<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 June 30, 2002      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 the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.

    34,805,912 Shares of Beneficial Interest outstanding as of August 1, 2002

               Total number of pages contained in this report: 23
<PAGE>
                         PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

FIRST UNION REAL ESTATE EQUITY and MORTGAGE INVESTMENTS

Combined Balance Sheets

<TABLE>
<CAPTION>

(In thousands, except share data)                                            June 30, 2002    December 31,
                                                                              (Unaudited)        2001
                                                                             -------------    ------------
<S>                                                                          <C>              <C>
ASSETS

Investments in real estate, at cost
  Land                                                                         $   6,086       $   6,086
  Buildings and improvements                                                      64,343          64,189
                                                                               ---------       ---------
                                                                                  70,429          70,275
  Less - Accumulated depreciation                                                (11,069)        (10,108)
                                                                               ---------       ---------
    Investments in real estate, net                                               59,360          60,167

Other assets

  Cash and cash equivalents - unrestricted                                         3,329           2,609
                            - restricted                                           1,820           2,115
  Accounts receivable and prepayments, net of allowances
      of $732 and $680, respectively                                               2,610           2,261
  Investments                                                                    108,903         116,005
  Inventory                                                                        1,194           1,971
  Unamortized debt issue costs, net                                                  315             351
  Other                                                                              171             190
                                                                               ---------       ---------
    Total assets                                                               $ 177,702       $ 185,669
                                                                               =========       =========

LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities

  Mortgage loan                                                                $  41,917       $  42,078
  Note payable                                                                        88              96
  Senior notes                                                                    12,538          12,538
  Accounts payable and accrued liabilities                                         7,648           7,856
  Dividends payable                                                                3,998             517
  Deferred items                                                                     129             416
                                                                               ---------       ---------
    Total liabilities                                                             66,318          63,501
                                                                               ---------       ---------

Shareholders' equity

  Convertible preferred shares of beneficial interest, $25 per share
    liquidiation preference, 2,300,000 shares authorized, 984,800 shares
    outstanding at June 30, 2002 and December 31, 2001                            23,171          23,171
  Shares of beneficial interest, $1 par, unlimited authorized, 34,805,912
      outstanding at June 30, 2002 and December 31, 2001                          34,806          34,806
  Additional paid-in capital                                                     207,602         207,602
  Accumulated distributions in excess of net income                             (154,195)       (143,411)
                                                                               ---------       ---------
    Total shareholders' equity                                                   111,384         122,168
                                                                               ---------       ---------
Total liabilities and shareholders' equity                                     $ 177,702       $ 185,669
                                                                               =========       =========
</TABLE>

                 See Notes to Combined Financial Statements.


                                        2
<PAGE>
FIRST UNION REAL ESTATE EQUITY and MORTGAGE INVESTMENTS

Combined Statements of Operations

<TABLE>
<CAPTION>

Unaudited (In thousands, except per share data)                           Three Months Ended              Six Months Ended
                                                                                June 30,                       June 30,
                                                                        -----------------------       -----------------------
                                                                          2002           2001           2002           2001
                                                                        --------       --------       --------       --------
<S>                                                                     <C>            <C>            <C>            <C>
Revenues

    Rents                                                               $  3,407       $  3,065       $  6,704       $ 12,165
    Sales                                                                    647          1,921          1,592          4,031
    Interest and dividends                                                   436          1,715            897          3,549
    Other income                                                              --              1             --              5
                                                                        --------       --------       --------       --------
                                                                           4,490          6,702          9,193         19,750
                                                                        --------       --------       --------       --------

Expenses

    Property operating                                                     1,187          1,696          2,457          4,617
    Cost of goods sold                                                     1,116          1,779          2,489          3,828
    Real estate taxes                                                        241            102            461            945
    Depreciation and amortization                                            519            523          1,028          2,807
    Interest                                                               1,202          1,224          2,405          4,660
    General and administrative                                             1,523          1,732          3,141          3,728
    Write-down of investment                                                  --          2,700             --          2,700
                                                                        --------       --------       --------       --------
                                                                           5,788          9,756         11,981         23,285
                                                                        --------       --------       --------       --------

Loss before gains on sales of real estate and extraordinary loss
    from early extinguishment of debt                                     (1,298)        (3,054)        (2,788)        (3,535)
    Gains on sales of real estate                                             --            142             --         30,129
                                                                        --------       --------       --------       --------
(Loss) income before extraordinary loss from early extinguishment
    of debt                                                               (1,298)        (2,912)        (2,788)        26,594
    Extraordinary loss from early extinguishment of debt                      --             --             --           (889)
                                                                        --------       --------       --------       --------
Net (loss) income                                                         (1,298)        (2,912)        (2,788)        25,705
    Preferred dividend                                                      (517)          (517)        (1,034)        (1,034)
                                                                        --------       --------       --------       --------
Net (loss) income applicable to shares of beneficial interest           $ (1,815)      $ (3,429)      $ (3,822)      $ 24,671
                                                                        ========       ========       ========       ========

Per share data

Basic:
(Loss) income before extraordinary loss from early
    extinguishment of debt                                              $  (0.05)      $  (0.09)      $  (0.11)      $   0.67
Extraordinary loss from early extinguishment of debt                          --             --             --          (0.02)
                                                                        --------       --------       --------       --------
Net (loss) income applicable to shares of beneficial interest           $  (0.05)      $  (0.09)      $  (0.11)      $   0.65
                                                                        ========       ========       ========       ========

Diluted:
(Loss) income before extraordinary loss from early
    extinguishment of debt                                              $  (0.05)      $  (0.09)      $  (0.11)      $   0.62
Extraordinary loss from early extinguishment of debt                          --             --             --          (0.02)
                                                                        --------       --------       --------       --------
Net (loss) income applicable to shares of beneficial interest           $  (0.05)      $  (0.09)      $  (0.11)      $   0.60
                                                                        ========       ========       ========       ========

Basic weighted average shares                                             34,806         36,388         34,806         38,012
                                                                        ========       ========       ========       ========
Diluted weighted average shares                                           34,806         36,388         34,806         42,857
                                                                        ========       ========       ========       ========
</TABLE>

                See Notes to Combined Financial Statements.


                                        3
<PAGE>
FIRST UNION REAL ESTATE EQUITY and MORTGAGE INVESTMENTS

Combined Statements of Cash Flows

<TABLE>
<CAPTION>

Unaudited (In thousands)                                                                     Six Months
                                                                                           Ended June 30,
                                                                                      -------------------------
                                                                                         2002            2001
                                                                                      ---------       ---------
<S>                                                                                   <C>             <C>
Cash used for operating activities
  Net (loss) income                                                                   $  (2,788)      $  25,705
  Adjustments to reconcile net (loss) income
    to net cash used for operating activities
      Depreciation and amortization                                                       1,028           2,807
      Write-down of investment                                                               --           2,700
      Extraordinary loss from early extinguishment of debt                                   --             889
      Gains on sales of real estate                                                          --         (30,129)
      Decrease in deferred items                                                           (287)           (906)
      Net changes in other operating assets and liabilities                                 220          (6,965)
                                                                                      ---------       ---------
        Net cash used for operating activities                                           (1,827)         (5,899)
                                                                                      ---------       ---------

Cash provided by investing activities
  Principal received from mortgage loans                                                     --           2,248
  Net proceeds from sales of real estate                                                     --          43,617
  Purchase of investments                                                              (734,493)       (639,807)
  Proceeds from maturity of investments                                                 741,595         738,787
  Investments in building and tenant improvements                                          (166)           (674)
                                                                                      ---------       ---------
        Net cash provided by investing activities                                         6,936         144,171
                                                                                      ---------       ---------

Cash used for financing activities
  Decrease in notes payable                                                                  (8)       (150,007)
  Proceeds from mortgage loans                                                               --           6,500
  Repayment of mortgage loans - principal payments                                         (161)           (299)
  Repurchase of common shares                                                                --         (11,625)
  Dividends paid on shares of beneficial interest                                        (3,481)             --
  Dividends paid on preferred shares of beneficial interest                              (1,034)         (1,034)
                                                                                      ---------       ---------
        Net cash used for financing activities                                           (4,684)       (156,465)
                                                                                      ---------       ---------
Increase (decrease) in cash and cash equivalents                                            425         (18,193)
Cash and cash equivalents at beginning of period                                          4,724          23,889
                                                                                      ---------       ---------
Cash and cash equivalents at end of period                                            $   5,149       $   5,696
                                                                                      =========       =========

Supplemental Disclosure of Cash Flow Information

   Interest Paid                                                                      $   2,405       $   5,464
                                                                                      =========       =========

Supplemental Disclosure of Non-Cash Investing and Financing Activities
   Dividends accrued on shares of beneficial interest and preferred shares
         of beneficial interest                                                       $   3,998       $     517
                                                                                      =========       =========
   Transfer of mortgage loan obligations in connection with real estate sales         $      --       $ 122,772
                                                                                      =========       =========
   Transfer of deferred obligation in connection with real estate sales               $      --       $   1,775
                                                                                      =========       =========
   Issuance of mortgage loan receivable in connection with real estate sales          $      --       $   7,000
                                                                                      =========       =========
</TABLE>

                   See Notes to Combined Financial Statements.


                                        4
<PAGE>
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 generally
accepted accounting principles 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, as amended.

      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 generally accepted accounting principles
consistently applied. Certain amounts from 2001 have been reclassified to
conform to the 2002 presentation.

Accounting Policies

      In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 142 "Goodwill and Other
Intangible Assets." SFAS No. 142 addresses accounting and reporting for
intangible assets acquired, except for those acquired in a business combination.
SFAS No. 142 presumes that goodwill and certain intangible assets have
indefinite useful lives. Accordingly, goodwill and certain intangibles will not
be amortized but rather will be tested at least annually for impairment. SFAS
No. 142 also addresses accounting and reporting for goodwill and other
intangible assets subsequent to their acquisition. SFAS No. 142 is effective for
fiscal years beginning after December 15, 2001. The adoption of this statement
had no impact on the Trust's combined financial statements.

      In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
This statement supersedes SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" and the
accounting and reporting provisions of APB Opinion No. 30, "Reporting the
Results of Operations - Reporting the Effects of a Disposal of a Business and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions," for
the disposal of a segment of a business. This statement also amends ARB No. 51,
"Consolidated Financial Statements," to eliminate the exception to consolidation
for a subsidiary for which control is likely to be temporary. SFAS No. 144 is
effective for fiscal years beginning after December 15, 2001, and interim
periods within those fiscal years. The provisions of this statement generally
are to be applied prospectively. The adoption of this statement had no impact on
the Trust's combined liquidity, financial position or result of operations,
although in future years, sales of properties, if material to the overall
financial results, would be presented in a manner similar to discontinued
operations.

                                        5
<PAGE>
      In April 2002, the FASB issued 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 will be 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 APB 30. The effect of this statement on the Trust's
financial statements would be the reclassification of extraordinary loss on
early extinguishment of debt to interest expense, however, this will have no
effect on the Trust's net income applicable to shares of beneficial interest.
The Trust intends to adopt FASB No. 145 as of January 1, 2003.

Earnings Per Share

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

<TABLE>
<CAPTION>

                                                                         Three Months Ended                Six Months Ended
                                                                                June 30,                    June 30,
                                                                     ----------------------------       --------------------------
                                                                        2002             2001              2002           2001
                                                                     -----------       ----------       -----------    -----------
<S>                                                                  <C>               <C>              <C>             <C>
Basic

(Loss) income before extraordinary loss from early
    extinguishment of debt                                           $  (1,298)        $   (2,912)      $    (2,788)    $   26,594
Preferred dividend                                                        (517)              (517)           (1,034)        (1,034)
                                                                     ---------         ----------       ------------    -----------
(Loss) income before extraordinary loss from early
    extinguishment of debt applicable to common shares               $  (1,815)        $   (3,429)      $    (3,822)        25,560
                                                                     ==========        ===========      ============    ==========

Basic weighted average shares                                           34,806             36,388            34,806         38,012
                                                                     =========         ==========       ===========     ==========
(Loss) income per share before extraordinary loss from
    early extinguishment of debt                                     $   (0.05)        $    (0.09)      $     (0.11)    $     0.67
                                                                     ==========        ===========      ============    ==========

Diluted

(Loss) income before extraordinary loss from early
    extinguishment of debt                                           $  (1,298)        $   (2,912)      $    (2,788)    $   26,594
Preferred dividend                                                        (517)              (517)           (1,034)            --
                                                                     ---------         -----------      ------------    ----------
(Loss) income before extraordinary loss from early
    extinguishment of debt applicable to common shares               $  (1,815)        $   (3,429)      $    (3,822)    $   26,594
                                                                     ==========        ===========      ============    ==========

Basic weighted average shares                                           34,806             36,388            34,806         38,012
Convertible preferred shares                                                --                 --                --          4,845
                                                                     ---------         ----------       -----------     ----------

Diluted weighted average shares                                         34,806             36,388            34,806         42,857
                                                                     =========         ==========       ===========     ==========
(Loss) income per share before extraordinary
    loss from early extinguishment of debt                           $   (0.05)        $    (0.09)      $    (0.11)     $     0.62
                                                                     ==========        ===========      ===========     ==========
</TABLE>

The preferred shares are not included in the diluted earnings per share
calculation for the three months ended June 30, 2002 and 2001 and for the six
months ended June 30, 2002, because they are anti-dilutive.

Dividends

         The Trust declared a dividend of $3.5 million ($0.10 per share) to
common shareholders and a dividend of $0.5 million ($0.525 per share) to Series
A Cumulative Preferred Shareholders in both the first and second quarters of
2002. The first quarter dividends were paid April 30, 2002 to shareholders of
record at the close of business on March 31, 2002. The second quarter dividends
were paid July 31, 2002 to shareholders of record at the close of business on
July 1, 2002.

                                        6
<PAGE>
Legal Proceedings

      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 Corp. 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 five trustees and Gotham Partners, L.P. On June
6, 2002, the defendants filed with the court motions to dismiss the lawsuit.
Oral arguments on the motions to dismiss were presented on July 15, 2002 in the
Supreme Court of New York, New York County. A ruling on the motions to dismiss
may not be issued for several weeks or longer following the oral argument. The
Trust regards the lawsuit as being without merit and will vigorously defend
against the asserted claims. The Trust does not believe that the suit will
preclude or materially delay the completion of the proposed transaction.

Proposed Merger

      On February 13, 2002, the Trust entered into a definitive agreement of
merger and contribution with, among others, Gotham Partners, L.P., a shareholder
of the Trust that is controlled by affiliates of William A. Ackman, Chairman of
the Board of Trustees of the Trust, and Gotham Golf Corp. ("Gotham Golf"), a
Delaware corporation controlled by Gotham Partners, L.P., pursuant to which the
Trust agreed to merge with and into Gotham Golf. If consummated, the proposed
transaction will result in the Trust's common shareholders receiving as merger
consideration for each Common Share:

-     $2.20 in cash, subject to possible deductions on account of (a) dividends
      paid to the Trust's common shareholders prior to the completion of the
      proposed transaction (including a $0.10 cash dividend distributed to
      holders of record of the Trust's common shares as of March 31, 2002 and a
      $0.10 cash dividend distributed to holders of record as of July 1, 2002),
      (b) breaches of certain representations, warranties and covenants
      contained in the merger agreement and (c) costs, fees and expenses
      associated with obtaining certain third-party consents for the proposed
      transaction;

-     a choice of (a) an additional $0.35 in cash or (b) approximately 1/174th
      (0.0057461) of a debt instrument to be issued by Southwest Shopping
      Centers, Co. II, L.L.C. ("Southwest Shopping Centers"), with a face value
      of $100 (which is an effective price of $60.91 per face value of $100),
      indirectly secured by the Trust's principal real estate assets; and

-     three-fiftieths (0.06) of a non-transferable uncertificated subscription
      right, with each whole right exercisable to purchase one Gotham Golf
      common share at $20.00 per share and, subject to availability and
      proration, additional Gotham Golf common shares at $20.00 per share, for
      up to an aggregate of approximately $41 million of Gotham Golf common
      shares.

      On May 13, 2002, Gotham Golf and Southwest Shopping Centers filed a
Registration Statement on Form S-4 containing preliminary proxy materials. On
July 18, 2002, Gotham Golf and Southwest Shopping Centers filed an amended Form
S-4. The Trust filed additional materials on Form 13E-3 on May 13, 2002 and an
amended Form 13E-3 on July 18, 2002. The merger is subject to certain customary
closing conditions, including approval by the Trust's common shareholders and
receipt of certain third-party consents. There can be no assurance that the
proposed transaction will be consummated.

                                        7
<PAGE>
Contingency

      The Trust is aware of the proposed construction of a new mall in the
vicinity of Park Plaza Mall (the "Mall") by a partnership of a mall developer
and the anchor department store. Legal actions have been taken by local citizens
of Little Rock, Arkansas to reverse the decision of the Little Rock board of
directors with respect to the zoning for the development of the proposed new
mall. A trial to determine whether the property is to be re-zoned and on whether
or not the voters of Little Rock can vote to overturn the decision of the board
occurred at the end of February 2002. On June 5, 2002, the court issued an
opinion invalidating the decision of the board of directors. Furthermore, the
court permanently enjoined the City of Little Rock from issuing any building
permits or taking any other action pursuant to the invalid ordinances with
respect to the proposed new mall. It is anticipated that one or more of the
parties will appeal this decision to the Supreme Court of Arkansas. It is also
possible that proponents of the new mall will file a new application to rezone
the proposed area for the new mall. In the event that the new mall is built, the
anchor store at the Mall may decline to extend or renew its operating covenant
and cease operating its stores at the Mall. In the event the anchor store does
not operate its stores at the Mall, the value of the Mall would be materially
and adversely affected. Notwithstanding the above, if the anchor department
store does not renew its operating agreement, the value of the Mall would be
materially and adversely affected. The administrative expenses, principally
legal fees related to this contingency, have been paid by the Trust.

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 ticketing and parking equipment, net operating income
is sales revenue less cost of goods sold. During the six months ended June 30,
2001, the Trust sold two shopping center properties, four office properties,
five parking garages, one parking lot, a $1.5 million note receivable and
certain assets used in the operations of the properties and realized a gain of
approximately $30.1 million. Corporate assets consist primarily of cash and cash
equivalents, investments and deferred issue costs for senior notes. All
intercompany transactions between segments have been eliminated (see table of
business segments).

                                        8
<PAGE>
Business Segments

<TABLE>
<CAPTION>

                                                  Three Months Ended June 30,           Six Months Ended June 30,
                                                      2002          2001                   2002           2001
                                                    --------       -------               --------       --------
<S>                                               <C>              <C>                  <C>             <C>
Rents and Sales

        Shopping Centers                             $ 2,963       $ 2,705               $  5,890       $  7,317
        Office Buildings                                 347           346                    684          3,215
        Parking Facilities                                --            14                     --          1,619
        Ventek                                           647         1,921                  1,592          4,031
        Corporate                                         97            --                    130             14
                                                     -------       -------               --------       --------
                                                       4,054         4,986                  8,296         16,196

Less - Operating Expenses and
  Costs of Goods Sold

        Shopping Centers                                 992         1,452                  2,069          2,945
        Office Buildings                                 168           179                    361          1,459
        Parking Facilities                                --            --                     --             24
        Ventek                                         1,116         1,779                  2,489          3,828
        Corporate                                         27            65                     27            189
                                                     -------       -------               --------       --------
                                                       2,303         3,475                  4,946          8,445

Less - Real Estate Taxes

        Shopping Centers                                 217           226                    416            513
        Office Buildings                                  24            21                     45            230
        Parking Facilities                                --            --                     --            347
        Corporate                                         --          (145)                    --           (145)
                                                     -------       -------               --------       --------
                                                         241           102                    461            945

Net Operating Income (Loss)
        Shopping Centers                               1,754         1,027                  3,405          3,859
        Office Buildings                                 155           146                    278          1,526
        Parking Facilities                                --            14                     --          1,248
        Ventek                                          (469)          142                   (897)           203
        Corporate                                         70            80                    103            (30)
                                                     -------       -------               --------       --------
                                                       1,510         1,409                  2,889          6,806
</TABLE>

                                        9
<PAGE>
Business Segments (Continued)

<TABLE>
<CAPTION>

                                                  Three Months Ended June 30,           Six Months Ended June 30,
                                                      2002          2001                   2002           2001
                                                    --------       -------               --------       --------
<S>                                               <C>              <C>                  <C>             <C>
Less - Depreciation and Amortization                 $   519       $   523               $  1,028       $  2,807

Less - Interest Expense                                1,202         1,224                  2,405          4,660

Corporate Income (Expense)
        Interest and dividends                           436         1,715                    897          3,549
        Other income                                      --             1                     --              5
        General and administrative                    (1,523)       (1,732)                (3,141)        (3,728)
        Write-down of investment                          --        (2,700)                    --         (2,700)
                                                     -------       -------               --------       --------

Loss before Gains on Sales of Real Estate and
   Extraordinary Loss from Early Extinguishment
   of Debt                                           $(1,298)      $(3,054)              $ (2,788)      $ (3,535)
                                                     =======       =======               ========       ========

Capital Expenditures

        Shopping Centers                             $    89       $    29               $     98       $    105
        Office Buildings                                  14            87                     64            403
        Parking Facilities                                --            --                     --            114
        Ventek                                             2            14                      4             52
                                                     -------       -------               --------       --------
                                                     $   105       $   130               $    166       $    674
                                                     =======       =======               ========       ========
</TABLE>

<TABLE>
<CAPTION>

                                                                                           2002          2001
                                                                                         --------      --------
<S>                                                                                      <C>           <C>
Identifiable Assets

        Shopping Centers                                                                 $ 58,871      $ 59,870
        Office Buildings                                                                    2,367         2,513
        Ventek                                                                              3,330         5,444
        Corporate                                                                         113,134       130,274
                                                                                         --------      --------
Total Assets                                                                             $177,702      $198,101
                                                                                         ========      ========
</TABLE>

                                       10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS.

The Proposed Transaction

      In April 2001, the Board of Trustees of the Trust established a Special
Committee for the purpose of evaluating and advising the Board with respect to
proposed transactions and other possible business alternatives that the Trust
may pursue. The Special Committee, which is composed of Daniel J. Altobello and
Bruce R. Berkowitz, independent Trustees of the Trust, retained Libra
Securities, LLC and Duff & Phelps LLC as its financial advisors and Shaw Pittman
LLP as its independent legal counsel.

      On February 13, 2002, the Trust entered into a definitive agreement of
merger and contribution with, among others, Gotham Partners, L.P., a shareholder
of the Trust that is controlled by affiliates of William A. Ackman, Chairman of
the Board of Trustees of the Trust, and Gotham Golf Corp. ("Gotham Golf"), a
Delaware corporation controlled by Gotham Partners, L.P., pursuant to which the
Trust agreed to merge with and into Gotham Golf. If consummated, the proposed
transaction will result in the Trust's common shareholders receiving as merger
consideration for each Common Share:

-     $2.20 in cash, subject to possible deductions on account of (a) dividends
      paid to the Trust's common shareholders prior to the completion of the
      proposed transaction (including a $0.10 cash dividend distributed to
      holders of record of the Trust's common shares as of March 31, 2002 and a
      $0.10 cash dividend distributed to holders of record as of July 1, 2002),
      (b) breaches of certain representations, warranties and covenants
      contained in the merger agreement and (c) costs, fees and expenses
      associated with obtaining certain third-party consents for the proposed
      transaction;

-     a choice of (a) an additional $0.35 in cash or (b) approximately 1/174th
      (0.0057461) of a debt instrument to be issued by Southwest Shopping
      Centers, Co. II, L.L.C. ("Southwest Shopping Centers"), with a face value
      of $100 (which is an effective price of $60.91 per face value of $100),
      indirectly secured by the Trust's principal real estate assets (such debt
      instrument referred to in this document as a note); and

-     three-fiftieths (0.06) of a non-transferable uncertificated subscription
      right, with each whole right exercisable to purchase one Gotham Golf
      common share at $20.00 per share and, subject to availability and
      proration, additional Gotham Golf common shares at $20.00 per share, for
      up to an aggregate of approximately $41 million of Gotham Golf common
      shares.

      The proposed transaction is subject to approval of the Trust's common
shareholders. There can be no assurance that the proposed transaction will be
approved by the Trust's common shareholders or, if so approved, that the
proposed transaction will be consummated.

                                       11
<PAGE>
Under the proposed transaction

-     The Trust will merge with and into Gotham Golf a new corporation formed by
      Gotham Golf Partners, L.P. ("Gotham Golf Partners"), which is a
      golf-course acquirer, owner and operator. As part of the transaction,
      Gotham and certain other Gotham Golf Partners equityholders will
      contribute their respective limited partnership interests in Gotham Golf
      Partners to Gotham Golf and their respective general partnership interests
      in Gotham Golf Partners to a wholly owned limited liability company of
      Gotham Golf, in exchange for common stock of Gotham Golf. As a result,
      after the proposed transaction, Gotham Golf will directly and indirectly
      own approximately 92.5% of the equity interests in Gotham Golf Partners,
      and Gotham and the other equityholders that contributed their equity
      interests in Gotham Golf Partners in the proposed transaction will own
      approximately 52.55% of the shares of Gotham Golf stock, assuming that (i)
      all of the subscription rights to receive Gotham Golf common shares are
      exercised and (ii) no other equity of Gotham Golf will be issued on or
      prior to the effective time of the proposed transaction.

-     Each note will have a face amount of $100, which is equivalent to
      approximately $0.575 per share, and will bear interest at 11% per annum on
      its face amount. The notes will be secured by a pledge of two underlying
      loans: (1) an approximate $3.5 million first leasehold mortgage on the
      Circle Tower office building in Indianapolis, Indiana and (2) an
      approximate $16.5 million mezzanine loan on the Park Plaza Mall in Little
      Rock, Arkansas. Holders of notes will receive a pass-through of the
      economic attributes of the two underlying loans.

-     Shareholders who receive their proportionate share of the notes in the
      transaction will have the right to require the issuer of the notes to
      redeem them on the 90th day after the effective time of the merger for
      $0.35 in cash for every approximately 1/174th of a note received as merger
      consideration. Gotham has agreed to purchase from the issuer any redeemed
      notes for the same redemption price paid by the issuer to the
      shareholders.

-     The notes will not be issued unless certain consents are obtained from the
      mortgage lender on the Park Plaza Mall and the rating agencies that
      originally rated the certificates backed by the first Park Plaza Mall
      mortgage. If any required consents, approvals or similar clearances with
      respect to the notes cannot be timely obtained, the merger consideration
      will be adjusted to eliminate the ability for common shareholders to elect
      to receive the notes in lieu of part of the cash consideration, and all
      shareholders will receive cash consideration of $2.55 per Common Share
      (subject to adjustment as described above.)

-     Preferred shareholders of the Trust will receive preferred shares of
      Gotham Golf, as provided for in the Certificate of Designations for the
      preferred shares of the Trust. The existing 8.875% unsecured notes will
      remain outstanding according to their terms and will become obligations of
      Gotham Golf after the closing of the transaction.

-     The Trust, Gotham and each of the members of the Board of Trustees have
      entered into a Voting Agreement, pursuant to which the parties thereto
      have agreed to vote a collective 7,424,943 Common Shares, or approximately
      21.3% of the total outstanding Common Shares, for the approval of the
      proposed transaction.

-     The merger is subject to certain customary closing conditions, including
      approval by the Trust's common shareholders and receipt of certain
      third-party consents. There can be no assurance that the proposed
      transaction will be consummated.

                                       12
<PAGE>
      The Trust's approval of the merger agreement was based on the
recommendation of a Special Committee of independent trustees of the Trust's
Board of Trustees. The Special Committee concluded that the transaction was in
the best interests of the Trust and the Trust's common shareholders (other than
Gotham and its affiliates), where such shareholders elect to receive $2.55 per
share in cash in the merger. The Board of Trustees of the Trust, with Mr. Ackman
not participating, unanimously voted in favor of the transaction. The Special
Committee was advised by Libra Securities, LLC and Duff & Phelps, LLC, and
Gotham and its affiliates were advised by Mercury Partners.

      INVESTORS AND SECURITY HOLDERS SHOULD READ THE DEFINITIVE MERGER AGREEMENT
AND THE AMENDED FORM S-4 OF GOTHAM GOLF AND SOUTHWEST SHOPPING CENTERS FILED ON
JULY 18, 2002 TO APPRISE THEMSELVES OF THE PROPOSED TRANSACTION. IN ADDITION,
INVESTORS AND SECURITY HOLDERS ARE URGED TO READ THE DEFINITIVE PROXY
STATEMENT/FINAL PROSPECTUS REGARDING THE BUSINESS COMBINATION TRANSACTION
REFERENCED IN THE FOREGOING INFORMATION WHEN IT BECOMES AVAILABLE BECAUSE IT
WILL CONTAIN IMPORTANT INFORMATION. The definitive proxy statement/prospectus
will be filed with the Securities and Exchange Commission by the Trust, Gotham
Golf and Southwest Shopping Centers. Investors and security holders may obtain a
free copy of the definitive proxy statement/final prospectus (when it becomes
available) and other documents filed by the Trust, Gotham Golf and Southwest
Shopping Centers with the Securities and Exchange Commission at the Commission's
website at www.sec.gov. The definitive proxy statement/final prospectus and
these other documents may also be obtained for free from the Trust.

Liquidity and Capital Resources

      General

      Unrestricted and restricted cash increased by $0.4 million (to $5.1
million from $4.7 million) when comparing the balance at June 30, 2002 to the
balance at December 31, 2001.

      The Trust's net cash provided by investing activities of $6.9 million was
substantially offset by net cash used for operating activities of $1.8 million
and net cash used for financing activities of $4.7 million. Cash used for
financing activities included $1.0 million of cash dividends to preferred
shareholders, $3.5 million of cash dividends to common shareholders and $0.2
million of mortgage amortization. Cash provided by investing activities
consisted of the excess of sales over purchases of U.S. Treasury Bills of $7.1
million. Cash used for investing activities consisted of $0.2 million of
improvements to properties.

      The Trust declared a dividend of $3.5 million ($0.10 per share) to common
shareholders and a dividend of $0.5 million ($0.525 per share) to Series A
Cumulative Preferred Shareholders in the second quarter of 2002. The dividend
was paid July 31, 2002 to shareholders of record at the close of business on
July 1, 2002. In addition, the Trust paid a dividend for the first quarter of
2002 of $3.5 million ($0.10 per share) to common shareholders and $0.5 million
($0.525 per share) to preferred shareholders.

      At June 30, 2002, the Trust owned $108.9 million in face value of U.S.
Treasury Bills. The U.S. Treasury Bills are of maturities of less than 90 days
and classified as held to maturity. The average yield for the six months ended
June 30, 2002 was 1.68%.

                                       13
<PAGE>
      The Trust was not directly affected by the events of the September 11th
terrorist attacks; however, the attacks have had a negative effect on the
economy which was already considered to be in a recession. 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's property insurance
coverage as it relates to claims caused by terrorist incidents is limited to $1
million per occurrence and $5 million in the aggregate. The Trust expects that
its insurance costs will increase when its policies are renewed in November
2002. The Trust's Directors and Officers insurance was renewed on May 31, 2002.
The rates increased upon renewal.

      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 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 five trustees and Gotham Partners. On June 6, 2002,
the defendants filed with the court motions to dismiss the lawsuit. Oral
arguments on the motions to dismiss were presented on July 15, 2002 in the
Supreme Court of New York, New York County. Consistent with the past practices
of the Court, a ruling on the motions to dismiss may not be issued for several
weeks or longer following the oral argument. The Trust regards the lawsuit as
being without merit and will vigorously defend against the asserted claims. The
Trust does not believe that the suit will preclude or materially delay the
completion of the proposed transaction.

      The Trust's most critical accounting policy relates to the evaluation of
the fair 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.

      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 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 in the western part of Little Rock,
Arkansas and have announced their intention to build an approximately 1.3
million square foot mall 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 this new mall. In the event that the new mall is built,
Dillard's may decline to extend or renew its operating covenant and 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 likely departure of many of
tenants pursuant to early termination provisions of their leases that may be
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 would most likely result in an event of
default under this mortgage.

                                       14
<PAGE>
      Local citizens have taken legal actions to reverse the decision of the
Little Rock Board of Directors with respect to the new mall. At the end of
February 2002, a trial took place to determine whether the property is to be
re-zoned and on whether or not the voters of Little Rock can, by a vote,
overturn the decision of the board. On June 5, 2002, the court issued an opinion
invalidating the decision of the board of directors as "arbitrary, capricious
and unreasonable." Furthermore, the court permanently enjoined the City of
Little Rock from issuing any building permits or taking any other action
pursuant to the invalid ordinances with respect to the proposed new mall. It is
anticipated that one or more of the parties will appeal this decision prior to
the deadline for submitting an appeal to the Supreme Court of Arkansas. Any
appeal would likely take at least 18 months to resolve, and there can be no
assurance as to the length of time or potential outcome of such appeal. It is
also possible that proponents of the new mall will file a new application to
rezone the proposed area for the new mall. The Trust has been closely monitoring
the litigation and, although not a party to the litigation, has expended and
will continue to expend significant funds in support of a local citizen's effort
to revise the decision of the Little Rock Board of Directors.

      Regardless of whether the proposed new mall is built, 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 under the operating agreement, but to date, it has declined
to do so. 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 extend or renew its operating
covenant on terms acceptable to the Trust.

      With respect to capital improvements, the Trust estimates that the Park
Plaza Mall will need to repair or replace its roof at a cost of approximately
$0.8 million to $1.2 million. The Trust plans to perform the repair or
replacement over the next three years.

      VenTek

      The Company's subsidiary VenTek, a manufacturer of transit ticketing and
parking equipment, has continued to incur significant operating losses. A new
management firm was engaged by the Trust in December 2000 with the objective of
improving operating results; however, unless VenTek is awarded significant new
parking and/or transit ticketing contracts, it is unlikely that the new managers
will be able to achieve this objective. In addition, the Trust has provided
performance guarantees for two contracts between VenTek and transit authorities,
which contracts are in the amounts of $6.2 million and $5.3 million. These
contracts are for the manufacturing, installation and maintenance of transit
ticket vending equipment manufactured by VenTek. The guarantees are anticipated
to expire over the next two to three years based upon projected completion dates
estimated by VenTek and the transit authorities. As of August 1, 2002, no
amounts had been drawn against these guarantees. Since these projects are
entering their final stages, management does not anticipate that payment will
have to be made under the guarantees; however, if VenTek is unable to perform in
accordance with these contracts and subsequent change orders, the Trust may be
responsible for payment under these guarantees.

      Also, in connection with transit contracts, VenTek may be liable for
liquidated damages related to delays in completion of the contracts. Liquidated
damages have been asserted on two contracts. One of the contracts was settled
during the six months ended June 30, 2002 for less than $0.1 million.
Management of VenTek disagrees with the basis of calculating the liquidated
damages on the second contract and does not believe VenTek owes a significant
amount with respect to this contract. However, it is not known what the final
amount of liquidated damages will be at this time.

                                       15
<PAGE>
      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             $41.9           $0.3                $ 0.7            $0.8              $40.1
     Senior notes                       12.5             --                 12.5              --                 --
     VenTek rent                         0.1            0.1                   --              --                 --
                                       -----           ----                -----             ----             -----
         Total                         $54.5           $0.4                $13.2             $0.8             $40.1
                                       =====           ====                =====             ====             =====
</TABLE>

      In addition, the Trust holds leasehold interests in two leases for the two
parcels of land underlying the Circle Tower property. The first parcel is owned
in fee simple by the Trust, however, it is encumbered by a lease and a sublease
which expire in 2018 at which time the Trust will hold unencumbered fee simple
title to this parcel. The annual net rental payment is $5,000. The second parcel
is not owned by the Trust; it occupies this parcel as the lessee under a ground
lease. The ground lease's initial term expires in 2009, the Trust has exercised
an option to renew the term of the ground lease for an additional 99 years until
2108. The annual rental payment under the ground lease is currently $18,000. The
rent during the renewal term is to be determined under the ground lease as 4% of
the appraised value of the real estate and improvements at the time of the
expiration of the initial term.

Results of Operations

      Net loss applicable to common shares for the six months ended June 30,
2002 was $3.8 million as compared to net income of $24.7 million for the six
months ended June 30, 2001. Net income for the six months ended June 30, 2001
included a write-down of an investment in warrants to purchase common shares of
HQ Global Holdings Inc. ("HQ") of $2.7 million and gains on sales of real estate
of approximately $30.1 million. Gains on sales of real estate for the six months
ended June 30, 2001 related to the sale of two shopping center properties, four
office properties, five parking garages, one parking lot, a $1.5 million note
receivable and certain assets used in operations of the properties (the
"Purchased Assets"). Net income for the six months ended June 30, 2001 also
included a $0.9 million extraordinary loss from early extinguishment of debt
relating to the first mortgage debt which was assumed as part of the sale of the
Purchased Assets.

      Net loss applicable to common shares for the three months ended June 30,
2002 was $1.8 million as compared to a net loss of $3.4 million in the
comparable period of 2001. The net loss for the three months ended June 30, 2001
included a $2.7 million write-down of an investment in warrants to purchase
common shares of HQ.

      Interest and dividends decreased during the three and six months ended
June 30, 2002, as compared to the comparable periods of 2001. The decrease is
primarily a result of lower interest rates between the comparable three and six
month periods. In addition, during the first and second quarter of 2001 a $0.7
million dividend was accrued on the preferred shares of HQ.

      Property net operating income, which is rents less property operating and
real estate taxes, decreased for the six months ended June 30, 2002 to $3.8
million from $6.6 million in 2001. The decrease was attributable to the sale of
properties in March 2001.

                                       16
<PAGE>
      Property net operating income increased for the three months ended June
30, 2002 to $2.0 million from $1.3 million in 2001. The increase was
attributable to an increase in revenues of $0.3 million and a decrease in
property operating expenses of $0.4 million. The increase of $0.3 million in
revenues was primarily due to an increase in rental rates at Park Plaza. The
decrease in operating expenses is primarily attributable to a decrease in the
amount spent relating to the proposed Summit Mall.

      Property net operating income for the Trust's remaining real estate
properties in the portfolio for the six months ended June 30, 2002 and 2001
increased by $0.7 million. The increase was attributable to an increase in
revenues of $0.4 million and a decrease in operating expenses of $0.3 million.
Revenues increased by $0.4 million for the properties remaining for the six
months ended June 30, 2002 and 2001, primarily due to an increase in rental
rates at Park Plaza. The decrease in operating expenses is primarily due to a
decrease in the amount spent relating to the proposed Summit Mall.

      Depreciation, amortization and interest expense decreased when comparing
the six months ended June 30, 2002 to the comparable periods in 2001 due to the
sale of properties in March 2001. With respect to the remaining properties,
depreciation and amortization expense, and interest expense remained relatively
constant. For the three months ended June 30, 2002, depreciation, amortization
and interest expense remained relatively constant when compared to the
comparable period in 2001.

      General and administrative expenses decreased by $0.6 million when
comparing the six months ended June 30, 2002 and the comparable period in 2001.
Included in general and administrative expenses for the six months ended June
30, 2002 are approximately $1.5 million of transaction costs related to the
Gotham proposal. Also included in general and administrative expenses is $0.4
million and $0.6 million in 2002 and 2001, respectively, to a firm providing
management services to VenTek. Otherwise, general and administrative decreased
due to reduced legal, accounting, professional and management fees primarily as
a result of the Trust selling the majority of its assets in March 2001.

      General and administrative expenses decreased by $0.2 million when
comparing the three months ended June 30, 2002 to the comparable period in 2001.
Included in general and administrative expenses for the three months ended June
30, 2002 are approximately $0.6 million of transaction costs related to the
Gotham proposal. Also included in general and administrative are $0.2 million
and $0.3 million for the three months ended June 30, 2002 and 2001,
respectively, to a firm providing management services to VenTek. Reducing
general and administrative expenses for the 2002 period is a $0.2 million
Canadian tax refund which was more than offset by additional legal expenses
related to the preferred shareholders' lawsuit. Otherwise, general and
administrative decreased primarily due to reduced legal and professional fees.

      The Company's manufacturing facility, VenTek, incurred a net loss of $1.0
million for the six months ended June 30, 2002, as compared to approximately
breakeven for the six months ended June 30, 2001. Revenue decreased for the six
months ended June 30, 2002 to $1.6 million from $4.0 million in 2001 and cost of
goods sold decreased to $2.5 million from $3.8 million for the same period. For
the three months ended June 30, 2002, VenTek incurred a net loss of $0.5 million
as compared to approximately breakeven for the three months ended June 30, 2001.
Revenue decreased for the three months ended June 30, 2002 to $0.6 million from
$1.9 million in 2001 and cost of goods sold decreased to $1.1 million from $1.8
million for the same period. The decrease in both revenues and cost of goods
sold is due to the winding down of current contracts and having nominal new
business. For the six months ended June 30, 2002 nine employees were terminated.
These employees were involved in both the production of transit ticketing and
parking equipment, as well as administrative functions. Severance expenses of
less than $0.1 million were recorded during the six months ended June 30, 2002.
The backlog for VenTek is approximately $0.7 million at June 30, 2002. 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 would
result in lower revenues.

                                       17
<PAGE>
      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, the risk that material adverse events will
prelude consummation of the proposed transaction with Gotham Golf, 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 Forms 10K and 10K/A's.

                                       18
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK

Interest Rate Risk

      All of the Trust's loans outstanding at June 30, 2002 have fixed interest
rates. The Trust's investments in U.S. Treasury Bills mature in less than 90
days and therefore are not subject to significant interest rate risk.

                                       19
<PAGE>
                           PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

      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 five trustees and Gotham Partners. On June 6, 2002,
the defendants filed with the court motions to dismiss the lawsuit. Oral
arguments on the motions to dismiss were presented on July 15, 2002 in the
Supreme Court of New York, New York County. A ruling on the motions to dismiss
may not be issued for several weeks or longer following the oral argument. The
Trust regards the lawsuit as being without merit and will vigorously defend
against the asserted claims. The Trust does not believe that the suit will
preclude or materially delay the completion of the proposed transaction.

                                       20
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

      (a)   Exhibits:

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

      (b)   Reports on Form 8K: None

                                       21
<PAGE>
                                   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:  August 14, 2002               By: /s/ Neil H. Koenig
                                         ---------------------------------------
                                         Neil H. Koenig,
                                         Interim Chief Financial Officer


                                       22