<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 March 31, 2002      Commission File Number 1-6249
                               --------------                             ------

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

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

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 May 1, 2002
--------------------------------------------------------------------------------


           Total number of pages contained in this report:       20
                                                           ---------------
<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)                                                    March 31, 2002      December 31,
                                                                                       (Unaudited)           2001
                                                                                       -----------           ----
<S>                                                                                  <C>                 <C>
ASSETS
Investments in real estate, at cost
  Land                                                                                  $   6,086         $   6,086
  Buildings and improvements                                                               64,248            64,189
                                                                                        ---------         ---------
                                                                                           70,334            70,275
  Less - Accumulated depreciation                                                         (10,588)          (10,108)
                                                                                        ---------         ---------
       Investments in real estate, net                                                     59,746            60,167

Other assets
  Cash and cash equivalents - unrestricted                                                  2,790             2,609
                            - restricted                                                    2,341             2,115
  Accounts receivable and prepayments, net of allowances
      of $717 and $680, respectively                                                        2,219             2,261
  Investments                                                                             114,137           116,005
  Inventory                                                                                 1,639             1,971
  Unamortized debt issue costs, net                                                           333               351
  Other                                                                                       181               190
                                                                                        ---------         ---------
    Total assets                                                                        $ 183,386         $ 185,669
                                                                                        =========         =========

LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities
  Mortgage loan                                                                         $  41,993         $  42,078
  Note payable                                                                                 92                96
  Senior notes                                                                             12,538            12,538
  Accounts payable and accrued liabilities                                                  7,982             7,856
  Dividends payable                                                                         3,998               517
  Deferred items                                                                              103               416
                                                                                        ---------         ---------
    Total liabilities                                                                      66,706            63,501
                                                                                        ---------         ---------

Shareholders' equity
  Convertible preferred shares of beneficial interest, $25 per share liquidation
    preference, 2,300,000 shares authorized, 984,800 shares
      outstanding at March 31, 2002 and December 31, 2001                                  23,171            23,171
  Shares of beneficial interest, $1 par, unlimited authorized, 34,805,912
      outstanding at March 31, 2002 and December 31, 2001                                  34,806            34,806
  Additional paid-in capital                                                              207,602           207,602
  Accumulated distributions in excess of net income                                      (148,899)         (143,411)
                                                                                        ---------         ---------
    Total shareholders' equity                                                            116,680           122,168
                                                                                        ---------         ---------
Total liabilities and shareholders' equity                                              $ 183,386         $ 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
                                                                                          March 31,
                                                                                          ---------
                                                                                   2002             2001
                                                                                   ----             ----
<S>                                                                              <C>              <C>
Revenues

  Rents                                                                          $  3,297         $  9,100
  Sales                                                                               945            2,110
  Interest and dividends                                                              461            1,834
  Other income                                                                         --                4
                                                                                 --------         --------
                                                                                    4,703           13,048
                                                                                 --------         --------

Expenses

  Property operating                                                                1,270            2,921
  Cost of goods sold                                                                1,373            2,049
  Real estate taxes                                                                   220              843
  Depreciation and amortization                                                       509            2,284
  Interest                                                                          1,203            3,436
  General and administrative                                                        1,618            1,996
                                                                                 --------         --------
                                                                                    6,193           13,529
                                                                                 --------         --------
Loss before gains on sales of real estate, extraordinary loss from early
   extinguishment of debt and preferred dividend                                   (1,490)            (481)
  Gains on sales of real estate                                                        --           29,987
                                                                                 --------         --------
(Loss) income before extraordinary loss from early extinguishment of debt
   and preferred dividend                                                          (1,490)          29,506
  Extraordinary loss from early extinguishment of debt                                 --             (889)
                                                                                 --------         --------
Net (loss) income before preferred dividend                                        (1,490)          28,617
   Preferred dividend                                                                (517)            (517)
                                                                                 --------         --------
Net (loss) income applicable to shares of beneficial interest                    $ (2,007)        $ 28,100
                                                                                 ========         ========

Per share data

Basic:
(Loss) income before extraordinary loss from early extinguishment
   of debt                                                                       $  (0.06)        $   0.73
Extraordinary loss from early extinguishment of debt                                   --            (0.02)
                                                                                 --------         --------
Net (loss) income applicable to shares of beneficial interest                    $  (0.06)        $   0.71
                                                                                 ========         ========

Diluted:
(Loss) income before extraordinary loss from early extinguishment
   of debt                                                                       $  (0.06)        $   0.66
Extraordinary loss from early extinguishment of debt                                   --            (0.02)
                                                                                 --------         --------
Net (loss) income applicable to shares of beneficial interest                    $  (0.06)        $   0.64
                                                                                 ========         ========

Basic weighted average shares                                                      34,806           39,654
                                                                                 ========         ========
Diluted weighted average shares                                                    34,806           44,499
                                                                                 ========         ========
</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)                                                                       Three Months
                                                                                              Ended March 31,
                                                                                              ---------------
                                                                                           2002              2001
                                                                                           ----              ----
<S>                                                                                     <C>               <C>
Cash used for operations
  Net (loss) income before preferred dividend                                           $  (1,490)        $  28,617
  Adjustments to reconcile net (loss) income before preferred dividend
    to net cash used for operations
      Depreciation and amortization                                                           509             2,284
      Extraordinary loss from early extinguishment of debt                                     --               889
      Gains on sales of real estate                                                            --           (29,987)
      Decrease in deferred items                                                             (313)             (968)
      Net changes in other operating assets and liabilities                                   500            (8,386)
                                                                                        ---------         ---------
        Net cash used for operations                                                         (794)           (7,551)
                                                                                        ---------         ---------

Cash provided by investing
  Principal received from mortgage loans                                                       --                48
  Net proceeds from sales of real estate                                                       --            43,567
  Purchase of investments                                                                (342,955)         (245,845)
  Proceeds from maturity of investments                                                   344,823           338,912
  Investments in building and tenant improvements                                             (61)             (544)
                                                                                        ---------         ---------
        Net cash provided by investing                                                      1,807           136,138
                                                                                        ---------         ---------

Cash used for financing
  Decrease in notes payable                                                                    (4)         (150,004)
  Proceeds from mortgage loans                                                                 --             6,500
  Repayment of mortgage loans - principal payments                                            (85)             (229)
  Repurchase of common shares                                                                  --              (139)
  Dividends paid on preferred shares of beneficial interest                                  (517)             (517)
                                                                                        ---------         ---------
        Net cash used for financing                                                          (606)         (144,389)
                                                                                        ---------         ---------
Increase (decrease) in cash and cash equivalents                                              407           (15,802)
Cash and cash equivalents at beginning of period                                            4,724            23,889
                                                                                        ---------         ---------
Cash and cash equivalents at end of period                                              $   5,131         $   8,087
                                                                                        =========         =========

Supplemental Disclosure of Cash Flow Information
   Interest paid                                                                        $   1,481         $   4,514
                                                                                        =========         =========

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>
             FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
                            FORM 10-Q MARCH 31, 2002
                     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.

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 continuing operations, 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
                                                                                            March  31,
                                                                                ------------------------------------
                                                                                   2002                    2001
                                                                                ------------           -------------
<S>                                                                             <C>                    <C>
Basic
(Loss) income before extraordinary loss from early
    extinguishment of debt                                                      $   (1,490)              $   29,506
Preferred dividend                                                                    (517)                    (517)
                                                                                ----------               ----------
(Loss) income before extraordinary loss from early
    extinguishment of debt applicable to common shares                          $   (2,007)              $   28,989
                                                                                ==========               ==========

Basic weighted average shares                                                       34,806                   39,654
                                                                                ==========               ==========
(Loss) income per share before extraordinary loss from
    early extinguishment of debt                                                $    (0.06)              $    0.73
                                                                                ==========               =========

Diluted
(Loss) income before extraordinary loss from early
    extinguishment of debt                                                      $   (1,490)              $   29,506
Preferred dividend                                                                    (517)                      --
                                                                                ----------               ----------
(Loss) income before extraordinary loss from early
    extinguishment of debt applicable to common shares                          $   (2,007)              $   29,506
                                                                                ==========               ==========

Basic weighted average shares                                                       34,806                   39,654
Convertible preferred shares                                                            --                    4,845
                                                                                ----------               ----------
Diluted weighted average shares                                                     34,806                   44,499
                                                                                ==========               ==========
(Loss) income per share before extraordinary
    loss from early extinguishment of debt                                      $    (0.06)              $    0.66
                                                                                ==========               =========
</TABLE>


The preferred shares are not included in diluted earnings per share calculation
for the three months ended March 31, 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 the first quarter of 2002. Both dividends
were paid April 30, 2002 to shareholders of record at the close of business on
March 31, 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 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. 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 dividends
         paid to holders of Common Shares prior to the completion of the
         proposed transaction (including a $0.10 cash dividend distributed to
         holders of record as of March 31, 2002 and an expected $0.10 cash
         dividend to be distributed to holders of record as of June 30, 2002),
         breaches of certain representations, warranties and covenants contained
         in the merger agreement and costs, fees and expenses associated with
         obtaining certain third-party consents for the proposed transaction;

-        a choice of (1) an additional $0.35 in cash or (2) approximately
         1/174th of a debt instrument with a face value of $100 and which is to
         be issued by Southwest Shopping Centers Co. II, L.L.C. ("SSCC"), a
         wholly owned subsidiary of the Trust, and indirectly secured by the
         Trust's principal real estate assets (the "Note"); and

-        three-fiftieths (3/50ths) of a non-transferable uncertificated
         subscription right, with each whole right exercisable to purchase
         common stock of Gotham Golf at $20.00 per share and, subject to
         availability and proration, additional shares of common stock of Gotham
         Golf at $20.00 per share, for up to an aggregate of approximately $41
         million of common stock of Gotham Golf.

         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.

         On May 13, 2002, Gotham Golf and SSCC filed a Registration Statement on
Form S-4 containing preliminary proxy materials.


                                        7
<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 the
manufacturing company, net operating income is sales revenue less cost of goods
sold. During the three months ended March 31, 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 $30.0 million. Corporate
interest expense consists of the Trust's senior notes and borrowings
collateralized by U.S. Treasury Bills. Corporate depreciation and amortization
consist primarily of the amortization of deferred issue costs. Corporate assets
consist primarily of cash and cash equivalents 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 March 31,
                                    ----------------------------
                                        2002             2001
                                        ----             ----
<S>                                 <C>               <C>
Rents and Sales

       Shopping Centers              $  2,927         $  4,612
       Office Buildings                   337            2,869
       Parking Facilities                  --            1,605
       Ventek                             945            2,110
       Corporate                           33               14
                                     --------         --------
                                        4,242           11,210

Less - Operating Expenses and
  Costs of Goods Sold

       Shopping Centers                 1,077            1,493
       Office Buildings                   193            1,280
       Parking Facilities                  --               24
       Ventek                           1,373            2,049
       Corporate                           --              124
                                     --------         --------
                                        2,643            4,970

Less - Real Estate Taxes

       Shopping Centers                   199              287
       Office Buildings                    21              209
       Parking Facilities                  --              347
                                     --------         --------
                                          220              843

Net Operating Income (Loss)
       Shopping Centers                 1,651            2,832
       Office Buildings                   123            1,380
       Parking Facilities                  --            1,234
       Ventek                            (428)              61
       Corporate                           33             (110)
                                     --------         --------
                                        1,379            5,397
</TABLE>


                                        9
<PAGE>
Business Segments (Continued)


<TABLE>
<CAPTION>
                                                          Three Months Ended March 31,
                                                          ----------------------------
                                                             2002              2001
                                                             ----              ----
<S>                                                       <C>               <C>
Less - Depreciation and Amortization                      $     509         $   2,284

Less - Interest Expense                                       1,203             3,436

Corporate Income (Expense)
       Interest and dividends                                   461             1,834
       Other income                                              --                 4
       General and administrative                            (1,618)           (1,996)
                                                          ---------         ---------

Loss before Gains on Sales of Real Estate,
   Extraordinary Loss from Early Extinguishment of
       Debt and Preferred Dividend                        $  (1,490)        $    (481)
                                                          =========         =========

Capital Expenditures

       Shopping Centers                                   $       9         $      76
       Office Buildings                                          50               316
       Parking Facilities                                        --               114
       Ventek                                                     2                38
                                                          ---------         ---------
                                                          $      61         $     544
                                                          =========         =========
</TABLE>


<TABLE>
<CAPTION>
                                                                  March 31,
                                                                  ---------
                                                            2002              2001
                                                            ----              ----
<S>                                                       <C>               <C>
Identifiable Assets
       Shopping Centers                                   $  59,529         $  63,782
       Office Buildings                                       2,351             2,548
       Ventek                                                 3,330             6,118
       Corporate                                            118,176           141,534
                                                          ---------         ---------
Total Assets                                              $ 183,386         $ 213,982
                                                          =========         =========
</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 dividends
         paid to holders of Common Shares prior to the completion of the
         proposed transaction (including a $0.10 cash dividend distributed to
         holders of record as of March 31, 2002 and an expected $0.10 cash
         dividend to be distributed to holders of record as of June 30, 2002),
         breaches of certain representations, warranties and covenants contained
         in the merger agreement and costs, fees and expenses associated with
         obtaining certain third-party consents for the proposed transaction;

-        a choice of (1) an additional $0.35 in cash or (2) approximately
         1/174th of a debt instrument with a face value of $100 and which is to
         be issued by Southwest Shopping Centers Co. II, L.L.C. ("SSCC"), a
         wholly owned subsidiary of the Trust, and indirectly secured by the
         Trust's principal real estate assets (the "Note"); and

-        three-fiftieths (3/50ths) of a non-transferable uncertificated
         subscription right, with each whole right exercisable to purchase
         common stock of Gotham Golf at $20.00 per share and, subject to
         availability and proration, additional shares of common stock of Gotham
         Golf at $20.00 per share, for up to an aggregate of approximately $41
         million of common stock of Gotham Golf.

         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. ("GGP"), which is a golf-course acquirer,
         owner and operator. As part of the transaction, Gotham and certain
         other GGP equityholders will contribute their respective limited
         partnership interests in GGP to Gotham Golf and their respective
         general partnership interests in GGP 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 GGP, and Gotham and the other equityholders that
         contributed their equity interests in GGP 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.


                                       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 FORM S-4 OF GOTHAM GOLF AND SSCC FILED ON MAY 13, 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 SSCC.
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 SSCC 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 March 31, 2002 to the
balance at December 31, 2001.

         The Trust's net cash provided by investing activities of $1.8 million
was substantially offset by net cash used for operating activities of $0.8
million and $0.6 million of net cash used for financing activities. Cash used
for financing activities included $0.5 million of cash dividends to preferred
shareholders and $0.1 million of mortgage amortization. Cash provided by
investing activities consisted of the excess of sales over purchases of U.S.
Treasury Bills of approximately $1.9 million. Cash used for investing activities
consisted of $0.1 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 first quarter of 2002. Both dividends
were paid April 30, 2002 to shareholders of record at the close of business on
March 31, 2002.

         At March 31, 2002, the Trust owned $114.1 million in face value of U.S.
Treasury Bills. The U.S. Treasury Bills are of maturities less than 90 days and
classified as held to maturity. The average yield of the U.S. Treasury Bills for
the quarter ended March 31, 2002 was 1.66%.


                                       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 expires on May 31, 2002. The
Trust expects the rates to increase 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. 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. 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. 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 May 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. Management of VenTek disagrees with
the basis of calculating the liquidated damages of one contract and does not
believe it owes any significant amount with respect to the other 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             $42.0           $0.2               $ 0.7             $0.8             $40.3
     Senior notes                      $12.5           $ --               $12.5             $ --                --
                                       ---------------------------------------------------------------------------
         Total                         $54.5           $0.2               $13.2             $0.8             $40.3
                                       ===========================================================================
</TABLE>


Results of Operations

         Net loss applicable to common shares for the three months ended March
31, 2002 was $2.0 million as compared to a net income of $28.1 million for the
three months ended March 31, 2001. Net income for the three months ended March
31, 2001 included gains on sales of real estate of $30.0 million. Gains on sales
of real estate for the three months ended March 31, 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
operation of the properties (the "Purchased Assets"). Net income for the three
months ended March 31, 2001 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.

         Interest and dividends decreased during the three months ended March
31, 2002, as compared to the comparable period of 2001. The decrease is
primarily a result of lower interest rates between the comparable three month
periods. In addition, during the first quarter of 2001 a $0.3 million dividend
was accrued on the preferred shares of HQ Global Holdings, Inc.

         Property net operating income, which is rents less property operating
expenses and real estate taxes, decreased for the three months ended March 31,
2002 to $1.8 million from $5.3 million in 2001. The decrease was attributable to
the sale of properties in March 2001.

         Property net operating income for the Trust's remaining real estate
properties in the portfolio for the three months ended March 31, 2002 and 2001
increased by $0.1 million. The increase was mainly attributable to an increase
in rental income of $0.2 million offset by an increase in operating expenses of
$0.1 million at Park Plaza Mall.

         Depreciation, amortization and interest expense decreased when
comparing the three months ended March 31, 2002 to the comparable period 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.

         General and administrative expenses decreased by $0.4 million when
comparing the three months ended March 31, 2002 and the comparable period in
2001. Included in general and administrative expenses for the three months ended
March 31, 2002 are approximately $0.9 million of transaction costs related to
the Gotham proposal. Also included in general and administrative expenses is
$0.2 million and $0.3 million in 2002 and 2001, respectively to a firm providing
management services to VenTek. Otherwise, general and administrative expenses
decreased due to reduced legal, accounting, professional and management fees as
a result of the Trust selling the majority of its assets in March 2001.


                                       16
<PAGE>
         The Company's manufacturing facility, VenTek, incurred a net loss of
$0.5 million for the quarter ended March 31, 2002, as compared to a net loss of
approximately $0.1 million for the quarter ended March 31, 2001. Revenue
decreased for the three months ended March 31, 2002 to $0.9 million from $2.1
million in 2001 and cost of goods sold decreased to $1.4 million from $2.0
million for the same period. The decrease in both revenues and cost of goods
sold is due to the winding down of current contracts and having nominal new
business. In February 2002 eight 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 first quarter of 2002. The backlog for VenTek is
approximately $0.8 million at March 31, 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 could result 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, the risk that material adverse events will
prelude consummation of the proposed transaction with GGC, 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.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK

Interest Rate Risk

         All of the Trust's loans outstanding at March 31, 2002 have fixed
interest rates. The Trust's investments in U.S. Treasury Bills and other U.S.
Government Obligations mature in less than 90 days and therefore are not subject
to significant interest rate risk.

                                       17
<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 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. 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.


                                       18
<PAGE>
ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.

         (a)      Exhibits:                  None

         (b)      Reports on Form 8K:

                  February 14, 2002

                      Item 5     -  On February 14, 2002, the Trust and Gotham
                                    Golf, L.P. announced that they have entered
                                    into a definitive Agreement and Plan of
                                    Merger and Contribution, pursuant to which
                                    the Trust will merge into Gotham Golf Corp.

                      Item 7(c)  -  Exhibits

                                    2.1 Agreement and Plan of Merger and
                                    Contribution, dated as of February 13, 2002.

                                    99.1 Press release dated February 14, 2002,
                                    jointly issued by the Trust, Gotham
                                    Partners, L.P. and Gotham Golf Partners,
                                    L.P.


                                       19
<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: May 15, 2002                      By:   /s/ Neil H. Koenig
                                              ----------------------------------
                                              Neil H. Koenig,
                                              Interim Chief Financial Officer



                                       20