Dillard's will maintain its presence
as an anchor store at Park Plaza Mall.

         With respect to capital improvements, the Trust has completed the
repair of Park Plaza Mall's roof at a cost of approximately $0.6 million during
the first quarter of 2003.

VENTEK

         The Company's subsidiary, VenTek, a manufacturer of transit ticketing
equipment, continues to incur significant operating losses. The Trust has
provided performance bond guarantees entered into with respect to two contracts
of VenTek with transit authorities, which contracts are in the amounts of $6.2
million and $5.3 million. These contracts are for the manufacture, installation
and maintenance of transit ticket vending equipment by VenTek. The guarantees
are expected to expire within the next fifteen months based on the commencement
of contractual warranty and maintenance periods now in effect under both
contracts. As of November 1, 2003, no amounts have been drawn against these
guarantees. If VenTek is unable to perform in accordance with these contracts,
the Trust may be responsible for payment under these guarantees. In connection
with one of the contracts, VenTek settled a claim for liquidated damages for
approximately $0.1 million during the nine months ended September 30, 2003.
During the third quarter, VenTek entered into a new contract for $2.2 million
with one of the transit authorities to manufacture additional ticket vending
machines. In connection with the contract, the Trust provided cash collateral
equal to 50 percent of the contract value to secure a Letter of Credit required
by the bonding company.

         In August 2003, VenTek sold substantially all the assets of its parking
ticket equipment business to an unrelated third party for approximately $0.4
million. VenTek received approximately $0.1 million in cash, a note receivable
for approximately $0.1 million and transferred approximately $0.2 million in
liabilities. The Trust recognized a gain of $54,000 on the transaction. The sale
of the parking ticket equipment business is not expected to have a significant
impact on operations or cash flows of the Trust.

Other Contingency

         Revenue Canada has commenced a tax audit of the Trust's March 2000 spin
off of Imperial Parking Corp. of Canada (IPK, Amex). The Trust cannot determine
at this time what effect, if any, the tax audit will have on the financial
position or results of operations of the Trust. The Trust does not anticipate
that the liability, if any, would exceed $0.7 million.

                                       19

<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

GENERAL

         Unrestricted and restricted cash and cash equivalents increased by
approximately $12.3 million (to $18.2 million from $5.9 million) when comparing
the balance at September 30, 2003 to the balance at December 31, 2002.

         The Trust's net cash provided by investing activities of $34.4 million
was partially offset by net cash used for operating activities of $3.9 million
and net cash used for financing activities of $18.2 million. Cash used for
financing activities included $16.4 million for the repurchase of shares of
beneficial interest, $1.5 million in cash dividends to preferred shareholders
and $0.3 million of mortgage amortization. Cash provided by investing activities
consisted of the excess of maturities over purchases of U.S. Treasury Bills and
Federal Home Loan Bank Discount Notes of $35.0 million. Cash used for investing
activities consisted of $0.6 million of improvements to properties.

         The Trust declared a dividend of $0.5 million ($0.525 per share) to
Series A Cumulative Preferred Shareholders (the "Preferred Shareholders") in the
third quarter of 2003. The dividend was paid October 31, 2003 to shareholders of
record at the close of business on September 30, 2003. In addition, the Trust
paid a dividend of $0.5 million ($0.525 per share) to the Preferred Shareholders
in the first and second quarters. No cash dividend for the first, second or
third quarters was declared with respect to the Common Shares.

         At September 30, 2003, the Trust owned $48.950 million in face value of
U.S. Treasury Bills and Federal Home Loan Bank Discount Notes. The U.S. Treasury
Bills and Federal Home Loan Bank Discount Notes are of maturities of less than
90 days and classified as held to maturity. The average yields for the nine
months ended September 30, 2003 and 2002 were 1.06% and 1.67%, respectively. At
September 30, 2003, the Trust owned $20.0 million in interest bearing commercial
paper. The average yield for the three months ended September 30, 2003 was
1.28%.

         A summary of the Trust's borrowings and repayment timing is as follows
(in millions):

<TABLE>
<CAPTION>
                                                            Payments Due by Period
                                                            ----------------------
                                                       Less than             1-3              4-5            After 5
Contractual Obligations                Total             1 Year             Years            Years            Years
---------------------------------------------------------------------------------------------------------------------
<S>                                  <C>               <C>                <C>               <C>              <C>
Mortgage loan payable                $   41.5          $     0.3          $    0.8          $   0.9          $   39.5
Senior notes                             12.5               12.5                 -                -                 -
                                     --------------------------------------------------------------------------------
    Total                            $   54.0          $    12.8          $    0.8          $   0.9          $   39.5
                                     ================================================================================
</TABLE>

         The only lease with respect to which the Trust has an obligation for
payment of rent for is for VenTek, which is month to month. The senior notes
were paid in full on October 1, 2003.

                                       20

<PAGE>

RESULTS OF OPERATIONS

         Net loss applicable to shares of beneficial interest for the nine
months ended September 30, 2003 was $6.4 million as compared to a net loss of
$5.4 million for the nine months ended September 30, 2002.

         Net loss applicable to shares of beneficial interest for the three
months ended September 30, 2003 was $1.2 million as compared to a net loss of
$1.5 million in the comparable period in 2002.

         Interest income decreased by $0.2 million and $0.6 million during the
three and nine months ended September 30, 2003, as compared to the comparable
periods in 2002. The decrease is a result of lower amounts invested and lower
interest rates between the periods.

         Property net operating income, which is rent less property operating
expenses and real estate taxes, increased for the nine months ended September
30, 2003 to $5.8 million from $5.4 million. There was an increase in revenues of
$0.2 million and a decrease in operating expenses of $0.2 million. Revenues
increased by $0.2 million for the nine months ended September 30, 2003, due to
lease termination fees received of $0.3 million at Park Plaza. A decrease in
occupancy at Park Plaza was partially offset by an increase in rental rates when
comparing the nine months ended September 30, 2003 to September 30, 2002.
Occupancy and rental rates both increased at Circle Tower when comparing the
periods. Included in operating expenses are $0.2 million in 2002 of costs
incurred in connection with the matters described above in the Park Plaza Mall
section.

         Property net operating income increased for the three months ended
September 30, 2003 to $2.0 million from $1.6 million in 2002. The increase was
attributed to an increase in revenues of approximately $0.2 million and a
decrease in operating expenses of approximately $0.2 million. The increase of
$0.2 million in revenues was primarily due to a lease termination fee received
of $0.2 million at Park Plaza.

         Depreciation and amortization increased for the three and nine months
ended September 30, 2003 when compared to the comparable period in 2002 due to
an increase in building and improvements. Interest expense decreased when
comparing the three and nine months ended September 30, 2003 due to the payment
of principal on the mortgage loan.

         General and administrative expenses increased by approximately $1.1
million when comparing the nine months ended September 30, 2003 to the
comparable period in 2002. The increase was due to a $2.4 million termination
fee paid to Gotham Partners to terminate the Gotham Proposal. The termination
fee was partially offset by a decrease in legal fees and professional fees.
Included in general and administrative expenses for the nine months ended
September 30, 2003 and 2002 are approximately $2.9 million and $1.9 million,
respectively, of the Trust's transaction costs related to the Gotham Proposal.
During the nine months ended September 30, 2003 and 2002, $0.4 million of costs
related to the preferred shareholder lawsuit were included in general and
administrative expenses. Also included in general and administrative expenses
are $0.3 million and $0.6 million in 2003 and 2002, respectively, to a firm
providing management services to VenTek. Otherwise, general and administrative
expenses remained relatively constant when comparing the nine months ended
September 30, 2003 to the comparable period in 2002.

                                       21

<PAGE>

         General and administrative expenses decreased by $0.3 million when
comparing the three months ended September 30, 2003 to the comparable period in
2002. The decrease was primarily due to the termination of the Gotham Proposal.
In addition, an increase in insurance expense was offset by a decrease in
professional fees. Included in general and administrative expenses for the three
months ended September 30, 2002 are $0.4 million of transaction costs related to
the Gotham Proposal. Also included in general and administrative expenses are
$0.1 million and $0.2 million for the three months ended September 30, 2003 and
2002, respectively, to a firm providing management services to VenTek. Also
included in general and administrative expenses for the 2003 and 2002 periods is
a $0.1 million tax refund.

         The Company's manufacturing facility, VenTek, incurred a net loss of
$1.1 million for the nine months ended September 30, 2003 and 2002. Revenue
decreased for the nine months ended September 30, 2003 to $1.8 million from $2.2
million in 2002 and cost of goods sold decreased to $2.8 million from $3.5
million for the same period. For the three months ended September 30, 2003,
VenTek incurred a net loss of $0.4 million as compared to a net loss of $0.1
million for the three months ended September 30, 2002. Revenues decreased to
$0.4 million from $0.6 million for the three months ended September 30, 2003 and
2002 and costs of goods sold decreased to $0.8 million from $1.0 million for the
same period. The decrease in both revenues and cost of goods sold is due to the
winding down of current contracts. During the third quarter VenTek entered into
a new contract for $2.2 million with one of the transit authorities to
manufacture additional ticket vending machines. In addition in October 2003,
VenTek received a change order on an existing contract to manufacture additional
ticket vending machines for $0.8 million. There was no backlog for VenTek at
September 30, 2003 besides the new contract. Backlog represents products or
services that VenTek's customers have committed by contract to purchase.
VenTek's backlog is subject to fluctuations and is not necessarily indicative of
future sales. A failure to replace backlog has resulted in lower revenues.

         Certain statements contained in this Form 10-Q that are forward-looking
are based on current expectations that are subject to a number of uncertainties
and risks, and actual results may differ materially. The uncertainties and risks
include, but are not limited to, changes in market activity, changes in local
real estate conditions and markets, actions by competitors, interest rate
movements and general economic conditions. Further information about these
matters can be found in the Trust's Annual Report filed with the SEC on Form
10-K.

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ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK

Interest Rate Risk

         All of the Trust's loans outstanding at September 30, 2003 have fixed
interest rates. The Trust's investments in U.S. Treasury Bills, Federal Home
Loan Bank Discount Notes, and commercial paper mature in less than 90 days and
therefore are not subject to significant interest rate risk.

ITEM 4.  CONTROLS AND PROCEDURES

         The registrant's principal executive and financial officer has, within
90 days of the filing date of this quarterly report, evaluated the effectiveness
of the registrant's disclosure controls and procedures (as defined in Exchange
Act Rules 13a - 14(c)) and has determined that such disclosure controls and
procedures are adequate to ensure that information required to be disclosed by
the registrant in the reports filed or submitted under the Exchange Act is
recorded, processed and summarized and reported within the time periods
specified by the Securities and Exchange Commission. There have been no
significant changes in the registrant's internal controls or in other factors
that could significantly affect such internal controls since the date of
evaluation. Accordingly, no corrective actions have been taken with regard to
significant deficiencies or material weaknesses.

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                           PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

PREFERRED SHAREHOLDER LAWSUIT

KIMELDORF V. FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS, ET AL.,
SUPREME COURT OF THE STATE OF NEW YORK, COUNTY OF NEW YORK (INDEX NO.
107176/02).

On April 15, 2002, the Trust was served with a complaint filed in the Supreme
Court of New York in New York County on behalf of a purported holder of the
Trust's convertible preferred shares. Among the allegations made by the
plaintiff is that the proposed transaction with Gotham Golf was approved by the
Trust's Board of Trustees in violation of fiduciary duties owed to the holders
of the Trust's convertible preferred shares. The suit seeks, among other things,
unspecified damages, an injunction of the proposed transaction and the court's
certification of the lawsuit as a class action. Named as defendants in the
lawsuit were the Trust, its then five trustees and Gotham Partners. (For a
summary of the proceedings in this suit to date, see "Termination of Proposed
Transaction," above).

In November 2002, First Carolina Investors, Inc. ("First Carolina") a holder of
preferred shares, filed a separate lawsuit in New York Supreme Court for New
York County, naming the same defendants as in the Kimeldorf case. In December
2002, plaintiffs Kimeldorf and First Carolina filed a consolidated amended
complaint, styled Kimeldorf et al. v. First Union, et al, alleging, among
others, breach of contract; aiding and abetting breach of contract; tortious
interference with the contract; breach of fiduciary duties; aiding and abetting
of breach of fiduciary duties; and unconscionability against the defendants.
This consolidated amended complaint essentially consolidated the separate First
Carolina complaint, filed in November 2002, with the complaint of Mr. Kimeldorf,
filed in April 2002.

On April 30, 2003, the trial court granted the plaintiff's motion to certify the
litigation as a class action. However, plaintiff never submitted an order
identifying the certified class, and the court has issued an order nullifying
the grant of class certification.

In July 2003, Plaintiff Kimeldorf and First Carolina each filed separate motions
with the trial court seeking to hold the defendants in contempt as a result of
the execution and performance of the Termination Agreement (see "Termination of
Proposed Transaction", above). The plaintiffs contend that these actions
violated the trial court's injunction against the consummation of the merger
between the Trust and Gotham Golf. Defendants filed a brief in opposition to the
motions. The trial court heard oral argument with respect to these motions in
July 2003 and has taken them under advisement.

In September 2003, the Appellate Division, First Department of the New York
Supreme Court vacated the preliminary injunction, the violation of which was the
subject of plaintiff's motions for contempt. Although not dispositive of the
matter, the Trust believes but cannot assure that there is a reasonable
likelihood that the plaintiff preferred shareholders will not prevail on motions
seeking the trial court to hold the Trust and the other defendants in contempt
of a vacated preliminary injunction.

The Trust is pursuing the goal of obtaining dismissal with prejudice by order of
the court or, in the alternative, to settle by dismissal with prejudice outside
of court and, thus, terminate the proceedings. To that end, the Trust has filed
a motion for summary judgment in the Kimeldorf case.

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The Trust regards the lawsuit as being without merit and will vigorously defend
against the asserted claims.

COMMON SHAREHOLDER LAWSUITS

FINK V. FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS, ET AL., SUPREME
COURT OF THE STATE OF NEW YORK, COUNTY OF NEW YORK (INDEX NO. 03600265)

On or about January 24, 2003, the Trust was served with a complaint filed in the
Supreme Court of New York, New York County on behalf of a purported holder of
the Trust's common shares, on behalf of himself and the common shareholders as a
class. The lawsuit seeks a declaration that the lawsuit is maintainable as a
class action and a certification that the plaintiff, Robert Fink, is the
representative of the class. Named as defendants in the lawsuit are the Trust,
Gotham Partners, the companies affiliated with Gotham Partners and the Trust
that are parties to the Merger Agreement, William Ackman and the four current
Trustees of the Trust. Among the allegations asserted are breach of fiduciary
duty and aiding and abetting thereof in connection with the transactions
contemplated by the Merger Agreement. The relief requested by the plaintiff
includes an injunction preventing the defendants from proceeding with
consummation of the merger, rescission of the merger if it occurs, an accounting
for any profits realized by the defendants as a result of the actions complained
of, an order permitting the creation of a shareholders' committee composed of
the Trust common shareholders and their representatives to manage the affairs of
the Trust, compensatory damages and the costs and disbursements of plaintiff's
counsel.

On or about February 14, 2003, the parties to this lawsuit stipulated that the
defendants need not answer or otherwise respond to the complaint for an
indefinite period of time. The stipulation is revocable by the plaintiff at any
time. The Trust believes that the purpose of the stipulation was to delay court
proceedings in this lawsuit until the outcome of the appeal of the injunction
entered in the Kimeldorf case (see "Termination of Proposed Transaction," above)
is decided by the Appellate Division.

On or about July 3, 2003, the Plaintiff filed an amended complaint which seeks
additional relief based upon the termination agreement, including a request that
the defendants be required to return to the Trust the termination fee paid to
Gotham Partners as well as the consideration paid for Gotham Partners' shares in
the Trust. As with the original complaint, the parties have stipulated that the
defendants need not answer or otherwise respond to the amended complaint for an
indefinite period of time. The stipulation is revocable by the plaintiff at any
time.

Following the decision of the Appellate Division, First Department of the New
York Supreme Court in the Kimeldorf case, counsel for the Trust and the other
defendants have requested that the plaintiff voluntarily dismiss its suit with
prejudice. If the plaintiff common shareholder does not voluntarily dismiss the
Fink case with prejudice, the Trust and the other defendants intend to file a
motion with the trial court to dismiss the case.

The Trust regards the lawsuit as without merit and plans to vigorously defend
against the allegations.

K-A & COMPANY, LTD. V. FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS,
ET AL., UNITED STATES DISTRICT COURT, NORTHERN DISTRICT OF OHIO, EASTERN
DIVISION (CASE NO. 1:03 CV 0460)

On or about February 12, 2003, a complaint was filed in the Court of Common
Pleas, Cuyahoga County, Ohio, by a purported holder of the Trust's common
shares, on behalf of itself and the Trust common shareholders as a class. Named
as defendants in the lawsuit are the Trust, Gotham Partners, William Ackman and
four of the current Trustees of the Trust. The allegations made and the relief
requested in the K-A suit are substantially

                                       25

<PAGE>

identical to those of the Fink suit referenced above. This lawsuit was removed
by notice filed by defendants to the United States District Court, Northern
District of Ohio, Eastern Division (Case No. 1:03 CV 0460).

On April 10, 2003, the plaintiff filed a motion for a preliminary injunction
seeking an order preventing the defendants from consummation of the merger. The
defendants filed a motion requesting the court to stay consideration of the
plaintiff's motion pending a decision on the appeal of the preliminary
injunction entered by the New York Supreme Court for New York County in
Kimeldorf, described above.

Following the issuance of the Appellate Division, First Department of the New
York Supreme Court of its reversal of the order granting the injunction, and the
vacating of the injunction, granted in the Kimeldorf case, the plaintiffs in the
K-A & Company, LTD. case have voluntarily dismissed their complaint with
prejudice; accordingly, that case has been disposed of.

OTHER LITIGATION

PEACH TREE MALL LITIGATION

The Trust, as one Plaintiff in a class action composed of numerous businesses
and individuals, has pursued legal action against the State of California
associated with the 1986 flood of Sutter Buttes Center, formerly Peach Tree
Mall. In September 1991, the court ruled in favor of the plaintiffs on the
liability portion of the inverse condemnation suit, which the State of
California appealed. In the third quarter of 1999, the 1991 ruling in favor of
the Trust and the other plaintiffs was reversed by the State of California
Appeals Court, which remanded the case to the trial court for further
proceedings. After the remand to the trial court, the Trust and the other
plaintiffs determined to pursue a retrial before the court. The retrial of the
litigation commenced February 2001 and was completed July 2001. In November
2001, the trial court issued a decision that generally held in favor of the
State of California. In February 2002, the Plaintiffs in the case filed a notice
of appeal of the ruling of the trial court in the California Court of Appeals.
The appellate briefing was completed in May 2003. The Trust is unable to predict
at this time whether or not it will recover any amount of its damage claims in
this legal proceeding.

INDEMNITY TO IMPERIAL PARKING CORPORATION

In 1999, Newcourt Financial Ltd. ("Newcourt") brought a claim in Ontario against
an affiliate of the Trust and Imperial Parking Limited alleging a breach of a
contract between the Trust affiliate and Newcourt's predecessor-in-interest,
Oracle Credit Corporation and Oracle Corporation Canada, Inc. The Trust
affiliate and Imperial Parking Limited brought a separate action in British
Columbia against Newcourt, Oracle Credit Corporation and Oracle Corporation
Canada claiming, among other things, that the contract at issue was not properly
authorized by the Trust's board of trustees and the Imperial Parking Limited
board of directors. In March 2000, in connection with the spinoff of Imperial
Parking Corporation (the successor in interest to Imperial Parking Limited) to
the Trust's shareholders, the Trust granted a full indemnity to Imperial Parking
Corporation in respect of all damages arising from the outstanding actions.

Numerous attempts to settle this matter have not been successful. The Trust has
reserved $600,000 in its combined financial statements for this claim. The
reserved amount consists of the face amount of the contract of $425,000 and
estimated costs of $175,000. The amount of the claim, $825,000, includes
Newcourt's calculation of interest on the amount due at the default rate under
the contract. The Trust believes that, due to

                                       26

<PAGE>

the failure of attempted settlement negotiations, discovery will commence, and
the matter will become more actively litigated. The Trust intends to defend
vigorously against the claims brought against the parties that it has
indemnified and to pursue their separate claims with respect to this matter.

MOUNTAINEER MALL CLAIM

The Trust was named as a defendant in a lawsuit filed in connection with a
contractor's claim relative to the construction of a portion of the Mountaineer
Mall, located in Morgantown, West Virginia. The construction of the mall
commenced in 1993 and was completed in 1995. The mall was sold in July 1999. A
trial on the merits of the lawsuit was held in 1997.

In October 2002, the court issued findings of fact and conclusions of law
providing that the claimant was entitled to recover from the Trust the principal
amount of $266,076 in damages plus various interest amounts, which, when added
to the principal amount, would result in an aggregate damage award of $494,382
against the Trust. The court's order provided, however, that the amount of the
damage award is subject to offset by the amount of legal fees and expenses
reasonably and necessarily incurred by the Trust in defending a certain
mechanic's lien claim asserted by the plaintiff in the lawsuit. The court
further directed that the plaintiff and the Trust negotiate in good faith as to
the amount of such expense and that, if the parties are unable to agree as to
the appropriate offset, the court would schedule an evidentiary hearing for the
purpose of resolving the issue.

In July 2003, the Trust and the plaintiff entered into a settlement agreement
and paid $350,000 to the plaintiff in full settlement of the claim.

                                       27

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ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.

         (a)  Exhibits

              31                     Certification Pursuant to Section 302 of
                                     the Sarbanes-Oxley Act of 2002

              32                     Certification Pursuant to Section 906 of
                                     the Sarbanes-Oxley Act of 2002

         (b)  Reports on Form 8-K:   The Registrant has filed a Form 8-K dated
                                     August 14, 2003, reporting under Items 7
                                     and 12 thereof the release of its second
                                     quarter earnings information and attaching
                                     thereto as an exhibit its earnings release
                                     dated August 14, 2003.

                                       28

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                                   SIGNATURES

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

                                           First Union Real Estate Equity and
                                                   Mortgage Investments
                                           ----------------------------------
                                                         (Trust)

Date: November 14, 2003                  By: /s/ Neil H. Koenig
                                             ----------------------------------
                                             Neil H. Koenig
                                             Interim Chief Executive Officer and
                                             Interim Chief Financial Officer

                                       29