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

                                    FORM 10-Q

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

                For the quarterly period ended September 30, 2005

                         Commission file number 0-16249

             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
 incorporation or organization)                              Identification No.)

     P.O. Box 9507, 7 Bulfinch Place, Suite 500, Boston, Massachusetts 02114
     -----------------------------------------------------------------------
                    (Address of principal executive offices)

                                 (617) 570-4614
                                 --------------
              (Registrant's telephone number, including area code)

Indicate by check 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 |_|

Indicated by check whether registrant is an accelerated filer (as identified in
Rule 12b-2 of the Exchange Act). Yes |_| No |X|

As of November 10, 2005 there were 35,581,479 shares of common stock
outstanding.

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

<PAGE>

                                      INDEX

<TABLE>
<CAPTION>
                                                                                   Page
<S>                                                                                  <C>
Part I.    Financial Information

   Item 1. Financial Statements (Unaudited):

           Consolidated and Combined Balance Sheets as of September 30, 2005
           and December 31, 2004......................................................3

           Consolidated and Combined Statements of Operations and Comprehensive
           Income for the Three and Nine Months Ended September 30, 2005
           and September 30, 2004.....................................................4

           Consolidated and Combined Statement of Shareholders' Equity................5

           Consolidated and Combined Statements of Cash Flows for the Nine Months
           Ended September 30, 2005 and September 30, 2004............................6

           Notes to Consolidated and Combined Financial Statements....................7

   Item 2. Management's Discussion and Analysis of Financial
           Condition and Results of Operations.......................................26

   Item 3. Quantitative and Qualitative Disclosure about Market Risk.................38

   Item 4. Controls and Procedures...................................................38

Part II.   Other Information:

   Item 6. Exhibits..................................................................39

Signatures ..........................................................................40

Exhibit Index .......................................................................41
</TABLE>


                                       2
<PAGE>

             FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
                         FORM 10-Q - SEPTEMBER 30, 2005

                    CONSOLIDATED AND COMBINED BALANCE SHEETS
                      (In thousands, except per-share data)

<TABLE>
<CAPTION>
                                                                             September 30, 2005
                                                                                (Unaudited)       December 31, 2004
                                                                             ------------------   -----------------
<S>                                                                            <C>                  <C>
ASSETS

  Investments in real estate, at cost
    Land                                                                       $      11,004        $       3,929
    Buildings and improvements                                                       166,777               87,599
                                                                               -------------        -------------
                                                                                     177,781               91,528
    Less - Accumulated depreciation                                                   (8,017)              (4,750)
                                                                               -------------        -------------
               Investments in real estate, net                                       169,764               86,778

  Cash and cash equivalents                                                           85,136               82,559
  Restricted cash                                                                        876                   --
  Mortgage-backed securities available for sale pledged
      under repurchase agreements                                                    107,733                   --
  Loans receivable                                                                     9,173                8,390
  Accounts receivable and prepayments, net of allowance
      of $10 and $57, respectively                                                    15,338                3,391
  Real estate securities available for sale                                           30,418               14,734
  Preferred equity investment                                                         78,417                   --
  Lease intangibles, net                                                              26,004                7,205
  Deferred financing costs, net                                                        1,177                1,157
  Assets of discontinued operations                                                    1,382                1,379
  Real estate held for syndication                                                        --               84,375
  Other assets                                                                         1,405                   --
                                                                               -------------        -------------
       TOTAL ASSETS                                                            $     526,823        $     289,968
                                                                               =============        =============

LIABILITIES

  Repurchase agreements                                                        $     104,196        $          --
  Mortgage loans payable                                                             176,298               84,206
  Liabilities of real estate held for syndication                                         --               76,762
  Accounts payable and accrued liabilities                                             5,716                5,615
  Dividends payable                                                                    1,616                  516
  Deferred items                                                                          37                   68
  Loan payable                                                                            30                   44
  Liabilities of discontinued operations                                               1,708                2,615
                                                                               -------------        -------------
       TOTAL LIABILITIES                                                             289,601              169,826
                                                                               -------------        -------------

CONTINGENCIES

MINORITY INTEREST                                                                      5,694                   --
                                                                               -------------        -------------

SHAREHOLDERS' EQUITY

  Series A Cumulative Convertible Redeemable Preferred Shares of
    Beneficial Interest, $25 per share liquidating preference, 2,300,000
    shares authorized, 983,082 outstanding in 2005 and 2004                           23,131               23,131
  Series B-1 Cumulative Convertible Redeemable Preferred Shares of
    Beneficial Interest, $25 per share liquidating preference, 4,000,000
    shares authorized and outstanding in 2005                                         94,316                   --
  Common Shares of Beneficial Interest, $1 par, unlimited authorized,
    32,058,913 and 31,058,913 outstanding in 2005 and in 2004, respectively           32,059               31,059

  Additional paid-in capital                                                         210,877              207,968

  Accumulated other comprehensive income                                               4,554                3,034

  Accumulated distributions in excess of net income                                 (133,409)            (145,050)
                                                                               -------------        -------------
                  Total Shareholders' Equity                                         231,528              120,142
                                                                               -------------        -------------

       TOTAL LIABILITIES, MINORITY INTEREST AND
                  SHAREHOLDERS' EQUITY                                         $     526,823        $     289,968
                                                                               =============        =============
</TABLE>

          See Notes to Consolidated and Combined Financial Statements.


                                       3
<PAGE>

             FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
                         FORM 10-Q - SEPTEMBER 30, 2005

             CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS AND
                              COMPREHENSIVE INCOME
                                   (Unaudited)

                      (In thousands, except per-share data)

<TABLE>
<CAPTION>
                                                              For the Three Months Ended    For the Nine Months Ended
                                                                     September 30,               September 30,
                                                              --------------------------    -------------------------
                                                                   2005         2004            2005         2004
                                                                 --------     --------        --------     --------
<S>                                                              <C>          <C>             <C>          <C>
Revenues
   Rents                                                         $  6,323     $    357        $ 18,076     $  1,100
   Interest and dividends                                           2,447          993           4,772        1,936
   Insurance recoveries                                                --        1,244              --        1,244
                                                                 --------     --------        --------     --------
                                                                    8,770        2,594          22,848        4,280
                                                                 --------     --------        --------     --------

Expenses
   Property operating                                                 181          224             547          573
   Real estate taxes                                                   21           21              62           45
   Depreciation and amortization                                    1,771           75           4,987          196
   Interest                                                         4,491            1          10,530           12
   State and local taxes                                              615           --             615           --
   General and administrative                                       1,040          828           3,750        2,987
                                                                 --------     --------        --------     --------
                                                                    8,119        1,149          20,491        3,813
                                                                 --------     --------        --------     --------
Other income
   Legal settlement                                                11,000           --          11,000           --
   Equity in earnings of preferred equity investment                1,468           --           2,598           --
   Gain on sale of real estate securities available for sale          101          764             243        1,040
                                                                 --------     --------        --------     --------
                                                                   12,569          764          13,841        1,040
                                                                 --------     --------        --------     --------

Income from continuing operations before minority interest         13,220        2,209          16,198        1,507
   Minority interest                                                   12           --              75           --
                                                                 --------     --------        --------     --------
Income from continuing operations                                  13,232        2,209          16,273        1,507

Income (loss) from discontinued operations                             24         (491)            546       20,451
                                                                 --------     --------        --------     --------

Net income                                                         13,256        1,718          16,819       21,958
   Preferred dividend                                              (2,141)        (516)         (5,178)      (1,548)
                                                                 --------     --------        --------     --------
Net income applicable to Common Shares of Beneficial Interest    $ 11,115     $  1,202        $ 11,641     $ 20,410
                                                                 ========     ========        ========     ========

Other comprehensive income
Net income                                                       $ 13,256     $  1,718        $ 16,819     $ 21,958
Unrealized (loss) gain on available for sale securities            (2,406)        (162)           (210)         610
Unrealized gain on interest rate derivative                         1,480           --           1,730           --
                                                                 --------     --------        --------     --------
Comprehensive income                                             $ 12,330     $  1,556        $ 18,339     $ 22,568
                                                                 ========     ========        ========     ========

Per share data - Basic and Diluted:
Income from continuing operations, net of preferred dividend     $   0.35     $   0.05        $   0.35     $   0.00
Income from discontinued operations                                  0.00        (0.02)           0.02         0.66
                                                                 --------     --------        --------     --------
Net income applicable to Common Shares of Beneficial Interest    $   0.35     $   0.03        $   0.37     $   0.66
                                                                 ========     ========        ========     ========

Basic Weighted-Average Common Shares of Beneficial Interest        32,059       31,059          31,887       31,059
                                                                 ========     ========        ========     ========
Diluted Weighted Average Common Shares of Beneficial Interest      32,106       31,087          31,932       31,084
                                                                 ========     ========        ========     ========
</TABLE>

          See Notes to Consolidated and Combined Financial Statements.

                                       4
<PAGE>

            FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
                         FORM 10-Q - SEPTEMBER 30, 2005
          CONSOLIDATED AND COMBINED STATEMENT OF SHAREHOLDERS' EQUITY
                  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005
                                   (Unaudited)

                    (In thousands, except per-share amounts)

<TABLE>
<CAPTION>

                                          Preferred Shares of    Preferred B-1 Shares of    Shares of Beneficial      Additional
                                          Beneficial Interest      Beneficial Interest             Interest            Paid-In
                                          Shares       Amount    Shares           Amount    Shares        Amount       Capital
                                          ------       ------    ------           ------    ------        ------      ----------
<S>                                         <C>       <C>        <C>             <C>        <C>          <C>           <C>
Balance, December 31, 2004                  983       $23,131       --           $    --    $31,059      $31,059       $207,968

   Net income                                --            --       --                           --           --             --
   Dividends paid or accrued on
      preferred shares ($2.10 per
      share)                                 --            --       --                           --           --             --
   Unrealized loss on available for
      sale real estate securities            --            --       --                           --           --             --
   Issuance of Common Shares                                                                  1,000        1,000          2,909
   Issuance of Preferred Shares
      Series B-1                                                 4,000            94,316
   Unrealized gain on interest rate
      derivative                             --            --       --                           --           --             --
                                            ---       -------    -----           -------    -------      -------       --------

Balance at September 30, 2005               983       $23,131    4,000           $94,316    $32,059      $32,059       $210,877
                                            ===       =======    =====           =======    =======      =======       ========

<CAPTION>
                                          Accumulated       Accumulated
                                          Distributions        Other
                                          in Excess of     Comprehensive
                                           Net Income          Income         Total
                                          -------------    -------------    --------
<S>                                        <C>                 <C>          <C>
Balance, December 31, 2004                 $(145,050)          $3,034       $120,142

   Net income                                 16,819               --         16,819
   Dividends paid or accrued on
      preferred shares ($2.10 per
      share)                                  (5,178)              --         (5,178)
   Unrealized loss on available for
      sale real estate securities                 --             (210)          (210)
   Issuance of Common Shares                                                   3,909
   Issuance of Preferred Shares
      Series B-1                                                              94,316
   Unrealized gain on interest rate
      derivative                                  --            1,730          1,730
                                           ---------           ------       --------

Balance at September 30, 2005              $(133,409)          $4,554       $231,528
                                           =========           ======       ========
</TABLE>

                   See Notes to Combined Financial Statements.


                                       5
<PAGE>

             FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
                         FORM 10-Q - SEPTEMBER 30, 2005
               CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
                      (In thousands, except per-share data)

<TABLE>
<CAPTION>
                                                                                       For the Nine Months Ended
                                                                                             September 30,
                                                                                       -------------------------
                                                                                           2005          2004
                                                                                        ---------     ---------
<S>                                                                                     <C>           <C>
Cash flows from operating activities
      Net income                                                                        $  16,819     $  21,958
      Adjustments to reconcile net income
         to net cash provided by (used in) operating activities
            Depreciation and amortization (including amortization of deferred
                financing costs)                                                            3,469         1,246
            Amortization of lease intangibles                                               2,066            --
            Straight-lining of rental income                                                  122            --
            Equity in earnings of preferred equity investment                              (2,598)           --
            Minority interest                                                                 (75)           --
            Distribution of income from preferred equity investment                         2,109            --
            Gain on disposal of real estate                                                    --       (19,268)
            Gain on sale of securities available for sale                                      --        (1,040)
            Decrease in deferred items                                                        (31)         (379)
            Impairment charge                                                                  --            90
            Interest receivable on loans                                                       18           (51)
            Legal settlement receivable                                                   (11,000)           --
            Net changes in other operating assets and liabilities                          (2,514)       (1,051)
                                                                                        ---------     ---------
                Net cash provided by operating activities                                   8,385         1,505
                                                                                        ---------     ---------
Cash flows from investing activities
      Investments in real estate                                                          (18,714)       (2,397)
      Sale of limited partnership interest to minority interest                             5,804            --
      Investments in lease intangibles                                                     (3,956)           --
      Purchase of mortgage-backed securities available for sale                          (122,310)           --
      Proceeds from paydown of mortgage-backed securities available for sale               13,953            --
      Investment in preferred equity investment                                           (77,927)           --
      Purchase of real estate securities available for sale                               (16,152)      (17,418)
      Purchase of investments available for sale                                               --      (659,753)
      Proceeds from maturity of investments held to maturity                                   --       660,028
      Proceeds from sale of real estate securities available for sale                       1,417         9,384
      Proceeds from sale of real estate                                                        --        33,640
      Increase in restricted cash                                                            (876)      (31,162)
      Issuance of loans receivable                                                         (3,903)      (21,677)
      Collection of loans receivable                                                        3,082        16,084
                                                                                        ---------     ---------
                Net cash used in investing activities                                    (219,582)      (13,271)
                                                                                        ---------     ---------

Cash flows from financing activities
      Increase in borrowings under repurchase agreement                                   118,243            --
      Repayment of borrowings under repurchase agreement                                  (14,047)           --
      Proceeds from mortgage loans payable                                                 22,600            --
      Decrease in loan payable                                                                (14)          (15)
      Deferred financing costs                                                               (304)           --
      Principal payments of mortgage loans payable                                         (6,851)         (144)
      Issuance of Common Shares of Beneficial Interest, net                                 3,909            --
      Issuance of Series B-1 Cumulative Convertible Redeemable Preferred Shares, net       94,316            --
      Dividends paid on Preferred Shares of Beneficial Interest                            (4,078)       (1,548)
                                                                                        ---------     ---------
                Net cash provided by (used in) financing activities                       213,774        (1,707)
                                                                                        ---------     ---------

      Net increase (decrease) in cash and cash equivalents                                  2,577       (13,473)
      Cash and cash equivalents at beginning of period                                     82,559        14,924
                                                                                        ---------     ---------
      Cash and cash equivalents at end of period                                        $  85,136     $   1,451
                                                                                        =========     =========

      Supplemental Disclosure of Cash Flow Information
      Interest paid                                                                     $  10,686     $   1,745
                                                                                        =========     =========

      Supplemental Disclosure on Non-Cash Investing and Financing Activities

      Dividends accrued on Preferred Shares of Beneficial Interest                      $   1,616     $     516
      Mortgage loan assumed by purchaser of property                                           --       (41,313)
                                                                                        ---------     ---------
                                                                                        $   1,616     $ (40,797)
                                                                                        =========     =========
</TABLE>

          See Notes to Consolidated and Combined Financial Statements.


                                       6
<PAGE>

             FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
                         FORM 10-Q - SEPTEMBER 30, 2005
             NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

1. General

The accompanying financial statements represent the consolidated and combined
results of the Registrant, First Union Real Estate Equity and Mortgage
Investments (the "Trust"), and First Union Management Inc. ("FUMI"). Prior to
July 1, 2005, all of the outstanding shares of stock of FUMI were held for the
benefit of the shareholders of the Trust under a trust agreement. Effective July
1, 2005, the Trust consummated a business combination with FUMI pursuant to
which FUMI became a wholly-owned subsidiary of the Trust.

Effective January 1, 2005, the Trust conducts its business through First Union
REIT L.P., a Delaware limited partnership (the "Operating Partnership"). The
Trust is the sole general partner of, and owns directly and indirectly, 100% of
the limited partnership interest in the Operating Partnership. The transfer of
interest of the Trust's assets and liabilities to the Operating Partnership had
no effect on the Trust's financial statements.

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

The consolidated and combined financial statements reflect, in the opinion of
the Trust, all adjustments (consisting of normal recurring adjustments)
necessary to present fairly the consolidated and combined financial position,
results of operations and cash flows for the respective periods in conformity
with accounting principles generally accepted in the United States of America
consistently applied. The results of operations for the nine months ended
September 30, 2005 and 2004 are not necessarily indicative of results expected
for the full year.

2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses and the disclosure of contingent assets and liabilities.
Such estimates that are particularly susceptible to change relate to
management's estimate of the impairment of real estate. In addition, estimates
are used when accounting for the allowance for doubtful accounts and
contingencies, among others. Actual results could differ from these estimates.

Investments in Real Estate

Real estate assets are stated at cost. Expenditures for repairs and maintenance
are expensed as incurred. Significant renovations that extend the useful life of
the properties are capitalized. Depreciation for financial reporting purposes is
computed using the straight-line method. Buildings and building improvements are
depreciated over their estimated useful lives of 10 to 40 years, based on the
property's age, overall physical condition, type of construction materials and
intended use. Improvements to the buildings are depreciated over the remaining
useful life of the building at the time the improvement is completed. Tenant
alterations are depreciated over the life of the lease of the tenant. The Trust
reviews quarterly each of its properties for any impairment losses. The Trust
records impairment losses 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 market value of
the asset to its carrying amount.

The fair value of the real estate acquired, which includes the impact of
mark-to-market adjustments for assumed mortgage debt related to property
acquisitions, is allocated to the acquired tangible assets, consisting of land,
building


                                       7
<PAGE>

             FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
                         FORM 10-Q - SEPTEMBER 30, 2005
             NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

2. Summary of Significant Accounting Policies (Continued)

Investments in Real Estate (Continued)

and improvements, fixtures and equipment and identified intangible assets and
liabilities, consisting of the value of above-market and below-market leases,
other value of in-place leases and value of tenant relationships, based in each
case on management's determination of their fair values.

The fair value of the tangible assets of an acquired property (which includes
land, building and improvements and fixtures and equipment) is determined by
valuing the property as if it were vacant, and the "as-if-vacant" value is then
allocated to land, building and improvements and fixtures and equipment based on
management's determination of relative fair values of these assets. Factors
considered by management in performing these analyses include an estimate of
carrying costs during the expected lease-up periods considering current market
conditions and costs to execute similar leases. In estimating carrying costs,
management includes real estate taxes, insurance and other operating expenses
and estimates of lost rental revenue during the expected lease-up periods based
on current market demand. Management also estimates costs to execute similar
leases including leasing commissions.

In allocating the fair value of the identified intangible assets and liabilities
of an acquired property, above-market and below-market in-place lease values are
recorded based on the difference between the current in-place lease rent and a
management estimate of current market rents. Below-market lease intangibles are
recorded as part of deferred revenue and amortized into rental revenue over the
non-cancelable periods of the respective leases. Above-market leases are
recorded as part of intangible assets and amortized as a direct charge against
rental revenue over the non-cancelable portion of the respective leases.

The aggregate value of other acquired intangible assets, consisting of in-place
leases and tenant relationships, is measured by the excess of (i) the purchase
price paid for a property over (ii) the estimated fair value of the property as-
if- vacant, determined as set forth above. This aggregate value is allocated
between in-place lease values and tenant relationships based on management's
evaluation of the specific characteristics of each tenant's lease. The value of
in-place leases and customer relationships are amortized to expense over the
remaining non-cancelable periods of the respective leases.

Cash and Cash Equivalents

Cash and cash equivalents include checking and money market accounts and highly
liquid investments purchased with maturities of three months or less.

Restricted Cash

Restricted cash represents cash in escrow accounts and deposits securing a
mortgage loan payable.

Mortgage-Backed Securities

All of the Trust's mortgage-backed securities are designated as
available-for-sale and are carried at their estimated fair value with unrealized
gains and temporary losses excluded from earnings and reported in other
comprehensive income or loss, a component of shareholders' equity.

The Trust's mortgage-backed securities consist of a portfolio of whole pool
adjustable rate mortgage-backed securities issued by Federal National Mortgage
Association ("Fannie Mae"). All of the Trust's mortgage-backed securities are
pledged as collateral under the Trust's repurchase agreement.

Interest income is accrued based on the outstanding principal balance of the
investment securities and their contractual terms. Premiums and discounts
associated with the purchase of investment securities are amortized and recorded
as interest income over the life of such securities using the effective yield
method, adjusted for actual prepayment activity.


                                       8
<PAGE>

             FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
                         FORM 10-Q - SEPTEMBER 30, 2005
             NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

2. Summary of Significant Accounting Policies (Continued)

Loans Receivable

The Trust's policy is to record loans receivable at cost. The Trust evaluates
the collectibility of both interest and principal of each of its loans, if
circumstances warrant, to determine whether it is impaired. A loan is considered
to be impaired when, based on current information and events, it is probable
that the Trust will be unable to collect all amounts due according to the
existing contractual terms. When a loan is considered to be impaired, the amount
of the loss accrual is calculated by comparing the recorded investment to either
the value determined by discounting the expected future cash flows at the loan's
effective interest rate or to the value of the collateral if the loan is
collateral dependent. The interest rate on the loans receivable ranges from 8.5%
to 12.25%. Interest income is recognized on an accrual basis.

Accounts Receivable

Accounts receivable are recorded at the invoiced amount and do not bear
interest. The allowance for doubtful accounts is the Trust's best estimate of
the amount of probable credit losses in the Trust's existing accounts
receivable. The Trust reviews its allowance for doubtful accounts monthly. Past
due balances over 90 days or over a specified amount are reviewed individually
for collectibility. Account balances are charged off against the allowance after
all means of collection have been exhausted and the potential for recovery is
considered remote. The Trust does not have any off-balance-sheet credit exposure
related to its tenants. Accounts receivable also includes amounts related to
insurance recoveries.

Real Estate Securities Available for Sale

The Trust classifies investments in real estate equity securities with readily
determinable fair market values on the balance sheet as available-for-sale,
based on the Trust's intent with respect to those securities. Specifically, the
Trust's investments in equity securities with readily determinable fair market
values are accounted for as available-for-sale because these securities are held
principally for investment purposes and not for sale in the short term.
Accordingly, the Trust records these investments at fair market value, and
unrealized gains and losses are recognized through shareholders' equity, as a
component of other comprehensive income. Realized gains and losses and charges
for other-than-temporary impairments are included in net income. Sales of
securities are recorded on the trade date and gains and losses are determined by
the specific identification method.

Preferred Equity Investment

The Trust invests in mezzanine loans. In connection with these mezzanine loans,
the Trust may also acquire an ownership interest in the borrower that allows the
Trust to participate in a percentage of the underlying property's cash flows
from operations and proceeds from a sale or refinancing. At the inception of
each such investment, management must determine whether such investment should
be accounted for as a loan, preferred equity, joint venture or as real estate.
The Trust classifies all of its current portfolio of mezzanine loans, where the
Trust also acquires an ownership interest in the borrower and where they also
provide the Trust with a preferred return, as preferred equity investments and
they are accounted for using the equity method.

Lease Intangibles

Upon acquisition of real estate, the Trust records intangible assets and
liabilities acquired at their fair market value.

Unamortized Debt Issue Costs

Direct financing costs are deferred and amortized over the term of the related
agreements as a component of interest expense.


                                       9
<PAGE>

             FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
                         FORM 10-Q - SEPTEMBER 30, 2005
             NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

2. Summary of Significant Accounting Policies (Continued)

Real Estate Held for Syndication

Real estate acquired for the purpose of selling limited partnership interests
sponsored by the Trust is classified as real estate held for syndication.

Investment in Limited Partnership

The Trust has elected to early adopt the provisions of FASB Emerging Issues Task
Force Issue No. 04-5 ("EITF 04-5") during the quarter ended September 30, 2005,
effective January 1, 2005. EITF 04-5 requires the controlling general partner of
a limited partnership to consolidate the limited partnership in its consolidated
financial statements.

The impact of the early adoption on the January 1, 2005 balance sheet was as
follows (in thousands):

            Assets:                                Previously
                                                    Presented          Reclassed
                                                    ---------          ---------
              Real estate held for syndication       $84,375            $    --
              Land                                        --              7,075
              Building, net                               --             60,341
              Lease intangibles, net                      --             16,909
              Deferred costs, net                         --                 45
              Accounts receivable                         --                  5
                                                     -------            -------
                                                     $84,375            $84,375
                                                     =======            =======

            Liabilities:
              Liabilities of real estate held
              for syndication                        $76,762            $    --
              Mortgage loan                               --             76,343
              Accrued expenses                            --                419
                                                     -------            -------
                                                     $76,762            $76,762
                                                     =======            =======

Fair Value of Financial Instruments

Financial instruments include cash and cash equivalents, accounts receivable,
investments, accounts payable and long-term debt. The fair value of the cash and
cash equivalents, accounts receivable, investments in government securities,
equity securities and commercial paper and accounts payable approximate their
current carrying amounts due to their short-term nature. The fair value of the
Trust's mortgage loans payable and loan payable approximate their current
carrying amounts at September 30, 2005, primarily due to the Trust obtaining or
acquiring the loans within the past 12 months.

Derivative Financial Instruments

The Trust accounts for its interest rate swap agreements in accordance with FAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities," as
amended and interpreted. In accordance with FAS No. 133, all interest rate swap
agreements are carried on the balance sheet at their fair value, as an asset, if
their fair value is positive, or as a liability, if their fair value is
negative. Since the Trust's derivatives are designated as "cash flow hedges,"
the change in the fair value of any such derivative is recorded in other
comprehensive income or loss for hedges that qualify as effective and the change
in the fair value is transferred from other comprehensive income or loss to
earnings as the hedged liability affects earnings. The ineffective amount of all
interest rate swap agreements, if any, is recognized in earnings each quarter.
To date, the Trust has not recognized any change in the value of its interest
rate swap agreements in earnings as a result of the hedge or a portion thereof
being ineffective. Accordingly, changes in value are recorded through other
comprehensive income.


                                       10
<PAGE>

             FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
                         FORM 10-Q - SEPTEMBER 30, 2005
             NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

2. Summary of Significant Accounting Policies (Continued)

Derivative Financial Instruments (Continued)

Upon entering into hedging transactions, the Trust documents the relationship
between the interest rate swap agreements and the hedged liability. The Trust
also documents its risk-management policies, including objectives and
strategies, as they relate to its hedging activities. The Trust assesses, both
at inception of a hedge and on an on- going basis, whether or not the hedge is
highly "effective," as defined by FAS No. 133. The Trust discontinues hedge
accounting on a prospective basis with changes in the estimated fair value
reflected in earnings when: (i) it is determined that the derivative is no
longer effective in offsetting cash flows of a hedged item (including forecasted
transactions); (ii) it is no longer probable that the forecasted transaction
will occur; or (iii) it is determined that designating the derivative as an
interest rate swap agreement is no longer appropriate. To date, the Trust has
not discontinued hedge accounting for any of its interest rate swap agreements.
The Trust utilizes interest rate swap agreements to manage interest rate risk
and does not anticipate entering into derivative transactions for speculative or
trading purposes.

Repurchase Agreement

The Trust financed the June 2005 acquisition of its mortgage-backed securities
through the use of a repurchase agreement. Although structured as a sale and
repurchase obligation, a repurchase agreement operates as a financing under
which the Trust pledges its securities as collateral to secure a loan which is
equal in value to a specified percentage of the estimated fair value of the
pledged collateral, while the Trust retains beneficial ownership of the pledged
collateral. At the maturity of a repurchase agreement, the Trust is required to
repay the loan and concurrently receives back its pledged collateral from the
lender or, with the consent of the lender, the Trust may renew such agreement at
the then prevailing financing rate. Margin calls, whereby the lender requires
the Trust to pledge additional collateral to secure borrowings under its
repurchase agreement with the lender, may be experienced by the Trust as the
current face value of its mortgage-backed securities declines due to scheduled
monthly amortization and prepayments of principal on such mortgage-backed
securities. In addition, margin calls may also occur when the fair value of the
mortgage-backed securities pledged as collateral declines due to increases in
market interest rates or other market conditions. Through September 30, 2005,
the Trust paid $678,000 in connection with margin calls on its repurchase
agreement.

The original term to maturity of the Trust's repurchase agreement is one month.
Should the counterparty decide not to renew a repurchase agreement at maturity,
the Trust must either refinance it elsewhere or satisfy the obligation, which
might require the Trust to liquidate a portion or all of its investment in
mortgage-backed securities.

Revenue Recognition

The Trust accounts for its leases with tenants as operating leases with rental
revenue recognized on a straight line basis over the lease term. Tenant leases
generally provide for (i) billings of fixed minimum rent and (ii) billings of
certain operating costs. The Trust accrues the recovery of operating costs based
on actual costs incurred. Deferred revenue is derived primarily from revenue
received in advance of its due date.

Stock Options

Effective January 1, 2005, the Trust adopted the provisions of SFAS No. 123R,
"Accounting for Stock-Based Compensation." There was no impact on the net income
per share for the period ended September 30, 2005 on a basic and diluted basis.

Income Taxes

The Trust operates in a manner intended to enable it to continue to qualify as a
real estate investment trust ("REIT") under Sections 856-860 of the Code. In
order to qualify as a REIT, the Trust is generally required each year to
distribute to its shareholders at least 90% of its taxable income (excluding any
net capital gain). The Trust intends to


                                       11
<PAGE>

             FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
                         FORM 10-Q - SEPTEMBER 30, 2005
             NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

2. Summary of Significant Accounting Policies (Continued)

Income Taxes (Continued)

comply with the foregoing minimum distribution requirement. As of December 31,
2004, the Trust had net operating loss carryforwards of $47,300,000 which will
expire from 2019 through 2023. In connection with the issuance of the Series B-1
Cumulative Convertible Redeemable Preferred Shares of Beneficial Interest, the
Trust's net operating loss carryforwards will be subject to annual limitations
pursuant to Section 382 of the Code. The Trust also had capital loss
carryforwards of $12,300,000 as of December 31, 2004 which will expire from 2006
through 2007.

Effective July 1, 2005, the Trust consummated a business combination with FUMI
pursuant to which FUMI became a wholly-owned subsidiary of the Trust. In
connection with the business combination, FUMI elected to be treated for Federal
income tax purposes as a taxable REIT subsidiary. In order for the Trust to
continue to qualify as a REIT, the value of the FUMI stock cannot exceed 20% of
the value of the Trust's total assets. At September 30, 2005 FUMI did not exceed
20% of the value of the Trust's total assets. The net income of FUMI is taxable
at regular corporate tax rates. Current income taxes are recognized during the
period in which transactions enter into the determination of financial statement
income, with deferred income taxes being provided for temporary differences
between the carrying values of assets and liabilities for financial reporting
purposes and such values as determined by income tax laws. Changes in deferred
income taxes attributable to these temporary differences are included in the
determination of income. As a result of the business combination, the Trust may
be able to utilize FUMI's net operating loss carryforwards of $10,100,000 which
will expire from 2009 through 2023. The Trust and FUMI do not file consolidated
tax returns.

New Accounting Pronouncements

In May of 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections - A Replacement of APB Opinion No. 20 and SFAS No. 3". SFAS No. 154
changes the requirements for the accounting and reporting of a change in
accounting principle by requiring retrospective application to prior period
financial statements of the change in accounting principle, unless it is
impracticable to do so. SFAS No. 154 also requires that a change in depreciation
and amortization for long-lived, non financial assets be accounted for as a
change in accounting estimate affected by a change in accounting principle. SFAS
No. 154 is effective for accounting changes and correction of errors made in
fiscal years beginning after December 15, 2005. The Trust does not believe that
the adoption of SFAS No. 154 will have a material effect on the Trust's
consolidated and combined financial statements.

Earnings Per Share

The Trust has calculated earnings per share for the three and nine months ended
September 30, 2005 and 2004 in accordance with SFAS No. 128, "Earnings Per
Share." SFAS No. 128 requires that common share equivalents be excluded from the
weighted average shares outstanding for the calculation of basic earnings per
share.

The Trust's Series A Cumulative Convertible Redeemable Preferred Shares of
Beneficial Interest ("Series A Shares") and Series B-1 Cumulative Convertible
Redeemable Preferred Shares of Beneficial Interest ("Series B-1 Shares") are
anti-dilutive at September 30, 2005 and 2004 and, accordingly, are not included
in the weighted average shares outstanding for the dilutive earnings per share.


                                       12
<PAGE>

2. Summary of Significant Accounting Policies (Continued)

Earnings Per Share (Continued)

The reconciliation of shares outstanding for the basic and diluted earnings per
share calculation is as follows (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                                           For the Three Months Ended     For the Nine Months Ended
                                                                                  September 30,                 September 30,
                                                                           --------------------------     -------------------------
                                                                             2005              2004         2005             2004
                                                                           --------          --------     --------         --------
<S>                                                                        <C>               <C>          <C>              <C>
Basic
Income from continuing operations                                          $ 13,232          $  2,209     $ 16,273         $  1,507
Preferred dividend                                                           (2,141)             (516)      (5,178)          (1,548)
                                                                           --------          --------     --------         --------
Income (loss) from continuing operations, net of preferred dividend          11,091             1,693       11,095              (41)
Income (loss) from discontinued operations                                       24              (491)         546           20,451
                                                                           --------          --------     --------         --------
Net income applicable to Common Shares of Beneficial Interest              $ 11,115          $  1,202     $ 11,641         $ 20,410
                                                                           ========          ========     ========         ========

Basic weighted-average Common Shares of Beneficial Interest                  32,059            31,059       31,887           31,059
                                                                           ========          ========     ========         ========

Income from continuing operations, net of preferred dividend               $   0.35          $   0.05     $   0.35         $   0.00
(Loss) income from discontinued operations                                     0.00             (0.02)        0.02             0.66
                                                                           --------          --------     --------         --------
Net income per Common Share of Beneficial Interest                         $   0.35          $   0.03     $   0.37         $   0.66
                                                                           ========          ========     ========         ========

Diluted
Income from continuing operations                                          $ 13,232          $  2,209     $ 16,273         $  1,507
Preferred dividend                                                           (2,141)             (516)      (5,178)          (1,548)
                                                                           --------          --------     --------         --------
Income (loss) from continuing operations, net of preferred dividend          11,091             1,693       11,095              (41)
Income (loss) from discontinued operations                                       24              (491)         546           20,451
                                                                           --------          --------     --------         --------
Net income applicable to Common Shares of Beneficial Interest              $ 11,115          $  1,202     $ 11,641         $ 20,410
                                                                           ========          ========     ========         ========

Basic weighted-average Common Shares of Beneficial Interest                  32,059            31,059       31,887           31,059
Stock Options                                                                    47                28           45               25
                                                                           --------          --------     --------         --------
Diluted weighted-average Common Shares of Beneficial Interest                32,106            31,087       31,932           31,084
                                                                           ========          ========     ========         ========

Income (loss) from continuing operations, net of preferred dividend        $   0.35          $   0.05     $   0.35         $   0.00
(Loss) income from discontinued operations                                     0.00             (0.02)        0.02             0.66
                                                                           --------          --------     --------         --------
Net income per Common Share of Beneficial Interest                         $   0.35          $   0.03     $   0.37         $   0.66
                                                                           ========          ========     ========         ========
</TABLE>


                                       13
<PAGE>

             FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
                         FORM 10-Q - SEPTEMBER 30, 2005
             NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

2. Summary of Significant Accounting Policies (Continued)

Dividends

The Trust declared a dividend of $516,000 ($0.525 per share) on the Trust's
Series A Shares in the first, second and third quarters of 2005. The first
quarter dividend was paid April 30, 2005 to beneficiaries of record at the close
of business on March 31, 2005. The second quarter dividend was paid July 31,
2005 to beneficiaries at the close of business on June 30, 2005. The third
dividend was paid October 31, 2005 to beneficiaries of record at the close of
business on September 30, 2005.

The Trust declared a dividend of $510,000 ($0.14 per share) on the Trust's
Series B-1 Shares in the first quarter of 2005, which dividend represented the
pro rata portion of the quarterly distribution of $0.40625 per share. The first
quarter dividend was paid April 30, 2005 to beneficiaries of record as of the
close of business on March 31, 2005. In May 2005, the Trust declared and paid a
dividend on the Trust's Series B-1 Shares equal to $476,000 ($0.1308 per share)
for the period April 1, 2005 through April 30, 2005. In June 2005, the Trust
declared a dividend of $1,479,000 ($0.40625 per share) on the Trust's Series B-1
Shares issued in February 2005 and a dividend of $16,000 ($0.05 per share) on
the Trust's Series B-1 Shares issued in June 2005, which dividend represented
the pro rata portion of the quarterly distribution for the dividend period May
1, 2005 through July 30, 2005 of $0.40625. The dividend was paid July 31, 2005
to beneficiaries of record as of the close of business on June 30, 2005.

The Trust declared a dividend of $1,625,000 ($0.40625 per share) on the first
and second issuance of the Trust's Series B-1 Shares for the third quarter of
2005. The third quarter dividend was paid October 31, 2005 to beneficiaries of
record at the close of business September 30, 2005.

3. Related Party Transactions

The affairs of the Trust and its subsidiaries are administered by FUR Advisors
LLC ("FUR Advisors") pursuant to the terms of an Advisory Agreement (the
"Advisory Agreement") dated December 31, 2003 between the Trust and FUR
Advisors, which agreement was entered into in connection with the acquisition by
FUR Investors LLC of its interest in the Trust and the other transactions
entered into in connection therewith. FUR Advisors is controlled by and
partially owned by the executive officers of the Trust. Pursuant to the terms of
the Advisory Agreement, FUR Advisors is responsible for providing asset
management services to the Trust and coordinating with the Trust's shareholder
transfer agent and property managers. Effective as of January 1, 2005, the terms
of the Advisory Agreement were modified to provide that the quarterly fee
payable to FUR Advisors for providing such services would equal the lesser of an
asset based fee or an outstanding equity based fee. In general, the asset based
fee was the original fee set forth in the Advisory Agreement which is calculated
as follows: 1% of the gross asset value of the Trust up to $100 million, 0.75%
of the gross asset value of the Trust between $100 million and $250 million,
0.625% of the gross asset value of the Trust between $250 million and $500
million and 0.50% of the gross asset value of the Trust in excess of $500
million (in light of the triple net leased nature of the 16 triple net leased
properties, FUR Advisors agreed to reduce its fee for these properties to 0.25%
of the gross asset value for the portion of that portfolio that is subject to
leverage). Prior to the amendment to the Advisory Agreement on January 1, 2005,
the asset based fee included a loan servicing fee not exceeding commercially
reasonable rates approved by a majority of the independent members of the Board
of Trustees, for providing administrative and clerical services with respect to
loans made by the Trust to third parties.

The equity based fee is calculated as follows: (i) 1.5% of the issued and
outstanding equity securities of the Trust plus (ii) .25% of any equity
contribution by a third party to a joint venture managed by the Trust. For
purposes of the equity based calculation, the 31,058,913 Common Shares of
Beneficial Interest ("Common Shares") outstanding at January 1, 2005 are to be
valued as follows: $2.30 (FUR Investors LLC's tender offer price in its December
2003 tender offer) with respect to 26,058,913 Common Shares and $2.60 (the
purchase price paid by FUR Investors LLC) to acquire the 5,000,000 Common Shares
on December 31, 2003. The Trust's Series A Shares are valued at their
liquidation preference amount of $25 per share. All Preferred and Common Shares
issued subsequent to January 1, 2005 are valued at the net issuance price.


                                       14
<PAGE>

             FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
                         FORM 10-Q - SEPTEMBER 30, 2005
             NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

3. Related Party Transactions (Continued)

In addition to the foregoing modification, regardless of whether the asset based
or equity based methodology is used, the reimbursement to FUR Advisors of up to
$100,000 per annum for the costs associated with the employment of one or more
asset managers has been eliminated.

FUR Advisors is also entitled under both the asset based fee and the equity
based fee pursuant to the Advisory Agreement to receive (i) property and
construction management fees at commercially reasonable rates as determined by
the independent Trustees of the Board, and (ii) an incentive fee, both of which
were provided for in the original Advisory Agreement. The incentive fee entitles
FUR Advisors to receive (a) an amount equal to 20% of all distributions paid to
beneficiaries of Common Shares after December 31, 2003 in excess of the
Threshold Amount, hereinafter defined, and, (b) upon the termination of the
Advisory Agreement, an amount equal to 20% of the "liquidation value" of the
Trust in excess of the Threshold Amount at the termination date. As defined in
the Advisory Agreement, the Threshold Amount is equal to (x) $71.3 million,
increased by the net issuance price of all Common Shares, with an adjustment for
Preferred Shares converted, issued after December 31, 2003, and decreased by the
redemption price of all shares redeemed after December 31, 2003, plus (y) a
return on the amount, as adjusted, set forth in (x) equal to 7% per annum
compounded annually. The incentive fee is reduced by any direct damages to the
Trust if the Advisory Agreement is terminated by the Trust for cause. At
September 30, 2005, the Threshold Amount was $84,506,432.

Effective February 1, 2004, Winthrop Management L.P. (formerly known as Kestrel
Management L.P.), an affiliate of FUR Advisors and the Trust's executive
officers, assumed property management responsibilities for Circle Tower.
Pursuant to the terms of the property management agreement, Winthrop Management
L.P. receives a fee equal to 3% of the monthly revenues of Circle Tower which
fee has been approved by the independent members of the Board of Trustees, and
is less than the amount paid to the prior management company.

The following table sets forth the fees and reimbursements paid by the Trust for
the three and nine months ended September 30, 2005 and 2004 to FUR Advisors and
Winthrop Management L.P. (in thousands):

<TABLE>
<CAPTION>
                                     Three Months         Three Months         Nine Months          Nine Months
                                         Ended               Ended                Ended                Ended
                                  September 30, 2005   September 30, 2004   September 30, 2005   September 30, 2004
                                  ------------------   ------------------   ------------------   ------------------
<S>                                 <C>                  <C>                  <C>                  <C>
Asset Management Fee(1)             $         724 (3)    $         301 (4)    $      1,905 (3)     $        988 (4)
Loan Servicing Fee(1)                          --                    1                  --                    6
Property Management Fee(2)                      9                   13                  29                   30
Reimbursement(1)                               --                   49                  --                   78
</TABLE>


      (1)   Payable to FUR Advisors
      (2)   Payable to Winthrop Management L.P.
      (3)   Determined using equity based method
      (4)   Determined using asset based method

The Trust paid fees of $6,122 and $69,302 for the three months ended September
30, 2005 and 2004, and $32,684 and $167,028 for the nine months ended September
30, 2005 and 2004, respectively, to the Real Estate Systems Implementations
Group, LLC ("RE Systems") for financial reporting and advisory services. The
managing member of RE Systems assumed the position of Interim Chief Financial
Officer of the Trust on August 18, 2000, and Interim Chief Executive Officer in
January 2003. In addition, he became a trustee of the Trust in June 2003. He
resigned as Interim Chief Executive Officer and Interim Chief Financial Officer
on December 31, 2003 and resigned as Trustee on April 15, 2004.

Effective November 7, 2005, as part of the Newkirk Realty Trust, Inc.
("Newkirk") transaction (see Note 13), the Trust and FUR Advisors entered into
an Amended and Restated Advisory Agreement on substantially the same terms as


                                       15
<PAGE>

             FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
                         FORM 10-Q - SEPTEMBER 30, 2005
             NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

3. Related Party Transactions (Continued)

the advisory agreement described above except that the Trust will receive a
credit against the payment of the quarterly base fee payable to FUR Advisors
equal to 80% of any incentive fee paid by Newkirk to NKT Advisors LLC ("NKT"),
an entity controlled and partially owned by the executive officers of the Trust
and FUR Advisors. In the event that the credit exceeds the fee payable under the
Amended and Restated Advisory Agreement, the excess is carried forward to
subsequent quarters in the same year with any excess at year end being paid by
FUR Advisors to the Trust. FUR Holdings LLC, the sole member of FUR Advisors,
has effectively guaranteed these payments, if any. There can be no assurance as
to the amount, if any, of the incentive fee that will be earned by NKT.

4. Loans Receivable

As of September 30, 2005, the Trust held the following loans receivable (in
thousands):

<TABLE>
<CAPTION>
                                                   Outstanding
                            Property                Principal      Accrued      Carrying     Interest
Property/Collateral         Location                 Balance       Interest     Amount       Rate          Maturity
-------------------         --------                 -------       --------     ------       ----          --------
<S>                         <C>                      <C>            <C>         <C>          <C>           <C>
Wingate Inn (1)             Clearwater,  FL          $ 2,752        $  --       $2,752       10%           February 2007

Ridgebrook Office Plaza
(1)                         Northbrook, IL             3,500           --        3,500       6.75%         April 2006
                                                                                             (Prime)

536 West 28th St. (1)       New York, NY               2,485           32        2,517       12.25%        April 2009
                                                                                             (LIBOR
                                                                                             +9.5%)
Various (3) (4)             Chicago, IL                  403            1          404       8.5%          September 2006
                                                     -------        -----       ------

                                                     $ 9,140        $  33       $9,173
                                                     =======        =====       ======
</TABLE>

      (1)   Secured by a first mortgage.

      (2)   Seven loans secured by limited partnership interests.

      (3)   Secured by a subordinate mortgage.

      (4)   Tenant improvement and capital expenditure loans made to the
            following properties: 8 South Michigan, 30 North Michigan, 20 East
            Jackson and Enterprise Centre.

For the period ended September 30, 2005, advances made and payments received on
loans was as follows (in thousands):

            Balance at January 1, 2005                              $     8,319
            Advances made                                                 3,903
            Repayments                                                   (3,082)
                                                                    -----------
            Balance at September 30, 2005                           $     9,140
                                                                    ===========


                                       16
<PAGE>

             FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
                         FORM 10-Q - SEPTEMBER 30, 2005
             NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

5. Real Estate Securities Available for Sale

The detail of real estate securities held for sale as of September 30, 2005 is
as follows (in thousands):

<TABLE>
<CAPTION>
                                                         Cost at             Unrealized           Balance at
                                        Date          September 30,            Gain at          September 30,
              Name                   Purchased            2005           September 30, 2005          2005
              ----                   ---------            ----           ------------------          ----
<S>                                   <C>              <C>                   <C>                 <C>
Sizeler Property Investors, Inc.      Various          $  15,856             $  3,703            $   19,559

America First Apartment
  Investors, Inc.                     Various              7,961                  503                 8,464

Securities of other real
  estate companies                    Various
                                                           2,292                  103                 2,395
                                                       ---------             --------            ----------

                                                       $  26,109             $  4,309            $   30,418
                                                       =========             ========            ==========
</TABLE>


6. Mortgage-Backed Securities Pledged Under Repurchase Agreement

At September 30, 2005, all of the Trust's mortgage-backed securities were
classified as available-for-sale and, as such, were carried at their estimated
fair value, based on prices obtained from a third party. The following table
presents the carrying value of the Trust's mortgage-backed securities as of
September 30, 2005 and December 31, 2004.

                                                     September 30,   December 31
                                                         2005           2004
                                                     -------------   -----------
                                                           (In thousands)
Agency Mortgage-Backed Securities:
       Fannie Mae Whole Pool Certificates              $ 107,733     $        --

Although not rated, Agency mortgage-backed securities carry an implied AAA
rating and are guaranteed as to principal and/or interest by Fannie Mae.

The following table presents the amortized cost and fair value of the Trust's
mortgage-backed securities at September 30, 2005 (in thousands):

                                                                   September 30,
                                                                       2005
                                                                   -------------
            Cost                                                      $ 107,916
            Mark to market adjustment                                    (1,159)
            Interest payment receivable                                     380
            Unamortized premium                                             596
                                                                      ---------
            Carrying value/estimated fair value                       $ 107,733
                                                                      =========

The negative mark to market adjustment is the result of increases in interest
rates subsequent to the acquisition of the securities. All the securities are
performing according to their terms. Furthermore, the Trust intends to, and has
the ability, to hold these securities to maturity or at least until interest
rates change such that the fair value is no longer less that the book value.
Accordingly, the Trust has calculated that these impairments are temporary.

The mortgage-backed securities bear interest at a weighted average interest rate
of 4.23%.


                                       17
<PAGE>

             FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
                         FORM 10-Q - SEPTEMBER 30, 2005
             NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

7. Hedge Instruments

In connection with the Trust's interest rate risk management process, the Trust
periodically hedges a portion of its interest rate risk by entering into
derivative financial instrument contracts. Through September 30, 2005, such
instruments have been interest rate swaps, which in effect modify the repricing
characteristics of the Trust's repurchase agreement and floating rate mortgage
debt agreements as well as cash flows for such liabilities. The use of hedging
instruments creates exposure to potential losses that could be recognized if the
counterparties to these instruments fail to perform their obligations under the
contracts. To mitigate this credit risk exposure, the Trust only enters into
such transactions with financial institutions whose long-term debt rating is A
or better, as determined by Standard & Poor's. In the event of a default by the
counterparty, the Trust would not receive payments provided for under the terms
of the hedging instrument and could have difficulty taking possession of assets
pledged by the Trust as collateral for the interest rate swaps.

The Trust's interest rate swaps are used to lock-in the fixed interest rate
related to its repurchase agreement as well as a portion of the floating rate on
its mortgage debt.

The table below presents information about the Trust's interest rate swaps at
September 30, 2005 (dollars in thousands):

<TABLE>
<CAPTION>
                                                                                Gross Unrealized
                                                                                     Gain
                                        Notional                                  For the Nine
                                        Amount of            Estimated Fair       Months Ended
                            Swap         Hedged     Cost of  Value/Carrying      September 30,
Active Period Through       Rate        Liability    Hedge       Value                2005
---------------------       ----        ---------   -------  --------------     ----------------
<S>                         <C>         <C>         <C>       <C>                 <C>
November 2007               8.55%       $  40,000   $    --   $       718         $      1,043
January 2008                4.045%      $ 104,196   $    --   $       687         $        687
</TABLE>

No hedge ineffectiveness on cash flow hedges was recognized for the nine months
ended September 30, 2005.

8. Repurchase Agreement

Information pertaining to the repurchase agreement as of September 30, 2005 is
as follows (dollars in thousands):

            September 30,        Carrying Value of
                2005                Underlying
              Balance               Collateral           Type of Collateral
            -------------        -----------------       ------------------

             $ 104,196           $       107,733      Mortgage-Backed Securities

As of September 30, 2005, the borrowing rate on the Trust's repurchase agreement
was LIBOR minus 3 basis points (3.61%) and is renewable monthly.

9. Preferred Equity Investment

On April 19, 2005, the Trust made 22 separate convertible mezzanine loans and
equity investments in 22 separate entities in the aggregate amount of
approximately $69,326,000 (exclusive of a $980,000 subsequent advance). Each of
the borrowers was owned primarily by a group of individuals (collectively
"Marc") who were not affiliates of the Trust. Each loan is secured by the
applicable borrower's ownership interest in a limited liability company (each a
"Property Owner") that in turn owns an office building or complex. Each borrower
holds a 100% interest in the applicable Property Owner other than with respect
to one property, in which the borrower holds a 75% interest in the Property
Owner. Each loan bears interest at 7.65%, matures on April 18, 2012 and requires
monthly payments of interest only. The amounts advanced under each loan together
with the equity investment in the applicable borrower,


                                       18
<PAGE>

             FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
                         FORM 10-Q - SEPTEMBER 30, 2005
             NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

9. Preferred Equity Investment (Continued)

as described below, was equal to 49% of the difference between the agreed value
of the property owned by the applicable Property Owner and the existing debt
encumbering such property.

On May 6, 2005, the Trust made additional convertible mezzanine loans and equity
investments to Marc in the amount of approximately $5,810,000 with respect to
two additional properties on the same terms as the loans made on April 19,
except that the amount advanced under these loans together with the equity
investment, as described below, was equal to 60% of the difference between the
agreed value of the property and the existing debt encumbering the property. The
two properties have a value of approximately $31 million.

As part of the above transactions, the Trust acquired an equity interest in each
of the borrowers. The equity interest entitles the Trust to participate in
capital proceeds derived from the sale or refinancing of the applicable property
to the extent such proceeds generate amounts in excess of that required to fully
satisfy all of the debt encumbering that property, including its respective loan
and a return to the borrower of its deemed equity (the agreed value of the
applicable property less all debt encumbering that property including the loan
made by the Trust) plus a 7.65% cumulative return thereon.

On June 15, 2005, the Trust made a $1,600,000 second mortgage loan to a borrower
beneficially owned by Marc. The terms of the loan are the same as the terms of
loans made on April 19, 2005. In addition, this loan entitles the Trust to
participation in the cash flow and capital proceeds of the property on terms
equivalent to the equity interest that the Trust holds in the borrowers.

Further, the Trust has committed to advance approximately $6,900,000 to cover
the costs of tenant improvements and capital expenditures at each of the
foregoing 25 properties.

The Trust also has the right to co-invest in all other office properties
acquired by Marc and their affiliates in the Chicago, Illinois metropolitan and
suburban areas.

Summary financial information for preferred equity investment is as follows:

                                                                September 30,
                                                                     2005
                                                                -------------
Condensed Balance Sheet

      Net real estate                                            $    155,350
      Prepaid expenses and deposits in escrow                           7,022
      Cash and cash equivalents                                         4,786
      Receivables and other assets                                     46,613
                                                                 ------------

      Total Assets                                               $    213,771
                                                                 ============

      Nonrecourse mortgage debt                                  $    188,142
      Other liabilities                                                17,405
                                                                 ------------
      Total liabilities                                               205,547
                                                                 ------------
      First Union preferred equity                                     77,225
                                                                 ------------
      Partners' Capital (Deficit)                                     (69,001)
                                                                 ------------

      Total Liabilities, First Union Preferred Equity
        and Partners' Capital (Deficit)                          $    213,771
                                                                 ============

On the Trust's Consolidated and
      Combined Balance Sheet:
      Preferred Equity Investment                                $     78,417(1)
                                                                 ============

(1)   Includes costs of $1,192 capitalized during acquisition.


                                       19
<PAGE>

             FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
                         FORM 10-Q - SEPTEMBER 30, 2005
             NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

9. Preferred Equity Investment (Continued)

<TABLE>
<CAPTION>
                                                       Three Months Ended   Nine Months Ended
                                                          September 30,       September 30,
                                                              2005                2005
Condensed Statements of Operations
<S>                                                        <C>                  <C>
      Revenues                                             $     17,217       $     50,275
      Interest on mortgage debt                                   2,922              7,927
      Depreciation and amortization                               1,705              4,825
      Other expenses                                             11,320             29,426
                                                           ------------       ------------
      Net income before minority interest                         1,270              8,097
                                                           ------------       ------------
      Minority Interest - First Union                             1,468              2,598
                                                           ------------       ------------
      Net (Loss) Income                                    $       (198)      $      5,499
                                                           ============       ============
On the Trust's Consolidated and Combined Statement of
      Operations and Comprehensive Income
      Equity in earnings of preferred equity investment    $      1,468       $      2,598
                                                           ============       ============
</TABLE>

10. 5400 Westheimer Holding, L.P.

In November 2004, 5400 Westheimer Holding L.P. ("5400 Westheimer") was created
to acquire and hold a 100% ownership interest in real property located at 5400
Westheimer Court, Houston, Texas. The purchase price of the property and costs
incurred in connection with the acquisition aggregated approximately $7,613,000
in cash and the assumption of debt of approximately $76,762,000. The cash
portion paid was funded as follows: (i) $80,000 from the Trust for a 1% general
partner interest; (ii) $241,000 from a third party limited partner for a 99%
limited partnership interest; and (iii) $7,533,000 loan from the Trust.

On January 3, 2005, the loan and non-recourse loans of $1,338,000 previously
made by the Trust to 5400 Westheimer was satisfied by the payment of $7,140,000
with the Trust retaining a 1% general partnership interest and a 7% limited
partnership interest in 5400 Westheimer.

The non-recourse loans (the "LP Loans") are secured by the applicable limited
partner's interest in 5400 Westheimer. The loans bear interest at 12% per annum
and require quarterly payments of interest only. Principal payments of $669,000
are required to be made on January 5, 2006 and January 5, 2007. The LP Loans
have been classified as a reduction of minority interest in the September 30,
2005 balance sheet. If all of the borrowers of the LP Loans were to default on
their LP Loans, the Trust would acquire an additional 25% limited partner
interest in 5400 Westheimer. In addition to the 7% limited partnership interest
transferred to the Trust in satisfaction of its initial loan, the Trust also
holds a 1% general partner interest in 5400 Westheimer. 5400 Westheimer
indirectly holds a 100% ownership interest in real property located at 5400
Westheimer Court, Houston, Texas (the "Houston Property").

In addition to its ownership, the Trust will receive an incentive payment equal
to 20% of any distributions paid to the limited partners of 5400 Westheimer
after each limited partner has received distributions equal to their investment
plus a 6% return, compounded annually.

At December 31, 2004, for financial reporting purposes, 100% of 5400
Westheimer's assets and liabilities were classified as real estate held for
syndication.

On October 6, 2005, two of the limited partners in 5400 Westheimer paid in full
their LP Loans aggregating $321,000.


                                       20
<PAGE>

             FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
                         FORM 10-Q - SEPTEMBER 30, 2005
             NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

11. Winn-Dixie Bankruptcy

On February 22, 2005, Winn-Dixie Stores, Inc., the tenant at the Trust's
Jacksonville, Florida property, filed for protection under Chapter 11 of the
United States Bankruptcy Code. On October 31, 2005, the Trust received
notification that Winn-Dixie elected to reject the lease, resulting in the
termination of the lease and the Trust becoming responsible for all costs
associated with the property. The Trust does not believe that the rejection of
the lease, which provided approximately $1,500,000 of rental income, will have a
material impact on its operating results and will promptly begin marketing the
property for lease and/or sale.

12. Sale of Common Shares

On July 14, 2005, the Trust, as a selling shareholder in the initial public
offering of JER Investors Trusts, Inc. ("JER") (NYSE:JER), sold its 66,667
shares of common stock in JER at the initial offering price of $17.75 per share,
less the underwriters discount. The Trust received gross proceeds of $1,183,000
from its sale and recognized a gain of approximately $183,000.

13. Newkirk Transaction

On August 5, 2005, the Trust agreed to acquire $50 million in newly issued
common shares of Newkirk, a newly formed real estate investment trust, with the
timing of such investment to coincide with the Newkirk initial public offering
("Newkirk IPO"). In addition to the acquisition of the common stock in Newkirk,
the Trust also agreed to assign to Newkirk certain rights of the Trust under its
Exclusivity Services Agreement with Michael Ashner, the Trust's Chief Executive
Officer, relating Newkirk's future net leased and related investments (the
"Exclusivity Assignment"), the timing of which shall coincide with the Newkirk
IPO. In consideration of the Exclusivity Assignment and the receipt of such
services, Newkirk will: (i) issue $20 million of additional Newkirk common
shares, 50% of which will vest immediately and 50% of which will vest ratably
over a three year period, and the Trust will receive all dividends and the right
to vote with respect to the vested and unvested Newkirk shares; and (ii) the
Trust will receive the economic benefit of 80% of the incentive management fee
payable by Newkirk to NKT, the entity that will provide advisory services to
Newkirk, which is an affiliate of FUR Advisors.

In connection with the issuance of the Newkirk shares, the Trust has agreed not
sell, transfer, pledge, redeem or otherwise dispose of its shares of common
stock in Newkirk for a period equal to the earlier of (i) three years from the
date of the Newkirk IPO or (ii) at such time as NKT is no longer providing
advisory services to Newkirk; provided, however, in no event shall such period
be less than one year from the date of Newkirk's IPO. Notwithstanding the
foregoing, commencing one year from the date of the Newkirk IPO, the Trust is
permitted to pledge its shares of common stock in Newkirk in connection with
borrowings with a maximum principal amount no greater than 35% of the value of
all shares of Newkirk's common stock (based on the Newkirk IPO common stock
price) held by the Trust. With respect to the shares that are to vest over a
three year period, unvested shares will be forfeited if: (i) the advisory
agreement with NKT is terminated by Newkirk for cause; (ii) Michael Ashner dies
or becomes disabled, unless the other members of NKT's senior management then in
place remain in their positions; or (iii) Michael Ashner resigns as an officer
and director of both Newkirk and NKT. Conversely, all of the unvested shares
shall become immediately vested if: (i) Newkirk terminates the advisory
agreement with NKT other than for cause; (ii) NKT terminates the advisory
agreement following a breach of a material term of the advisory agreement by
Newkirk that is not timely cured; or (iii) non renewal of the advisory
agreement. The Exclusivity Assignment shall immediately be deemed terminated and
revert back to the Trust upon: (i) Michael Ashner resigns as an officer and
director of both Newkirk and NKT; or (ii) the termination or non-renewal of the
advisory agreement with NKT for any reason.

The foregoing transactions were consummated on November 7, 2005 at which time
the Trust acquired 3,125,000 shares of common stock of Newkirk for an aggregate
purchase price of $50 million and an additional 1,250,000 shares of common stock
of Newkirk in connection with the Exclusivity Assignment, 625,000 of which are
fully vested and 625,000 of which will vest ratably over the next three years
and are subject to forfeiture. As a result, the Trust holds 4,375,000 shares of
the common stock of Newkirk representing approximately 22.60% of the outstanding
common shares in Newkirk. In turn, Newkirk holds approximately a 30.1% interest
in The Newkirk Master Limited Partnership ("Newkirk MLP").


                                       21
<PAGE>

             FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
                         FORM 10-Q - SEPTEMBER 30, 2005
             NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

13. Newkirk Transaction (Continued)

Newkirk was formed to acquire a controlling interest in Newkirk MLP, an entity
in which Michael Ashner and certain other members of the Trust's senior
management own an interest and of which his affiliate is the general partner.
The business of the Newkirk MLP is investment in net leased properties. In
addition, Newkirk's advisor, NKT, will be 80% owned by FUR Holdings LLC, the
entity that owns the Trust's advisor. A Special Committee of the Trust's Board
engaged a special counsel and after consideration over a period of time
recommended for Board approval the proposed transactions. The members of the
Trust's Special Committee are Arthur Blasberg, Jr., chair, Talton Embry and
Howard Goldberg, each of whom is an independent Trustee of the Trust.

14. Sale of Common Shares to Vornado Realty Trust

Also on August 5, 2005, the Trust agreed to sell to Vornado Realty Trust or its
wholly-owned subsidiary, a number of shares of the Trust's Common Shares equal
to the lesser of (i) 9.9% of the outstanding Common Shares (after giving effect
to such issuance) (3,522,566 based on the Common Shares outstanding at August 5,
2005) or (ii) 4,000,000, in each case for a purchase price of $4.00 per share.
The sale was consummated on November 7, 2005 with Vornado acquiring 3,522,566
Common Shares for an aggregate purchase price of approximately $14,100,000. The
shares were sold pursuant to the terms of a Securities Purchase Agreement and
registered pursuant to the Trust's effective shelf registration statement on
Form S-3. Vornado Realty Trust and its affiliates currently own approximately
15.8% of Newkirk MLP.

15. Discontinued Operations

The tenant for the Trust's Sherman, Texas property has exercised its purchase
option under the lease pursuant to which it was to acquire the property
effective May 1, 2005 for a gross sales price of approximately $2,018,000.
However, due to negotiations between the tenant and the ground owner, the
consummation of this sale is not anticipated to occur until the fourth quarter
2005. The tenant will continue to be obligated to make its scheduled rental
payments until the sale has closed. For financial reporting purposes, the Trust
expects to recognize a net gain on the sale of this property of approximately
$535,000.

SFAS No. 144 requires that disposals of a "component" of an entity be treated as
discontinued operations. In accordance with SFAS No. 144, for all periods
presented, the Trust has reclassified its statements of operations to reflect
income and expenses for properties held for sale as discontinued operations. In
addition, the Trust has reflected assets and liabilities related to such
properties as real estate held for sale and liabilities of real estate held for
sale and discontinued operations.

The combined results of discontinued operations for the three and nine months
ended September 30, 2005 and September 30, 2004 are as follows (in thousands):

<TABLE>
<CAPTION>
                                               For the Three Months     For the Nine Months
                                               Ended September 30,      Ended September 30,
                                              -----------------------------------------------
(Amounts in thousands)                           2005        2004         2005        2004
                                              ----------  ----------   ----------  ----------
<S>                                           <C>         <C>          <C>         <C>
Total revenues                                $       51  $      209   $      607  $    8,947
Total expenses                                        27         316           61       7,763
Gain/(loss) on sale of property                       --        (384)          --      19,267
                                              ----------  ----------   ----------  ----------
Income/(loss) from discontinued operations    $       24  $     (491)  $      546  $   20,451
                                              ==========  ==========   ==========  ==========
</TABLE>


                                       22
<PAGE>

             FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
                         FORM 10-Q - SEPTEMBER 30, 2005
             NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

15. Discontinued Operations (Continued)

Assets of discontinued operations consisted primarily of real estate held for
sale.

Liabilities of discontinued operations at September 30, 2005 and December 31,
2004 are as follows:

(Amounts in thousands)                                           2005      2004
                                                                ------    ------
Mortgage loans payable                                          $  857    $  956
Accounts payable and accrued expenses                              851     1,659
                                                                ------    ------
                                                                $1,708    $2,615
                                                                ======    ======

Discontinued operations for 2004 consisted primarily of the sale of the Park
Plaza Mall and VenTek. The 2005 discontinued operations related to the Sherman,
Texas triple net leased property and adjustments related to Park Plaza Mall and
VenTek.

16. Legal Matters

In September 2005, the State of California appropriated funding of the
$11,000,000 award to the Trust representing full settlement of all claims the
Trust had against the State with respect to the loss incurred from the flood at
the Peachtree Mall property in 1986. The settlement has been recognized as
income in the quarter ended September 30, 2005 and the funds were received in
October.

17. Contingencies

William Ackman, a former Trustee of the Trust, has made demand on the Trust for
indemnification for approximately $1.5 million of expenses incurred by him in
his capacity as a Trustee in connection with the litigation matters relating to
the aborted merger of the Trust with Gotham Golf Corp., an entity controlled by
Mr. Ackman. The Trust has forwarded this demand to its insurance carrier. Both
the Trust's insurance carrier and the Trust have denied Mr. Ackman's demand
based on the lack of documentation submitted to date. No reserve for any
liability attributable to this matter has been accrued in the financial
statements as of September 30, 2005.

Revenue Canada has made inquiries of Imperial Parking relating to deductions
taken by Imperial Parking at the time it was owned by FUMI. If these deductions
are ultimately disallowed, Imperial Parking may make a claim for indemnification
for amounts owed to Revenue Canada. Although FUMI is required to indemnify
Imperial Parking for certain damages, FUMI might not be required to indemnify
Imperial Parking for these particular damages. However, the Trust has reserved
certain amounts for possible costs related to this matter.


                                       23
<PAGE>

             FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
                         FORM 10-Q - SEPTEMBER 30, 2005
             NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

18. Business Segments

The Trust operates in three business segments: (i) ownership of real estate
operating properties (the "Operating Properties"), (ii) ownership of loans
receivable and preferred equity investment ("Loans") and (iii) ownership and
trading of real estate securities ("Real Estate Securities"). The Trust's other
assets ("Other Assets") consist primarily of cash and cash equivalents and
deferred issue costs for loans payable. All intercompany transactions between
segments have been eliminated. Revenues and expenses from discontinued
operations have been excluded from the segment presentation.

<TABLE>
<CAPTION>
                                              ---------------------------   ---------------------------
                                                   Three Months Ended           Nine Months Ended
Business Segments (in thousands)                      September 30,                September 30,
                                              ---------------------------   ---------------------------
                                                  2005          2004           2005           2004
                                              ------------   ------------   ------------   ------------
<S>                                           <C>            <C>            <C>            <C>
Rents and Other Revenues
     Operating Properties                     $      6,323   $        357   $     18,076   $      1,100
     Loans                                           1,679            322          3,268            959
     Real Estate Securities                          1,215            764          1,319          1,040
                                              ------------   ------------   ------------   ------------
                                                     9,217          1,443         22,663          3,099
Less - Operating Expenses
     Operating Properties                              181            224            547            573
                                              ------------   ------------   ------------   ------------

Less - Real Estate Taxes
     Operating Properties                               21             21             62             45
                                              ------------   ------------   ------------   ------------

Net Operating Income
     Operating Properties                            6,121            112         17,467            482
     Loans                                           1,679            322          3,268            959
     Real Estate Securities                          1,215            764          1,319          1,040
                                              ------------   ------------   ------------   ------------
                                                     9,015          1,198         22,054          2,481
                                              ------------   ------------   ------------   ------------

Less - Depreciation and Amortization                 1,771             75          4,987            196

Less - Interest Expense                              4,491              1         10,530             12

Corporate Income (Expense)
     Interest                                        1,122            671          3,026            977
     Insurance recoveries                               --          1,244             --          1,244
     Legal settlement                               11,000             --         11,000             --
     State and local taxes                            (615)            --           (615)            --
     General and administrative                     (1,040)          (828)        (3,750)        (2,987)
                                              ------------   ------------   ------------   ------------

Income from continuing operations before
minority interest                                   13,220          2,209         16,198          1,507
    Minority Interest                                   12             --             75             --
                                              ------------   ------------   ------------   ------------
Income from continuing operations                   13,232          2,209         16,273          1,507

Income/(Loss) from discontinued operations              24           (491)           546         20,451
                                              ------------   ------------   ------------   ------------

Net income                                    $     13,256   $      1,718   $     16,819   $     21,958
                                              ============   ============   ============   ============

Capital Expenditures
     Operating Properties                     $        108   $      1,022   $        614   $      1,830
                                              ------------   ------------   ------------   ------------
                                              $        108   $      1,022   $        614   $      1,830
                                              ============   ============   ============   ============
</TABLE>


                                       24
<PAGE>

             FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
                         FORM 10-Q - SEPTEMBER 30, 2005
             NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

18. Business Segments (Continued)

                                                    September 30,   December 31,
                                                        2005            2004
                                                    -------------   ------------
Identifiable Assets (in thousands)
     Operating Properties                             $196,945        $ 95,140
     Loans                                              87,590           8,390
     Real Estate Securities                            138,151          14,734
     Other Assets                                      104,137         171,704
                                                      --------        --------
Total Assets                                          $526,823        $289,968
                                                      ========        ========

(1) Discontinued operations for 2004 consisted primarily of the sale of the Park
Plaza Mall and VenTek. The 2005 discontinued operations related to the Sherman,
Texas triple net leased property and adjustments related to Park Plaza Mall and
VenTek.

19. Subsequent Event

On October 28, 2005, the Trust entered into a joint venture agreement with Marc
Ontario LLC pursuant to which we formed FT-Ontario Holdings LLC ("FT-Ontario"),
a Delaware limited liability company. Pursuant to the terms of the joint venture
agreement, we and Marc Ontario LLC contributed approximately $5.7 million and
$1.4 million, respectively, to the capital of FT-Ontario. We are the managing
member of FT-Ontario and hold an 80% interest in FT-Ontario. At such time as
each of the members of FT-Ontario receive aggregate distributions equal to their
invested capital plus a 9% cumulative return thereon, our interest in
FT-Holdings decreases to 75%. The Trust anticipates that it will consolidate the
balance sheet and the operations of the joint venture.

FT-Ontario was formed for the purpose of acquiring through two wholly owned
subsidiaries 128,000 square feet of retail and office space consisting of the
first six floors in a mixed-use building together with 208 parking spaces
located at One East Erie, Chicago, Illinois (the "Ontario Property"). The
Ontario Property was acquired from American Invesco, an unaffiliated third
party, for an aggregate purchase price of approximately $26.5 million.
FT-Ontario incurred approximately $518,000 in closing costs. The purchase price
was funded through the capital contribution made to FT-Ontario, with the balance
being provided from a loan made by us to FT-Ontario.


                                       25
<PAGE>

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

CAUTIONARY STATEMENTS UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995.

Statements contained herein may constitute "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Any statements
contained herein which are not statements of historical facts and that address
activities, events or developments that First Union Real Estate Equity and
Mortgage Investments expects, believes or anticipates will or may occur in the
future shall be deemed to be forward-looking statements. Forward-looking
statements are inherently subject to risks and uncertainties, many of which
cannot be predicted with accuracy and some of which might not even be
anticipated. Future events, actual results and performance, financial and
otherwise, could differ materially from those set forth in or contemplated by
the forward-looking statements herein. Factors that could cause actual results
to differ materially from those in forward-looking statements include the terms
of future property sales, investments and financings, general economic and
business conditions and various other risk factors listed in the annual report
on Form 10-K of First Union Real Estate Equity and Mortgage Investments filed
with the Securities and Exchange Commission.

This item should be read in conjunction with the financial statements, footnotes
thereto and other items contained elsewhere in the report.

General

We are a real estate investment trust ("REIT") engaged in the business of owning
real property and real estate related assets. We operate in three business
segments: (i) Operating Properties, (ii) Loans and (iii) Real Estate Securities.

Investment Policy

Rather than focus on a particular type of real estate asset or a specific
geographic sector, our investments will continue to be based, at least for the
foreseeable future, on our assessment that a potential investment is
significantly undervalued or presents an opportunity to outperform the
marketplace. Additionally, we will continue to make investments in assets
believed to be underperforming and in which we believe, through an infusion of
capital and improved management, an appropriate return on investment can be
realized. Consequently, with certain limitations, we will continue to seek to
invest in or acquire most types of real estate assets or securities. In
connection with the recent initial public offering of Newkirk, we will no longer
invest directly in net leased properties. However, we will have a significant
investment in net leased assets through our ownership of shares in Newkirk.

Except as limited by the restrictions placed on us in order to meet our
requirements to maintain REIT status or other regulatory restrictions, our
investment decisions will not be materially affected by the nature of an
investment or where that investment falls in an entity's capital structure. We
will continue to acquire entities that own real estate, invest in the equity of
a real estate asset directly or through a joint venture, acquire preferred
equity, mezzanine debt or first mortgage debt of a real estate asset to the
extent we believe the ownership of the underlying real estate would be
consistent with our investment strategy. In general, it is not expected that we
will invest in an entity in which we do not own 100% of the equity unless we
control, have the means to acquire control of the entity or have a mechanism in
place to exit the investment for a price consistent with fair market value. In
order to fund future acquisitions, we will utilize our cash reserves, obtain
debt financing and/or sell additional equity.

In view of the foregoing, our near-term investment strategy will be to identify
and invest in discrete real estate investments consistent with the foregoing
criteria. As appropriate investment opportunities arise, we will aggressively
pursue such opportunities. For the long-term, as investments mature in value to
the point where we are unlikely to achieve better than a market return on their
then enhanced value, it is likely we will exit the investment and seek to
redeploy the capital to higher yielding opportunities. Accordingly, our
Statements of Operations and Comprehensive Income include both income from
continuing operations and discontinued operations.


                                       26
<PAGE>

As of November 10, 2005, we held, in addition to our cash reserves, the
following assets by business segment.

Operating Properties:

o     16 triple net leased properties acquired in the Finova transaction. As of
      September 30, 2005, this triple net leased portfolio is 100% leased.
      However, on February 22, 2005, Winn-Dixie Stores, Inc., the tenant at our
      Jacksonville, Florida property, filed for protection under Chapter 11 of
      the United States Bankruptcy Code. On October 31, 2005, we received notice
      that Winn-Dixie elected to reject the lease, resulting in the termination
      of the lease. We are now responsible for all costs associated with the
      property. We do not believe that the rejection of the lease will have a
      material impact on our operating results and we will promptly begin
      marketing the property for lease and/or sale.

o     Two adjacent office buildings located in Amherst, New York triple net
      leased to Ingram Micro, Inc., which is 100% occupied.

o     A multi-tenant office building located in Indianapolis, Indiana commonly
      referred to as Circle Tower. The average occupancy rate at Circle Tower
      for the nine months ended September 30, 2005 and September 30, 2004 was
      83.5%and 87.9%, respectively.

o     A nine story office building located in Houston, Texas triple net leased
      to Duke Energy, which is 100% occupied. This property is commonly referred
      to as 5400 Westheimer.

o     An 80% interest in 128,000 square feet of retail and office space
      constituting the bottom 6 floors of a mixed-use building and 208 parking
      spaces located in Chicago, Illinois.

Loans:

o     24 separate convertible mezzanine loans and equity investments accounted
      for as a preferred equity investment in 24 separate entities located in
      the Chicago metropolitan and suburban area.

o     A 25% participation interest in a loan secured by a first mortgage on a
      commercial property located at West 38th Street, New York City's Chelsea
      area.

o     A first mortgage loan secured by a Wingate Hotel and the land on which it
      is situated located in Clearwater, Florida.

o     A second mortgage on a property located in Westchester, Illinois and
      suburban area.

o     A first mortgage on a property located in Northbrook, Illinois.

Real Estate Securities:

o     8.31% of the outstanding shares of common stock of Sizeler Property
      Investors, Inc. (NYSE:SIZ).

o     5.42% of the outstanding shares of common stock of America First Property
      Investors, Inc. (NASDAQ:APRO).

o     4,375,000 shares of common stock in Newkirk Realty Trust, Inc. (NYSE:NKT)
      ("Newkirk") representing 22.6% of the outstanding common stock in Newkirk
      (625,000 of which are subject to forfeiture).

o     Securities of other real estate companies.

o     Mortgage-backed securities pledged under a repurchase agreement.

The following transactions were consummated during 2005:


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<PAGE>

Operating Properties:

Amherst, New York Property

On May 25, 2005, we acquired two adjacent office building properties in Amherst,
New York that are triple net leased to and serve as the east coast headquarters
of, Ingram Micro, Inc. The properties contain an aggregate of 200,000 square
feet of office space and were acquired for an aggregate purchase price of
$22,054,955. In connection with this acquisition, we obtained an $18,000,000
first mortgage loan from Greenwich Capital Financial Products, Inc., an
unaffiliated third party lender. The loan bears interest at 5.65%, requires
monthly payments of principal, interest and real estate tax escrow of $117,989
commencing November 2005 and has a maturity date of November 6, 2013.

Ontario Property

On October 28, 2005, we entered into a joint venture agreement with Marc Ontario
LLC pursuant to which we formed FT-Ontario Holdings LLC ("FT-Ontario"), a
Delaware limited liability company. Pursuant to the terms of the joint venture
agreement, we and Marc Ontario LLC contributed approximately $5.7 million and
$1.4 million, respectively, to the capital of FT-Ontario. We are the managing
member of FT-Ontario and hold an 80% interest in FT-Ontario. At such time as
each of the members of FT-Ontario receive aggregate distributions equal to their
invested capital plus a 9% cumulative return thereon, our interest in
FT-Holdings decreases to 75%.

FT-Ontario was formed for the purpose of acquiring through two wholly owned
subsidiaries 128,000 square feet of retail and office space consisting of the
first six floors in a mixed-use building together with 208 parking spaces
located at One East Erie, Chicago, Illinois (the "Ontario Property"). The
Ontario Property was acquired from American Invesco, an unaffiliated third
party, for an aggregate purchase price of approximately $26.5 million.
FT-Ontario incurred approximately $518,000 in closing costs. The purchase price
was funded through the capital contribution made to FT-Ontario, with the balance
being provided from a loan made by us to FT-Ontario.

The loan made by us to FT-Ontario had an original principal amount of
$19,902,771, bears interest at the prime rate, requires monthly payments of
interest only and matures on October 28, 2006. It is presently anticipated that
this loan will be satisfied from a permanent first mortgage loan obtained with
respect to the Ontario Property. The loan is secured by FT-Ontario's ownership
interest in the two subsidiaries that hold the retail and office space and the
parking spaces, respectively.

Loans:

West 38th Street Loan

We held a 50% interest in a $20,000,000 first mortgage loan secured by a
property located at 63 West 38th Street, New York, New York ("West 38th Street
Loan"). The interest rate was LIBOR plus 400 basis points (with a minimum rate
of 5.42%). The loan had a three-year term and required payments of interest
only. We indirectly obtained $7,000,000 of financing in connection with this
investment that had a stated interest rate of LIBOR plus 175 basis points and
required payments of interest only. The West 38th Street Loan was repaid in full
on January 18, 2005.

Preferred Equity Investment

On April 19, 2005, we made 22 separate convertible mezzanine loans and equity
investments in 22 separate entities in the aggregate amount of approximately
$69,326,000 (exclusive of a $980,000 subsequent advance). Each of the brrowers
was owned primarily by a group of individuals (collectively "Marc") who were not
affiliates of the Trust. Each loan is secured by the applicable borrower's
ownership interest in a limited liability company (each a "Property Owner") that
in turn owns an office building or complex. Each borrower holds a 100% interest
in the applicable Property Owner other than with respect to one property, in
which the borrower holds a 75% interest in the Property Owner. Each loan bears
interest at 7.65%, matures on April 18, 2012 and requires monthly payments of


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<PAGE>

interest only. The amounts advanced under each loan together with the equity
investment in the applicable borrower, as described below, was equal to 49% of
the difference between the agreed value of the property owned by the applicable
Property Owner and the existing debt encumbering such property.

On May 6, 2005, the we made additional convertible mezzanine loans and equity
investments in the amount of approximately $5,810,000 with respect to two
additional properties on the same terms as the loans made on April 19, except
that the amount advanced under these loans together with the equity investment,
as described below, was equal to 60% of the difference between the agreed value
of the property and the existing debt encumbering the property. The two
properties have a value of approximately $31 million.

As part of the above transactions, we acquired an equity interest in each of the
borrowers. The equity interest entitles us to participate in capital proceeds
derived from the sale or refinancing of the applicable property to the extent
such proceeds generate amounts in excess of that required to fully satisfy all
of the debt encumbering that property, including its respective loan and a
return to the borrower of its deemed equity (the agreed value of the applicable
property less all debt encumbering that property including the loan made by us)
plus a 7.65% return thereon.

On June 15, 2005, we made a $1,600,000 second mortgage loan to a borrower
beneficially owned my Marc. The terms of the loan are the same as the terms of
loans made on April 19, 2005. In addition, this loan entitles us to
participation in the cash flow and capital proceeds of the property on terms
equivalent to the equity interest that we hold in the borrowers.

Further, we have committed to advance approximately $6,900,000 to cover the
costs of tenant improvements and capital expenditures at each of the foregoing
25 properties.

We also have the right to co-invest in all other office properties acquired by
Marc and their affiliates in the Chicago, Illinois metropolitan and suburban
areas.

Ridgebrook First Mortgage Loan

On September 22, 2005, we made a $3,500,000 first mortgage loan (the "Prime
Loan") to 900 Ridgebrook LLC, a single purpose entity that is primarily owned
and controlled by Marc. The Prime Loan bears interest at the prime rate,
requires monthly interest payments, matures on September 22, 2006 and is secured
by an office property located in Northbrook, Illinois known as Ridgebrook Office
Plaza ("Ridgebrook"). The Prime Loan is to be repaid in full upon Marc securing
a third-party first mortgage debt on Ridgebrook. In connection with the making
of the Prime Loan, we and Marc agreed that simultaneous with the payoff of the
Prime Loan, we will either (i) acquire a 56% interest in the borrower in
exchange for a capital contribution equal to 56% of the net equity investment by
Marc (purchase price plus capital improvements less loan proceeds), or (ii) make
a convertible secured mezzanine loan to the borrower, in each case equal to 56%
of the net equity investment by Marc (purchase price plus capital improvements
less loan proceeds) and acquire an equity interest in the borrower that enables
us to participate in the cash flow and capital proceeds of the borrower, in each
case on the same terms and conditions of loans and equity investments described
in Preferred Equity Investment above.

Real Estate Securities:

Presidential Realty Corp.

We had previously acquired 54,500 shares in Presidential Realty Corp.
("Presidential Realty") (AMEX:PDLA) for a total cost of $407,000. We sold our
shares at various times during February of 2005 recognizing for financial
reporting purposes, a net gain of $142,000.

Sizeler Property Investors, Inc.

Beginning in August 2004, we began acquiring shares of common stock in Sizeler
Property Investors, Inc. ("Sizeler") (NYSE:SIZ), a real estate investment trust
that primarily is in the business of owning and operating income producing
retail shopping centers and apartment communities in the southeastern United
States. As of September 30, 2005, we had acquired a total of 1,500,600 shares of


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<PAGE>

common stock of Sizeler which represents approximately 7.2% of all of the
outstanding shares of common stock of Sizeler for an aggregate purchase price of
approximately $14,395,000. On December 21, 2004, we sent a letter to Sizeler
advising Sizeler of our intention to nominate a slate of directors for election
at Sizeler's 2005 annual meeting of stockholders and thereafter filed
preliminary proxy materials. In March 2005, Sizeler brought an action (i)
alleging that we had violated Federal Securities laws by not disclosing all
required information in our Schedule 13D filings and (ii) seeking declaratory
relief that the actions taken by Sizeler's Board in connection with its approval
of a below market stock sale on March 15, 2005 did not breach their fiduciary
duty or breach their obligation not to act fraudulently, in bad faith,
recklessly, negligently or with corporate waste.

On September 9, 2005, we entered into a settlement agreement (the "Settlement
Agreement") with Sizeler pursuant to which Sizeler and us agreed to dismiss all
litigation between us and general releases were exchanged. The Settlement
Agreement also provided for: (i) the appointment of Michael L. Ashner, our
Chairman and Chief Executive Officer, to the Board of Directors of Sizeler, and
the re-nomination of Mr. Ashner or another designee of ours for election in 2006
and 2007 provided we refrain from taking certain actions; (ii) the appointment
of Mr. Ashner to the Compensation Committee of the Board of Directors of
Sizeler, and its Real Estate Acquisition Committee of the Board of Directors
which has been renamed as the Strategic Direction and Acquisition Committee; and
(iii) the withdrawal by us of our nominees for election to the Board of
Directors of Sizeler at Sizeler's 2005 Annual Meeting of Stockholders and a
related stockholder proposal seeking liquidation of Sizeler. Further, pursuant
to the Settlement Agreement Sizeler agreed to a number of corporate governance
changes. As part of the Settlement Agreement, Sizeler reimbursed us $375,000 of
our out of pocket costs and expenses incurred in connection with the proxy
contest.

Sale of Common Shares

On July 14, 2005, as a selling shareholder in the initial public offering of JER
Investors Trusts, Inc. ("JER") (NYSE:JER), we sold our 66,667 shares of common
stock in JER for the initial offering price of $17.75 per share, less the
underwriters discount. We received gross proceeds of $1,183,000 from its sale
and recognized a gain of approximately $183,000.

America First Apartment Investors, Inc.

At November 1, 2005, we held an aggregate of 553,801 shares of common stock in
America First Apartment Investors, Inc. (NASDAQ: APRO) ("APRO"), a real estate
investment trust that owns apartments. We began acquiring shares in APRO in
January 2005 through open-market transactions. The 553,801 shares represent
approximately 5.42% of the outstanding common shares in APRO. In light of our
investment objectives, we intend to consider appropriate methods of maximizing
the value of the shares and shareholder value in general including, potential
strategic transactions with APRO.

Newkirk Realty Trust, Inc.

On August 5, 2005, we agreed to acquire $50 million in newly issued common
shares of Newkirk a newly formed real estate investment trust, with the timing
of such investment to coincide with the Newkirk initial public offering
("Newkirk IPO"). In addition to the acquisition of the common stock in Newkirk,
we also agreed to assign to Newkirk certain rights under our Exclusivity
Services Agreement with Michael Ashner, the Trust's Chief Executive Officer,
relating Newkirk's future net leased and related investments (the "Exclusivity
Assignment"), the timing of which shall coincide with the Newkirk IPO. In
consideration of the Exclusivity Assignment and the receipt of such services,
Newkirk will: (i) issue $20 million of additional Newkirk common shares, 50% of
which will vest immediately and 50% of which will vest ratably over a three year
period, and we will receive all dividends and the right to vote with respect to
the vested and unvested Newkirk shares; and (ii) we will receive the economic
benefit of 80% of the incentive management fee payable by Newkirk to NKT, the
entity that will provide advisory services to Newkirk, which is an affiliate of
FUR Advisors.


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<PAGE>

In connection with the issuance of the Newkirk shares, we have agreed not sell,
transfer, pledge, redeem or otherwise dispose of its shares of common stock in
Newkirk for a period equal to the earlier of (i) three years from the date of
the Newkirk IPO or (ii) at such time as NKT is no longer providing advisory
services to Newkirk; provided, however, in no event shall such period be less
than one year from the date of the Newkirk's IPO. Notwithstanding the foregoing,
commencing one year from the date of the Newkirk IPO, we are permitted to pledge
our shares of common stock in Newkirk in connection with borrowings with a
maximum principal amount no greater than 35% of the value of all shares of
Newkirk's common stock (based on the Newkirk IPO common stock price) held by us.
With respect to the shares that are to vest over a three year period, unvested
shares will be forfeited if: (i) the advisory agreement with NKT is terminated
by Newkirk for cause; (ii) Michael Ashner dies or becomes disabled, unless the
other members of NKT's senior management then in place remain in their
positions; or (iii) Michael Ashner resigns as an officer and director of both
Newkirk and NKT. Conversely, all of the unvested shares shall become immediately
vested if: (i) Newkirk terminates the advisory agreement with NKT other than for
cause; (ii) NKT terminates the advisory agreement following a breach of a
material term of the advisory agreement by Newkirk that is not timely cured; or
(iii) non renewal of the advisory agreement. The Exclusivity Assignment shall
immediately be deemed terminated and revert back to us upon: (i) Michael Ashner
resigns as an officer and director of both Newkirk and NKT; or (ii) the
termination or non-renewal of the advisory agreement with NKT for any reason.

The foregoing transaction were consummated on November 7, 2005 at which time we
acquired 3,125,000 shares of common stock of Newkirk for an aggregate purchase
price of $50 million and an additional 1,250,000 shares of common stock of
Newkirk in connection with the Exclusivity Assignment, 625,000 of which are
fully vested and 625,000 of which will vest ratably over the next three years
and are subject to forfeiture. As a result, we hold 4,375,000 shares of the
common stock of Newkirk representing approximately 30.1% of the outstanding
common shares in Newkirk. In turn, Newkirk holds approximately a 22.60% interest
in The Newkirk Master Limited Partnership ("Newkirk MLP").

Newkirk was formed to acquire a controlling interest in Newkirk MLP, an entity
in which Michael Ashner and certain other members of our senior management own
an interest and of which his affiliate is the general partner. The business of
the Newkirk MLP is investment in net leased properties. In addition, Newkirk's
advisor, NKT, will be 80% owned by FUR Holdings LLC, the entity that owns our
advisor. The transactions with Newkirk are referenced, and more fully discussed,
in Newkirk's registration statement on Form S-11 filed on August 5, 2005 with
the Securities and Exchange Commission as amended. A Special Committee our Board
engaged a special committee and after consideration over a period of time
recommended for Board approval the proposed transactions. The members of our
Special Committee are Arthur Blasberg, Jr., chair, Talton Embry and Howard
Goldberg, each of whom is an independent Trustee of the Trust.

Mortgage Backed Securities Pledged Under Repurchase Agreement

On June 30, 2005, we purchased whole pool three year adjustable-rate Fannie Mae
guaranteed mortgage-backed securities with a par value of $121,200,000, a
weighted average coupon of 4.21% and a weighted average reset date of December
2007 for an aggregate purchase price of $121,900,000. The purchase price was
funded using reserves of $3,700,000 and financing obtained through a repurchase
agreement, which re-prices monthly based upon the one-month LIBOR index. We
entered into an interest rate swap agreement in order to effectively fix the
interest rate under the agreement at 4.04%. At September 30, 2005, as a result
of loan repayments and prepayments, the whole pool had a carrying value of
$107,733,000 and a weighted average interest rate of 4.23%. The decline in
market value has resulted in a charge to other comprehensive income of
$1,159,000.

Liquidity and Capital Resources

General

Liquidity is a measurement of our ability to meet potential cash requirements,
including ongoing commitments to repay borrowings, fund and maintain investments
and other general business needs. Additionally, to maintain our status as a REIT
under the Internal Revenue Code, we must distribute annually at least 90% of our
REIT taxable income.


                                       31
<PAGE>

Our primary sources of funds for liquidity consist of cash and cash equivalents,
net cash provided by operating activities, payments received on the loans
receivable and dividends received on the real estate equity securities. During
2005, we also raised funds through debt and equity offerings. In the future, we
may raise additional funds through debt financing and/or equity offerings.

Our ability to execute our business strategy, particularly the growth of our
investment portfolio, depends to a significant degree on our ability to
implement our investment policy as described above. We compete with numerous
other companies for investments, including other REITs, insurance companies and
other investors. Some of our competitors have greater resources than we do and
for this and other reasons, we may not be able to compete successfully for
investments.

We had cash and cash equivalents of $85,136,000 at September 30, 2005, which
consisted of $4,846,000 in cash and $80,290,000 in cash equivalents with
maturities of less than 90 days.

U.S. Treasury Bills are classified as cash equivalents. The average annual
yields on the U.S. Treasury Bills were 1.20% and 1.202% for the nine months
ended September 30, 2005 and 2004, respectively.

Our level of liquidity based upon cash and cash equivalents increased by
approximately $2,577,000 during the nine months ended September 30, 2005. The
3.12% increase resulted from $213,774,000 of cash provided by financing
activities and $8,385,000 of cash provided by operating activities, which was
offset by $219,582,000 of cash used in investing activities.

Cash provided by financing activities consisted of $94,316,000 of net proceeds
from the issuance of the Series B-1 Shares, $3,909,000 of net proceeds from the
issuance of Common Shares, $22,600,000 of mortgage loan proceeds and
$118,243,000 of net proceeds from borrowings under repurchase agreements.

Cash used in financing activities consisted of $1,548,000 of dividend payments
on our Series A Cumulative Convertible Redeemable Preferred Shares of Beneficial
Interest ("Series A Shares"), $2,530,000 of dividend payments on our Series B-1,
$14,047,000 of repayment of borrowings under repurchase agreement, $6,851,000 of
mortgage loan repayments, $304,000 of deferred financing costs and a $14,000
decrease in loans payable.

Cash used in investing activities consisted of $16,152,000 of purchases of
various real estate securities, $18,714,000 of building acquisitions and capital
improvements to our existing operating properties, $3,956,000 of lease
intangible purchases, $122,310,000 of purchases of mortgage-backed securities
available for sale, $77,927,000 of investments in preferred equity, $876,000 of
increase in restricted cash and a $3,903,000 increase in loans receivable.

Cash provided by investing activities consisted $13,953,000 of proceeds received
from paydowns of mortgage-backed securities available for sale, $5,804,000 from
the sale of limited partnership interest to minority interest, $3,000,000
received from the repayment of the West 38th Street Loan, Wingate and Westside
loan payments of $37,000 and $45,000, respectively, $407,000 of proceeds from
the sale of shares in Presidential Realty and $1,010,000 received from the sale
of JER common stock.

Cash provided by operating activities amounted to $8,367,000 which was the
result of a $122,000 increase in straight lining of rental income, $3,469,000 of
depreciation and amortization expense, $2,066,000 of amortization of lease
intangibles, $2,109,000 of distribution of income from preferred equity
investment and $18,000 received from interest receivable on loans. This was
offset by equity in earnings of preferred equity investment of $2,598,000,
$75,000 of minority interest from the consolidation of 5400 Westheimer Holding,
LP, $31,000 of decreases in deferred items, $11,000,000 increase in legal
settlement receivable and $2,514,000 of changes in other operating assets and
liabilities.

We declared a dividend of $516,000 ($0.525 per share) on our Series A Shares in
the first, second and third quarters of 2005. The first quarter dividend was
paid April 30, 2005 to beneficiaries of record at the close of business on March
31, 2005. The second quarter dividend was paid July 31, 2005 to beneficiaries of
record at the close of business on June 30, 2005. The third dividend was paid
October 31, 2005 to beneficiaries of record at the close of business on
September 30, 2005.


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<PAGE>

We declared a dividend of $510,000 ($0.14 per share) on our Series B-1 Shares in
the first quarter of 2005, which dividends represented the pro rata portion of
the quarterly distribution of $0.40625 per share. The first quarter dividend was
paid April 30, 2005 to beneficiaries of record as of the close of business on
March 31, 2005.

In May 2005, we declared and paid a dividend on our Series B-1 Shares equal to
$476,000 ($0.1308 per share) for the period April 1, 2005 through April 30,
2005. In June 2005, we declared a dividend of $1,479,000 ($0.40625 per share) on
the our Series B-1 Shares issued in February 2005 and a dividend of $16,000
($0.05 per share) on our Series B-1 Shares issued in June 2005, which dividend
represented the pro rata portion of the quarterly distribution for the dividend
period May 1, 2005 through July 30, 2005 of $0.40625. The dividend was paid July
31, 2005 to beneficiaries of record as of the close of business on June 30,
2005.

We declared a dividend of $1,625,000 ($0.40625 per share) on the first and
second issuance of our Series B-1 Shares for the third quarter 2005. The third
quarter dividend was paid October 31, 2005 to beneficiaries of record at the
close of business September 30, 2005.

Sale of Common Shares to Vornado Realty Trust

Also on August 5, 2005, we agreed to sell to Vornado Realty Trust or its
wholly-owned subsidiary, a number of shares of our Common Shares equal to the
lesser of (i) 9.9% of the outstanding Common Shares (after giving effect to such
issuance) (3,522,566 based on the Common Shares outstanding at August 5, 2005)
or (ii) 4,000,000, in each case for a purchase price of $4.00 per share. The
sale was consummated on November 7, 2005 with Vornado acquiring 3,522,566 Common
Shares. The shares were sold pursuant to the terms of a Securities Purchase
Agreement and registered pursuant to our effective shelf registration statement
on Form S-3.

Results of Operations - Nine Months Ended September 30, 2005 Versus September
30, 2004

Net Income

As more fully described below, income from continuing operations, excluding the
legal settlement in 2005, increased by $3,766,000 to $5,273,000 for the nine
months ended September 30, 2005 from $1,507,000 for the nine months ended
September 30, 2004.

Net income applicable to Common Shares of Beneficial Interest ("Common Shares")
for the nine months ended September 30, 2005 was $11,641,000 as compared to net
income of $20,410,000 for the nine months ended September 30, 2004. The primary
reason for the 43% decrease in net income was due to a decrease in income from
discontinued operations of $19,905,000 of which $19,268,000 resulted from a gain
on the sale of Park Plaza Mall. Partially offsetting the decrease in net income
is other income of $11,000,000 representing the accrual of a legal settlement
with the State of California for the Peachtree Mall flood.

Rents

Rental income increased by $16,976,000 to $18,076,000 for the nine months ended
September 30, 2005 from $1,100,000 for the nine months ended September 30, 2004.
The increase was primarily due to the acquisition of the triple net leased
properties in our operating properties business segment which contributed
$16,966,000 of revenue. The increase in rental income is also supplemented by an
increase in revenues at Circle Tower of $12,000.

Interest and Dividends

Interest and dividends income increased by $2,836,000 to $4,772,000 for the nine
months ended September 30, 2005 from $1,936,000 for the nine months ended
September 30, 2004. The increase is primarily attributed to greater amounts
invested in real estate securities, higher interest rates on invested cash
balances and an increase in loans receivable resulting in an increase in
interest income of $2,132,000 and an increase in dividends received on real
estate securities of $704,000 for the nine months ended September 30, 2005.


                                       33
<PAGE>

Insurance Recoveries

For the nine months ended September 30, 2005, we did not receive any insurance
recoveries. Insurance recoveries totaling $1,244,000 for the nine months ended
September 30, 2004 represented reimbursement for legal fees expended in
connection with the preferred shareholder litigation which was settled in 2004.

Property Operating

Property operating expenses decreased by $26,000 to $547,000 for the nine months
ended September 30, 2005 from $573,000 for the nine months ended September 30,
2004. The 4.5 % decrease is directly related to our Circle Tower property
resulting from tenant bad debt recoveries of $26,000 and a decrease in
miscellaneous property operating expense of $33,000, partially offset by
increases in repairs and maintenance expense and administrative expenses.

Depreciation and Amortization

Depreciation and amortization expense increased by $4,791,000 to $4,987,000 for
the nine months ended September 30, 2005 compared to $196,000 for the nine
months ended September 30, 2004. The increase was due to depreciation and
amortization of $2,578,000 on the newly acquired triple net leased properties,
$2,085,000 related to the consolidation of 5400 Westheimer Holding, LP and
$128,000 at our Circle Tower property due to an increase in building and tenant
improvement additions of $659,000.

Interest Expense

Interest expense increased by $10,518,000 to $10,530,000 for the nine months
ended September 30, 2005 compared to $12,000 for the nine months ended September
30, 2004. The increase was due to $9,111,000 of interest expense related to debt
at our triple net leased properties, $155,000 related to new debt placed on our
Circle Tower property and $1,261,000 related to the repurchase agreement entered
into in connection with the acquisition of our Fannie Mae certificates, slightly
offset by a decrease in our margin interest expense of $9,000.

State and Local Taxes

State and local taxes was $615,000 for the nine months ended September 30, 2005
which is directly attributed to taxes due in states where we previously did not
conduct business.

General and Administrative Expenses

General and administrative expenses increased by $763,000 to $3,750,000 for the
nine months ended September 30, 2005 from $2,987,000 for the nine months ended
September 30, 2004. The primary cause of this increase was higher management
fees due to the increase in assets reflected on our balance sheet. Additionally,
audit fees increased as a result of current year transactions, in particular our
preferred equity investment in Marc and the required Securities and Exchange
Commission filings associated with such transactions, as well as, costs
associated with Sarbanes-Oxley compliance. These increases were partially offset
by the reimbursement of our out of pocket costs and expenses incurred in
connection with the proxy contest with Sizeler, and to a lesser extent, a
reduction in insurance expense.

Legal Settlement

In September 2005, the State of California appropriated the funding of the
$11,000,000 award to us representing full settlement of all claims we had
against the State with respect to the loss incurred from the flood at the
Peachtree Mall property in 1986. The settlement has been recognized as income in
the quarter ended September 30, 2005 and the funds were received in October.


                                       34
<PAGE>

Equity in Earnings of Preferred Equity Investment

Equity in earnings of preferred equity investment in Marc was $2,598,000 for the
nine months ended September 30, 2005. During the nine months ended September 30,
2004, we did not have an investment in preferred equity.

Gain on Sale of Securities Available for Sale

The gain on sale of securities available for sale decreased by $797,000 to
$243,000 for the nine months ended September 30, 2005 from $1,040,000 for the
nine months ended September 30, 2004. The 2005 gain on sale of securities
available for sale consists primarily of the gain on sale of shares in
Presidential Realty and JER Investors Trust, Inc. For the nine months ended
September 30, 2004, the gain consists primarily of the gain on sale of shares in
Atlantic Realty Trust.

Minority Interest

Minority interest loss increased by $75,000 for the nine months ended September
30, 2005. There was none for the nine months ended September 30, 2004. The loss
reflected the minority partners' share of the loss from 5400 Westheimer. During
the third quarter of 2005, we complied with FASB's Emerging Issues Task Force
EITF 04-05, which required us as general partner of 5400 Westheimer to
consolidate the balance sheet and operations of the property.

Discontinued Operations

Income from discontinued operations decreased by $19,905,000 to $546,000 for the
nine months ended September 30, 2005 compared to $20,451,000 for the nine months
ended September 30, 2004. The decrease is attributed to the sale of the Park
Plaza Mall and VenTek, which comprises the majority of the 2004 discontinued
operations. The 2005 discontinued operations represent the Sherman, Texas
property as a result of the exercise of its purchase option by the tenant of the
Sherman, Texas property and adjustments related to the Park Plaza Mall and
VenTek dispositions.

Results of Operations - Three Months ended September 30, 2005 Versus September
30, 2004

Net Income

As more fully described below, income from continuing operations, excluding the
legal settlement in 2005, increased by $23,000 to $2,232,000 for the three
months ended September 30, 2005 from $2,209,000 for the three months ended
September 30, 2004.

Net income applicable to Common Shares for the three months ended September 30,
2005 was $11,115,000 as compared to net income of $1,202,000 for the three
months ended September 30, 2004. The primary reason for the increase in net
income was due to an increase in rental revenues of $5,966,000 and other income
of $11,000,000, offset by increases in interest expense of $4,490,000 and
depreciation and amortization expense of $1,696,000.

Rents

Rental income increased by $5,966,000 to $6,323,000 for the three months ended
September 30, 2005 from $357,000 for the three months ended September 30, 2004.
The increase was primarily due to the acquisition of the triple net leased
properties in our operating properties business segment which contributed
$5,927,000 of revenue or 93.7% of total revenue.

Interest and Dividends

Interest income increased by $1,454,000 to $2,447,000 for the three months ended
September 30, 2005 from $993,000 for the three months ended September 30, 2004.
The increase is primarily attributable to greater amounts invested in real
estate securities, higher interest rates on invested cash balances and an
increase in loans receivable resulting in an increase in interest income of
$1,181,000 and an increase in dividends received on real estate securities of
$273,000 for the three months ended September 30, 2005.


                                       35
<PAGE>

Property Operating

Property operating expenses decreased by $43,000 to $181,000 for the three
months ended September 30, 2005 from $224,000 for the three months ended
September 30, 2004. The decrease is primarily due to a decrease in miscellaneous
property operating expense of $25,000 and a decrease of $9,000 in administrative
expense at our Circle Tower property.

Real Estate Taxes

Real estate taxes remained constant at $21,000 for the three months ended
September 30, 2005 and September 30, 2004.

Depreciation and Amortization

Depreciation and amortization expense increased by $1,696,000 to $1,771,000 for
the three months ended June 30, 2005 compared to $75,000 for the three months
ended September 30, 2004. The increase was primarily due to depreciation and
amortization of $970,000 on the newly acquired triple net leased properties and
$695,000 related to the consolidation of 5400 Westheimer Holding, LP.

Interest Expense

Interest expense increased by $4,490,000 to $4,491,000 for the three months
ended September 30, 2005 compared to $1,000 for the three months ended September
30, 2004. The increase was due to the debt related to the triple net lease
portfolio and the new debt placed on the Circle Tower property.

State and Local Taxes

State and local taxes was $615,000 for the three months ended September 30, 2005
which is directly attributed to taxes due in states where we previously did not
conduct business.

General and Administrative Expenses

General and administrative expenses increased by $212,000 to $1,040,000 for the
three months ended September 30, 2005 from $828,000 for the three months ended
September 30, 2004. The primary cause of this increase was additional audit fees
related to current year transactions, in particular Sarbanes-Oxley compliance,
and an increase in management fees, partially offset by the reimbursement of our
expenses incurred in connection with the proxy contest with Sizeler.

Legal Settlement

In September 2005, the State of California appropriated the funding of the
$11,000,000 award to us representing full settlement of all claims we had
against the State with respect to the loss incurred from the flood at the
Peachtree Mall property in 1986. The settlement has been recognized as income in
the quarter ended September 30, 2005 and the funds were received in October.

Equity in Earnings of Preferred Equity Investment

Equity in earnings of preferred equity investment in Marc was $1,468,000 for the
three months ended September 30, 2005. During the three months ended September
30, 2004, we did not have an investment in preferred equity investment.


                                       36
<PAGE>

Gain on Sale of Securities Available for Sale

The gain on sale of securities available for sale decreased by $663,000 to $101
for the three months ended September 30, 2005 from $764,000 for the three months
ended September 30, 2004. For the three months ended September 30, 2004, the
gain is directly attributable to the sale of Atlantic Realty Trust shares where
we recognized a gain of $818,000. The gain on sale for the three months ended
September 30, 2005 relates to the sale of JER Investors Trust, Inc. stock.

Minority Interest

Minority interest loss increased by $12,000 for the three months ended September
30, 2005. There was none for the three months ended September 30, 2004. The loss
reflected to the minority partners' share of the loss from 5400 Westheimer.
During the third quarter of 2005, the Trust complied with FASB's Emerging Issues
Task Force EITF 04-05, which required the Trust, acting as general partner of
5400 Westheimer to consolidate the balance sheet and operations of the property.

Discontinued Operations

Income from discontinued operations increased by $515,000 to $24,000 for the
three months ended September 30, 2005 compared to ($491,000) for the three
months ended September 30, 2004. The 2005 discontinued operations represent the
Sherman, Texas property as a result of the exercise of its purchase option by
the tenant of the Sherman, Texas property and adjustments related to the Park
Plaza Mall and VenTek dispositions.


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<PAGE>

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK

Interest Rate Risk

We have exposure to fluctuations in market interest rates. Market interest rates
are highly sensitive to many factors beyond our control. Various financial
vehicles exist which would allow management to mitigate the impact of interest
rate fluctuations on our cash flow and earnings.

At September 2005, we had one loan payable that had a variable interest rate and
short term financing pursuant to a repurchase agreement that had a variable
interest rate. The loan payable had an outstanding balance of $51,417,000 at
September 30, 2005, was obtained in November 2004 and has a three-year term.
Interest on the outstanding balance accrues at the LIBOR rate plus 450 basis
points. As of September 30, 2005, we have an interest rate swap with a
$40,000,000 notional amount that effectively converted the interest rate on that
portion of principal from a floating LIBOR plus 4.5% (8.25% at September 30,
2005) to a fixed rate of 8.55%.

The repurchase agreement had an outstanding balance of $104,196,000 at September
30, 2005, was obtained in June 2005 and has a one-month term. Interest on the
outstanding balance accrues at the LIBOR rate minus 3 basis points. As of
September 30, 2005, we have an interest rate swap with a notional amount of
$104,196,000 that effectively converted the interest rate from a floating rate
of LIBOR minus 3.0% to a fixed rate of 4.045%.

The following table shows what the effect of a change in the LIBOR rate will
have on annual interest expense.
                                                        Change in LIBOR
                                                        ---------------
                                                 1%           2%            3%
                                                 --           --            --

            Additional interest expense     $ 114,000    $ 228,000     $ 343,000

The fair market value of our debt, based on discounted cash flows at current
market conditions and interest rates, approximates the aggregate carrying value
of the debt at September 30, 2005.

Item 4. CONTROLS AND PROCEDURES

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


                                       38
<PAGE>

                           PART II. OTHER INFORMATION

Item 6. EXHIBITS

Exhibits required by Item 601 of Regulation S-K are filed herewith or
incorporated herein by reference and are listed in the attached Exhibit Index.


                                       39
<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


Date: November 14 2005                        By: /s/ Michael L. Ashner
                                                  ------------------------------
                                                  Michael L. Ashner
                                                  Chief Executive Officer


Date: November 14, 2005                       By: /s/ Thomas C. Staples
                                                  ------------------------------
                                                  Thomas C. Staples
                                                  Chief Financial Officer


                                       40
<PAGE>

                                  EXHIBIT INDEX

                                                                           Page
Exhibit        Description                                                Number
-------        -----------                                                ------

3.1            Bylaws of the Trust as restated on November 8, 2005         (o)

3.2            Certificate of Amendment to Amended and Restated            (a)
               Declaration of Trust as of March 6, 2001

3.3            Amendments to Amended and Restated Declaration of Trust     (e)
               dated April 15, 2004

4.1            Form of certificate for Shares of Beneficial Interest       (b)

4.2            Certificate of Designations relating to Trust's Series      (c)
               A Cumulative Redeemable Preferred Shares of
               Beneficial Interest

4.3            Warrant to purchase 500,000 shares of Beneficial            (a)
               Interest of Trust

4.4            Agreement of Limited Partnership of First Union REIT        (h)
               L.P., dated as of January 1, 2005

4.5            Amended and Restated Certificate of Designations for        (n)
               Series B-1 Cumulative Convertible Redeemable
               Preferred Shares of Beneficial Interest

10.1           1999 Trustee Share Option Plan                              (d)

10.2           1999 Long Term Incentive Performance Plan                   (d)

10.3           Indemnification Agreement with Neil Koenig, dated as of     (k)
               April 29, 2002

10.4           Stock Purchase Agreement between the Trust and FUR          (f)
               Investors, LLC, dated as of November 26, 2003
               ("Stock Purchase Agreement"), including Annex A
               thereto, being the list of Conditions to the Offer.

10.5           Guaranty of Michael L. Ashner, Guarantor, dated             (f)
               November 26, 2003, in favor of the Trust, in the
               form provided as Annex F to the Stock Purchase
               Agreement.

10.6           Amended and Restated Advisory Agreement dated November      (o)
               7, 2005, between the Trust, First Union REIT, L.P.,
               and FUR Advisors LLC.

10.7           Exclusivity Services Agreement between the Trust and        (f)
               Michael L. Ashner.

10.8           Amendment No. 1 to Exclusivity Agreement, dated             (o)
               November 7, 2005

10.9           Covenant Agreement between the Trust and FUR Investors,     (f)
               LLC.

10.10          Loan Agreement, dated November 18, 2004, among FT-Fin       (g)
               Acquisition LLC, Keybank National Association,
               Newstar CP Funding LLC, Keybank National Association,
               as agent for itself and such other lending
               institutions, and Keybanc Capital Markets, as the
               Arranger

10.11          Form of Mortgage, dated November 18, 2004, in favor of      (g)
               Keybank National Association


                                  41
<PAGE>

10.12          Ownership Interest Pledge Agreement, dated November 18,     (g)
               2004, from FT-Fin Acquisition LLC to Keybank
               National Association

10.13          Guaranty, dated as of November 18, 2004, by First Union     (g)
               Real Estate Equity and Mortgage Investments in
               favor of Keybank National Association, as the agent.

10.14          Indemnity Regarding Hazardous Materials, dated as of        (g)
               November 18, 2004, by First Union Real Estate
               Equity and Mortgage Investments in favor of Keybank
               National Association, as the agent.

10.15          Amended and Restated Omnibus Agreement, dated March16,      (i)
               2005, among Gerald Nudo, Laurence Weiner and First
               Union REIT L.P.

10.16          Securities Purchase Agreement, dated February 16, 2005,     (j)
               between First Union Real Estate Equity and Mortgage
               Investments and Kimco Realty Corporation

10.17          Securities Purchase Agreement, dated February 25, 2005,     (k)
               between First Union Real Estate Equity and Mortgage
               Investments, Perrin Holden & Davenport Capital Corp.
               and the Investors named therein

10.18          Securities Purchase Agreement, dated June 15, 2005,         (n)
               between First Union Real Estate Equity and Mortgage
               Investments, Perrin Holden & Davenport Capital Corp.
               and the Investors named therein.

10.19          Amended and Restated Registration Rights Agreement,         (n)
               dated June 20, 2005, between First Union Real
               Estate Equity and Mortgage Investments and the
               Investors named therein.

10.20          Amended and Restated Investor Rights Agreement, dated       (n)
               June 20, 2005, between First Union Real Estate
               Equity and Mortgage Investments and the Investors named
               therein.

10.21          Purchase and Sale Agreement, dated March 10, 2005,          (l)
               between Amherst Investors Business Trust and Micron
               Realty LLC

10.22          Assignment of Purchase and Sale Agreement, dated March      (l)
               21, 2005, between Micron Realty LLC and First Union
               Real Estate Equity and Mortgage Investments

10.23          Loan Agreement, dated May 25, 2005, between FT-Amherst      (m)
               Property LLC, as borrower, and Greenwich Capital
               Financial Products, Inc., as lender

10.24          Promissory Note, dated May 25, 2005, in the original        (m)
               principal amount of $18,000,000 from FT-Amherst
               Property LLC to Greenwich Capital Financial Products,
               Inc.

10.25          Securities Purchase Agreement, dated November 7, 2005,      (o)
               between the Trust and Vornado Investments L.L.C.
               ("Vornado").

10.26          Registration Rights Agreement, dated November 7, 2005,      (o)
               between the Trust and Vornado

10.27          Securities Purchase Agreement, dated November 7, 2005,      (o)
               between Newkirk Realty Trust, Inc. and the Trust

10.28          Acquisition Agreement, dated November 7, 2005, between      (o)
               Newkirk Realty Trust, Inc. and the Trust


                                  42
<PAGE>

10.29          Registration Rights Agreement, dated November 7, 2005,      (o)
               between Newkirk Realty Trust, Inc.

10.30          Lock-Up Agreement, dated November 7, 2005, executed by      (o)
               the Trust

10.31          Ownership Limit Waiver Agreement dated November 7,          (o)
               2005, between the Trust and Newkirk Realty Trust,
               Inc.

10.32          Joinder Agreement with respect to the Securities            (o)
               Purchase Agreement, dated November 7, 2005, by and
               among the Trust, Newkirk Realty Trust, Inc. and The
               Newkirk Master Limited Partnership

10.33          Undertaking, dated November 7, 2005, by FUR Holdings        (o)
               LLC and FUR Advisors LLC for the benefit of the
               Trust.

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

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

* filed herewith

      (a)   Incorporated by reference to the Trust's 2000 Form 10-K
      (b)   Incorporated by reference to the Trust's Registration Statement on
            Form S-3 No. 33-2818
      (c)   Incorporated by reference to the Trust's Form 8-K dated October 24,
            1996
      (d)   Incorporated by reference to the Trust's 1999 Proxy Statement for
            Special Meeting held May 17, 1999 in lieu of Annual Meeting
      (e)   Incorporated by reference to the Trust's March 31, 2004 Form 10-Q
      (f)   Incorporated by reference to the Trust's Form 8-K dated November 26,
            2003
      (g)   Incorporated by reference to the Trust's Form 8-K dated November 18,
            2004
      (h)   Incorporated by reference to the Trust's Form 8-K dated January 1,
            2004
      (i)   Incorporated by reference to the Trust's Form 8-K dated March 18,
            2005
      (j)   Incorporated by reference to the Trust's Form 8-K dated February 17,
            2005
      (k)   Incorporated by reference to the Trust's Form 8-K dated March 2,
            2005
      (l)   Incorporated by reference to the Trust's Form 8-K dated March 23,
            2005
      (m)   Incorporated by reference to the Trust's Form 8-K dated May 27, 2005
      (n)   Incorporated by reference to the Trust's Form 8-K dated June 21,
            2005
      (o)   Incorporated by reference to the Trust's Form 8-K dated November 10,
            2005.


                                       43