`================================================================================


                                  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 JUNE 30, 2004
                                                 -------------

                         Commission file number 0-16249
                                                -------

             FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
             (Exact name of registrant as specified in its charter)


           Ohio                                                4-6513657
           ----                                               ----------
  (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 August 1, 2004, there were 31,058,913 shares of common stock outstanding.

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



             FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
                            FORM 10-Q - JUNE 30, 2004


                                      INDEX



                                                                                     Page

Part I.    Financial Information

   Item 1. Combined Financial Statements (Unaudited):

           Combined Balance Sheets as of June 30, 2004
           and December 31, 2003....................................................  3

           Combined Statements of Operations and Comprehensive Income/(Loss)
           for the Three and Six Months Ended June 30, 2004 and June 30, 2003.......  4

           Combined Statements of Cash Flows for the Six Months Ended
           June 30, 2004 and June 30, 2003..........................................  5

           Notes to Combined Financial Statements...................................  6

   Item 2. Management's Discussion and Analysis of Financial
           Condition and Results of Operations...................................... 17

   Item 3. Quantitative and Qualitative Disclosure about Market Risk................ 22

   Item 4. Controls and Procedures.................................................. 23


Part II.   Other Information:

   Item 1. Legal Proceedings........................................................ 24

   Item 6. Exhibits and Reports on Form 8-K......................................... 25

Signatures     ..................................................................... 26

Exhibit Index  ..................................................................... 27



                                       2


             FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
                            FORM 10-Q - JUNE 30, 2004

                             COMBINED BALANCE SHEETS



(In thousands, except share data)                            JUNE 30, 2004    DECEMBER 31,
                                                              (UNAUDITED)         2003
                                                               ---------       ---------

ASSETS
Investments in real estate, at cost
  Land                                                         $   1,021       $     270
  Buildings and improvements                                       5,948           5,891
                                                               ---------       ---------
                                                                   6,969           6,161
  Less - Accumulated depreciation                                 (4,329)         (4,209)
                                                               ---------       ---------
    Investments in real estate, net                                2,640           1,952

  Property held for sale                                            --            55,929
  Cash and cash equivalents                                        4,094          14,924
  Restricted cash                                                 34,660           2,818
  Loans receivable                                                10,680            --
  Accounts receivable and prepayments, net of
   allowance of $483 and $223, respectively                          213           1,032
  Investments - available for sale                                61,939          68,986

  Real estate securities - available for sale                      9,566            --
  Inventory, net of reserve                                           20             591
  Other                                                              669             133
  Assets of discontinued operations                                   26             473
                                                               ---------       ---------
Total Assets                                                   $ 124,507       $ 146,838
                                                               =========       =========

LIABILITIES
  Mortgages loan related to property
   held for sale                                               $      --       $  41,457
  Note payable                                                        53              64
  Accounts payable and accrued liabilities                         6,367           6,228
  Dividends payable                                                  516             516
  Deferred items                                                     150              24
  Liabilities of discontinued operations                             720           1,829
                                                               ---------       ---------
Total Liabilities                                                  7,806          50,118
                                                               ---------       ---------

SHAREHOLDERS' EQUITY
Convertible Preferred Shares of Beneficial Interest, $25 per
   share liquidation preference, 2,300,000 shares
   authorized, 983,082 shares outstanding at June 30, 2004
   and December 31, 2003                                          23,131          23,131
Shares of Beneficial Interest, $1 par, unlimited authorized,
   31,058,913 outstanding at June 30, 2004 and
   December 31, 2003                                              31,059          31,059
Additional paid-in capital                                       207,968         207,968

Accumulated other comprehensive income                               772            --
Accumulated distributions in excess of net income               (146,229)       (165,438)
                                                               ---------       ---------
Total Shareholders' Equity                                       116,701          96,720
                                                               ---------       ---------
Total Liabilities and Shareholders' Equity                     $ 124,507       $ 146,838
                                                               =========       =========


                   See Notes to Combined Financial Statements.


                                       3


             FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
                            FORM 10-Q - JUNE 30, 2004

        COMBINED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME/(LOSS)
                                   (UNAUDITED)



(In thousands,                                                     THREE MONTHS ENDED                SIX MONTHS ENDED
 except per share data)                                                 JUNE 30,                         JUNE 30,
                                                                 ------------------------        ------------------------
                                                                   2004            2003            2004            2003
                                                                 --------        --------        --------        --------

REVENUES
      Rents                                                      $    372        $    462        $    743        $    803
      Sales                                                         1,676             718           2,985           1,444
      Interest and dividends                                          718             250             944             510
      Gain on sale of securities available for sale                   276            --               276            --
                                                                 --------        --------        --------        --------
                                                                    3,042           1,430           4,948           2,757
                                                                 --------        --------        --------        --------
EXPENSES
      Property operating                                              152             241             348             455
      Cost of goods sold                                            1,160             879           2,094           1,966
      Real estate taxes                                                 8              22              25              44
      Depreciation and amortization                                   133             114             203             237
      Interest                                                         11             184              14             549
      General and administrative                                      851           3,357           2,159           4,519
                                                                 --------        --------        --------        --------
                                                                    2,315           4,796           4,843           7,770
                                                                 --------        --------        --------        --------
Income/(loss) from continuing operations                              727          (3,366)            105          (5,013)

Discontinued operations:

      Income from discontinued operations                              68             244             485             859

      Gain on disposal of real estate                              19,651            --            19,651            --
                                                                 --------        --------        --------        --------
Income from discontinued operations                                19,719             244          20,136             859
                                                                 --------        --------        --------        --------

Net income/(loss)                                                  20,446          (3,122)         20,241          (4,154)
      Preferred dividend                                             (516)           (516)         (1,032)         (1,032)
                                                                 --------        --------        --------        --------
Net income/(loss) applicable to Common Shares of
    Beneficial Interest                                            19,930          (3,638)         19,209          (5,186)

OTHER COMPREHENSIVE INCOME

Unrealized gain on securities                                         376            --               772            --
                                                                 --------        --------        --------        --------
Comprehensive income/(loss)                                      $ 20,306        $ (3,638)       $ 19,981        $ (5,186)
                                                                 ========        ========        ========        ========

PER SHARE DATA - BASIC:
Income/(loss) from continuing operations                         $   0.01        $  (0.11)       $  (0.03)       $  (0.17)
Income from discontinued operations                                  0.63            0.00            0.65            0.02
                                                                 --------        --------        --------        --------
Net income/(loss) applicable to Common Shares of
   Beneficial Interest                                           $   0.64        $  (0.11)       $   0.62        $  (0.15)
                                                                 ========        ========        ========        ========

DILUTED:
Income/(loss) from continuing operations                         $   0.01        $  (0.11)       $  (0.03)       $  (0.17)
Income from discontinued operations                                  0.55            0.00            0.56            0.02
                                                                 --------        --------        --------        --------
Net income/(loss) applicable to Common Shares of
   Beneficial Interest                                           $   0.56        $  (0.11)       $   0.53        $  (0.15)
                                                                 ========        ========        ========        ========
BASIC WEIGHTED AVERAGE COMMON SHARES                               31,059          34,550          31,059          34,677
Convertible Preferred Shares                                        4,837           4,837           4,837           4,837
Stock Options                                                          25            --                23            --
                                                                 --------        --------        --------        --------
DILUTED WEIGHTED AVERAGE COMMON SHARES                             35,921          39,387          35,919          39,514
                                                                 ========        ========        ========        ========


                   See Notes to Combined Financial Statements


                                       4


             FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
                            FORM 10-Q - JUNE 30, 2004

                        COMBINED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)



(In thousands)                                                   SIX MONTHS ENDED JUNE 30,
                                                                    2004          2003
                                                                  ---------    ---------

CASH FLOWS FROM OPERATING ACTIVITIES
  Net income/(loss)                                               $  20,241    $  (4,154)
  Adjustments to reconcile net income/(loss) to net cash
    provided by/(used) by operating activities
      Depreciation and amortization                                   1,163        1,060
      Decrease in deferred items                                       (277)         (76)
      Gain on sale of real estate                                   (19,651)        --
      Impairment allowance                                               65         --
      Net changes in other operating assets and liabilities             436         (421)
                                                                  ---------    ---------
        Net cash provided by/(used) by operating activities           1,977       (3,591)
                                                                  ---------    ---------

CASH FLOWS FROM INVESTING ACTIVITIES
  Purchase of investments                                          (428,835)    (751,525)
  Purchase real estate securities available for sale                (12,184)        --
  Proceeds from maturity of investments                             435,659      768,509
  Proceeds from real estate securities available for sale             3,614         --
  Proceeds from sale of real estate                                  34,023         --
  Increase in restricted cash                                       (31,842)        --
  Purchase of loans receivable                                      (18,677)        --
  Paydown of loan receivable                                          8,021         --
  Interest receivable on loans                                          (24)        --
  Investments in land, building and tenant improvements              (1,375)        (127)
                                                                  ---------    ---------
        Net cash provided by/(used) by investing activities         (11,620)      16,857
                                                                  ---------    ---------

CASH FLOWS FROM FINANCING ACTIVITIES
  Decrease in note payable                                              (11)          (8)
  Repayment of mortgage loan - principal payments                      (144)        (173)
  Repurchase of shares of Beneficial Interest                          --        (11,098)
  Dividends paid on Preferred Shares of Beneficial Interest          (1,032)      (1,032)
                                                                  ---------    ---------
        Net cash used in financing activities                        (1,187)     (12,311)
                                                                  ---------    ---------

Net increase/(decrease) in cash and cash equivalents                (10,830)         955
Cash and cash equivalents at beginning of period                     14,924        5,865
                                                                  ---------    ---------
Cash and cash equivalents at end of period                        $   4,094    $   6,820
                                                                  =========    =========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

   Interest Paid                                                  $   1,743    $   2,371
                                                                  =========    =========

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES

   Dividends accrued on Preferred Shares of Beneficial Interest   $     516    $     516
   Mortgage loan assumed by purchaser of property                    41,300         --
                                                                  ---------    ---------
                                                                  $  41,816    $     516
                                                                  =========    =========


                   See Notes to Combined Financial Statements.


                                       5


             FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
                            FORM 10-Q - JUNE 30, 2004

                     NOTES TO COMBINED FINANCIAL STATEMENTS

1.   GENERAL

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

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

     The combined financial statements reflect, in the opinion of the Trust, all
adjustments (consisting of normal recurring adjustments) necessary to present
fairly the combined financial position, 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 six months ended June 30, 2004 and 2003 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,
potentially excess and obsolete inventory, product warranty reserves, the
percentage of completion method and contingencies, among others. Actual results
could differ from these estimates.

Real Estate Assets

     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 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
improvements are depreciated over the life of the lease. The Trust annually
reviews 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 value of the asset to its
carrying amount.

Cash and Cash Equivalents

     Cash and cash equivalents include checking, money market and restricted
cash accounts.


                                       6


             FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
                            FORM 10-Q - JUNE 30, 2004

                     NOTES TO COMBINED FINANCIAL STATEMENTS


Trade Accounts Receivable and Allowance for Doubtful Accounts

     Trade 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 and 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 customers.

Investments Available for Sale

     The Trust holds US government securities with a maturity of less than one
year ($52.1 million) and US government securities with one to five year
maturities ($9.8 million).

     The Trust's investments in US government securities are accounted for as
available-for-sale. Accordingly, the Trust records these investments at fair
value, and unrealized gains and losses are recognized through shareholders'
equity, as a component of other comprehensive income. Realized gains and losses
and changes for other-than-temporary impairments are included in net income.

Investment in Real Estate Securities

     The Trust classifies investments in real estate equity securities with
readily determinable fair 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 values
are accounted for as available-for-sale as these securities are held principally
for the purpose of holding for investment and not for sale in the short term.

Product Warranty Policy

     VenTek International Inc. ("VenTek"), an operating subsidiary of the
Company, provides product warranties for both its parking and transit ticket
equipment. The warranty policy for parking equipment generally provided for one
year of coverage. The warranty policy for transit ticket equipment generally
provided two to two and a half years of coverage. However, with respect to an
order received in the fourth quarter of 2003, no extended warranty was provided
with such equipment. VenTek's policy is to accrue the estimated cost of warranty
coverage at the time the sale is recorded. All existing product warranties are
scheduled to expire in September, 2004.

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 1) billings of fixed minimum rental, 2) billings of
certain operating costs and 3) billings for certain retail tenant leases for
percentage rentals. The Trust accrues the recovery of operating costs based on
actual costs incurred. The Trust defers recognition of contingent rental income
(i.e. percentage/excess rent) in interim periods until the specified target
(i.e. breakpoint) that triggers the contingent rental income is achieved.

     Revenue from transit ticket vending equipment and maintenance contracts is
recognized by either the completed contract method or the percentage completion
method as units are delivered. Under the percentage of completion method,
revenue in excess of billings is included as part of inventory on the
accompanying combined balance sheet. VenTek reviews cost performance and
estimates to complete these contracts at least quarterly. If the estimated cost
to complete a contract changes from a previous estimate, VenTek records an
adjustment to earnings at that time. Revenues from the sales of parking
equipment were recognized upon delivery.


                                       7


             FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
                            FORM 10-Q - JUNE 30, 2004

                     NOTES TO COMBINED FINANCIAL STATEMENTS


Income Taxes

     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
measured by income tax laws. Changes in deferred income taxes attributable to
these temporary differences are included in the determination of income. A
valuation allowance has been provided for the entire amount of deferred tax
assets, which consists of First Union Management Inc. ("FUMI")'s capital loss
carryforwards, due to the uncertainty of realization of the deferred tax assets.

     The Trust operates in a manner intended to enable it to continue to qualify
as a REIT under Sections 856-860 of the Internal Revenue Code of 1986, as
amended. 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 comply with the foregoing
minimum distributions requirements; however, due to significant tax basis net
operating losses, the Trust does not anticipate that any distributions will be
required in the foreseeable future.

     The Trust owns stock in a corporation that has elected to be treated for
Federal income tax purposes as a taxable REIT subsidiary ("TRS"). The value of
the combined TRS stock cannot and does not exceed 20% of the value of the
Trust's total assets. A TRS is taxable on its net income at regular corporate
tax rates.

Earnings Per Share

     The computation of basic and diluted earnings per common share is as
follows:



                                                (In thousands, except per share data)

                                              Three Months Ended       Six Months Ended
                                                    June 30,               June 30,
                                              -------------------    --------------------
                                               2004        2003        2004        2003
                                             --------    --------    --------    --------

Basic
Income/(loss) from continuing operations     $    727      (3,366)   $    105      (5,013)
Preferred dividend                               (516)       (516)     (1,032)     (1,032)
                                             --------    --------    --------    --------
Income/(loss) from continuing operations          211      (3,882)       (927)     (6,045)
Income from discontinued operations            19,719         244      20,136         859
                                             --------    --------    --------    --------
Net income/(loss) applicable to common
    shares of Beneficial Interest            $ 19,930    $ (3,638)   $ 19,209    $ (5,186)
                                             ========    ========    ========    ========

Basic weighted average Common Shares           31,059      34,550      31,059      34,677
                                             ========    ========    ========    ========

Income/(loss) from continuing operations         0.01       (0.11)      (0.03)      (0.17)
Income/(loss) from discontinued operations       0.63        0.00        0.65        0.02
                                             --------    --------    --------    --------
Net income/(loss) per share                  $   0.64    $  (0.11)   $   0.62    $  (0.15)
                                             ========    ========    ========    ========



                                       8


             FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
                            FORM 10-Q - JUNE 30, 2004

                     NOTES TO COMBINED FINANCIAL STATEMENTS




                                              (In thousands, except per share data)

                                            Three Months Ended      Six Months Ended
                                                 June 30,                 June 30,
                                           --------------------    -------------------
                                             2004        2003        2004        2003
                                           --------    --------    --------    --------

Diluted
Income/(loss) from continuing operations   $    727      (3,366)   $    105      (5,013)
Preferred dividend                             (516)       (516)     (1,032)     (1,032)
                                           --------    --------    --------    --------
Income/(loss) from continuing operations        211      (3,882)       (927)     (6,045)
Income from discontinued operations          19,719         244      20,136         859
                                           --------    --------    --------    --------
Net income/(loss) applicable to common
    shares of Beneficial Interest          $ 19,930    $ (3,638)   $ 19,209    $ (5,186)
                                           ========    ========    ========    ========

Basic weighted average Common Shares         31,059      34,550      31,059      34,677
Convertible Preferred Shares                  4,837       4,837       4,837       4,837
Stock Options                                    25        --            23        --
                                           --------    --------    --------    --------
Diluted weighted average Common Shares       35,921      39,387      35,919      39,514
                                           ========    ========    ========    ========

Income/(loss) from continuing operations       0.01       (0.11)      (0.03)      (0.17)
Income from discontinued operations            0.55        0.00        0.56        0.02
                                           --------    --------    --------    --------
Net income/(loss) per share                $   0.56    $  (0.11)   $   0.53    $  (0.15)
                                           ========    ========    ========    ========


Stock Options

     The Trust accounts for stock option awards in accordance with APB No. 25,
"Accounting for Stock Issued to Employees" and has adopted the disclosure-only
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation."
Consequently, compensation cost has not been recognized for the share option
plans except for the options granted in 1999 which had an exercise price that
was less than the grant date per share market price. Had the Trust applied the
expense recognition provisions of SFAS No. 123, there would have been no impact
on the net income per share for the periods ended June 30, 2004 and 2003.

Dividends

     The Trust declared a dividend of $0.5 million ($0.525 per share) on the
Trust's Series A Cumulative Preferred Shares of Beneficial Interest ("Preferred
Shares") in both the first and second quarters of 2004. The first quarter
dividend was paid April 30, 2004 to beneficiaries of record at the close of
business on March 31, 2004. The second quarter dividend was paid July 31, 2004
to beneficiaries of record at the close of business on June 30, 2004.

Recently Issued Accounting Standards

     In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities." This Interpretation, as amended, clarifies the
application of existing accounting pronouncements to certain entities in which
equity investors do not have the characteristics of a controlling financial
interest or do not have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support from other parties.
The provisions of this Interpretation are immediately effective for all variable
interests in variable interest entities created after January 31, 2003, and the
Trust will need to apply its provisions to any existing variable interests in
variable interest entities by no later than December 31, 2004. The Trust does
not anticipate that this Interpretation will have an impact on its combined
financial statements.


                                       9


             FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
                            FORM 10-Q - JUNE 30, 2004

                     NOTES TO COMBINED FINANCIAL STATEMENTS


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 negotiated and approved by the Board of Trustees
of the Trust prior to the acquisition by FUR Investors, LLC of its interest in
the Trust. 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, or arranging for the provision of, asset
management services to the Trust and coordinating with the Trust's shareholder
transfer agent and property managers. Pursuant to the terms of the Advisory
Agreement, for providing these services, FUR Advisors is entitled to the
following fees: (i) an asset management fee of 1% of the gross asset value of
the Trust up to $100 million, .75% of the gross asset value of the Trust between
$100 million and $250 million, .625% of the gross asset value of the Trust
between $250 million and $500 million and .50% of the gross asset value of the
Trust in excess of $500 million; (ii) property and construction management fees
at commercially reasonable rates as determined by the independent Trustees of
the Board; (iii) loan servicing fees (not exceeding commercially reasonable
rates approved by a majority of the independent Trustees) for providing
administrative and clerical services with respect to loans made by the Trust to
third parties; and (iv) an incentive fee equal to 20% of all distributions to
holders of Common Shares of Beneficial Interest in the Trust after December 31,
2003 in excess of (x) $71.3 million, increased by the net issuance price of all
shares 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. In
addition, FUR Advisors is entitled to be reimbursed for up to $125,000 per annum
for the costs associated with the employment of one or more asset managers.

     Effective February 1, 2004, 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, Kestrel Management L.P. receives a fee equal to 3% of the
monthly revenues of Circle Tower, which amount is less than the amount paid to
the prior property management company.

     The following table sets forth the fees and reimbursements paid by the
Trust for the three and six months ended June 30, 2004 to FUR Advisors and
Kestrel Management L.P.:

                                          Three Months Ended   Six Months Ended
                                             June 30, 2004       June 30, 2004
          Asset Management Fee(1)                  $ 302,250          $ 686,979
          Loan Servicing Fee(1)                        3,247              4,953
          Property Management Fee(2)                   9,569             17,947
          Reimbursement(1)                            27,231             29,827

     (1)  Payable to FUR Advisors

     (2)  Payable to Kestrel Management L.P.

     In addition, the Trust and the Company paid fees of $30,000 and $142,654
for the three months ending June 30, 2004 and 2003, and $97,726 and $211,376 for
the six months ended June 30, 2004 and 2003 respectively, to the Real Estate
Systems Implementations Group, LLC ("RE Systems") for financial reporting and
advisory services. The managing member of this firm 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 and resigned as Interim Chief Executive Officer and Interim
Chief Financial Officer on December 31, 2003. He resigned as a Trustee of the
Trust on April 15, 2004. Effective February 1, 2004, the Trust retained RE
Systems on a month-to-month basis to provide services to the Company and VenTek
at a cost of $10,000 per month.


                                       10


             FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
                            FORM 10-Q - JUNE 30, 2004

                     NOTES TO COMBINED FINANCIAL STATEMENTS


4.   SHARE REPURCHASE

     The Trust authorized a share repurchase plan in July 2003. The plan allows
for the Trust to purchase up to $10.0 million of its Common and Preferred Shares
of Beneficial Interest in the market or through private transactions. Through
August 1, 2004 the Trust repurchased and retired 2,914,215 Common Shares for
$5,323,348.

5.   TERMINATION OF THE GOTHAM TRANSACTION

     On February 13, 2002, the Trust entered into a definitive agreement
pursuant to which the Trust agreed to merge with and into Gotham Golf Corp.
("Gotham Golf"), a Delaware corporation controlled by Gotham Partners, L.P.
("Gotham Partners"), at that time the beneficial owner of 16.8% of the Trust's
outstanding Common Shares.

     The proposed transaction was subject to several conditions, including the
approval of the Trust's Common Shareholders and the obtaining of certain third
party consents. The Trust's Common Shareholders approved the proposed
transaction by the requisite majority vote at a November 27, 2002 meeting of
shareholders. However, litigation was brought with respect to the proposed
transaction, resulting in the granting of an injunction preventing the proposed
transaction from going forward.

     On June 25, 2003 the Trust entered into a Settlement, Termination and
Standstill Agreement (the "Agreement") with, among others, Gotham Partners. The
Agreement provided for the termination of the merger agreement regarding the
merger of the Trust with Gotham Golf, the purchase by the Trust of 5,841,233
Common Shares of the Trust owned by Gotham Partners and its affiliates for
approximately $11.1 million and a termination payment to Gotham Partners of $2.4
million. The Agreement also provides that neither Gotham Partners nor any
affiliate will enter into or agree to enter into any form of business
combination, acquisition or other transaction involving the Trust or any
majority-owned affiliate for a period of five years from the date of the
Agreement. The termination payment was recognized as a general and
administrative expense during the year ended December 31, 2003. See Note 9 for
additional information.

6.   THE FUR INVESTORS TRANSACTION

     On November 26, 2003, the Trust entered into a Stock Purchase Agreement
with FUR Investors, LLC, an entity controlled by real estate investor Michael L.
Ashner, pursuant to which the Trust agreed to sell to FUR Investors, LLC a
minimum of 5,000,000 and a maximum of 5,185,724 newly issued Common Shares at a
price of $2.60 per share. As part of the transaction, FUR Investors, LLC was
required to, and did, commence a tender offer to purchase up to 5,000,000 Common
Shares, at a price of $2.30 per share. Upon consummation of the tender offer, on
December 31, 2003, FUR Investors LLC acquired 5,000,000 Common Shares pursuant
to the tender offer at a price of $2.30 per share and purchased an additional
5,000,000 newly issued Common Shares pursuant to the terms of the Stock Purchase
Agreement for a price of $2.60 per share. As a result of these purchases, FUR
Investors LLC acquired a total of 10,000,000 of the outstanding Common Shares
representing 32.2% of the total outstanding Common Shares.

     In connection with the transactions contemplated by the Stock Purchase
Agreement, (i) Michael L. Ashner was appointed the Chief Executive Officer of
the Trust, (ii) the Trust entered into an Advisory Agreement with FUR Advisors,
an affiliate of FUR Investors, LLC, (iii) Mr. Ashner entered into an exclusivity
agreement, and (iv) FUR Investors, LLC entered into a covenants agreement
pursuant to which it agreed not to take certain action which, among other
things, would adversely impact the Trust's status as a real estate investment
trust or its listing on the New York Stock Exchange. In addition, Daniel J.
Altobello and Jeffrey Citrin resigned as members of the Board of Trustees, and
three new trustees were appointed to the Board of Trustees. As a result, the
Board of Trustees presently consists of six members.

     In January 2004, the Board of Trustees approved a waiver to the ownership
limitations set forth in the Trust's By-laws to permit Michael L. Ashner, the
Chief Executive Officer of the Trust, to acquire up to 30,000 shares of the


                                       11


             FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
                            FORM 10-Q - JUNE 30, 2004

                     NOTES TO COMBINED FINANCIAL STATEMENTS


Trust's Preferred Shares so long as the acquisition thereof (i) is not otherwise
in violation of the ownership limitations set forth in the Trust's By-laws whose
purpose is to protect REIT status of the Trust and (ii) does not reduce the
existing viability of the net operating loss benefits available to the Trust.

7.   NORTHSTAR LOAN

     On March 3, 2004, the Trust acquired from Bank of America, N.A. a loan
receivable from NorthStar Partnership, L.P. ("NorthStar") in the principal
amount of approximately $16.9 million (the "NorthStar Loan"). The NorthStar Loan
is evidenced by a Credit Agreement, Promissory Note and collateral documents.
The NorthStar Loan is secured by a first priority lien on all or a portion of
NorthStar's interest in Morgans Hotel Group LLC, Emmes & Company LLC and
Presidio Capital Investment Company, LLC as well as certain other assets of
NorthStar. Upon acquisition, the NorthStar Loan was modified to extend the
maturity date for one year to May 28, 2005 and to provide for an option to
NorthStar to further extend the maturity date, upon payment of a one point fee,
for up to two optional six-month periods. The NorthStar Loan was further
modified to provide for an initial interest rate of a minimum of 12% per annum,
with a yield to maturity of 12.86%, increasing by two percentage points for each
six month renewal term. In addition, NorthStar was required to establish a
reserve equal to interest for six months and, upon the occurrence of certain
events, to increase such reserve to one year's interest. The NorthStar Loan
requires payments of interest only, is prepayable at any time, together with a
premium, and requires mandatory prepayments from asset sales or refinancings
after the first $9 million in proceeds from such sales or refinancings. Further,
NorthStar entered into an agreement pursuant to which the Trust has an option to
invest in certain transactions involving assets of NorthStar which are offered
to existing equityholders of NorthStar, or their affiliates.

     Due to the nature and amount of the NorthStar Loan, in order to comply with
the rules applicable to real estate investment trusts, portions of the NorthStar
Loan have been held or were held by a wholly-owned subsidiary of the Trust that
elected to be treated as a TRS. Accordingly, the portion of income allocated to
the amount of the NorthStar Loan held by the taxable REIT subsidiary will be
subject to corporate level tax. On April 12, 2004, NorthStar made a prepayment
on the loan in the amount of $8.9 million. At June 30, 2004, no portion of the
NorthStar Loan was held by the TRS. The impact of the sale of the Park Plaza
Mall property in June 2004 on the Trust's REIT tax compliance necessitated the
transfer of $2,000,000 of the NorthStar Loan to the TRS effective July 30, 2004.

     NorthStar prepaid the loan in its entirety on August 4, 2004.

8.   WEST SIDE LOAN

     On May 19, 2004, the Trust obtained a 25% participation interest in a loan
secured by a first mortgage on a commercial property located in New York City's
Chelsea area. The total outstanding principal balance of the loan is $10.7
million of which the Trust's share is $2.7 million. The purchase price of the
participation interest was the face amount of the Trust's share of the loan. The
loan bears interest at LIBOR plus 9.5% per annum and is scheduled to mature in
April 2009.

9.   ATLANTIC REALTY

     By January 9, 2004, the Trust had acquired 267,000 shares in Atlantic
Realty Trust ("Atlantic Realty") (NASD:ATLRS) representing 7.5% of the
outstanding shares in Atlantic Realty. The shares are classified in the balance
sheet as "Investments available for sale." On January 12, 2004, the Trust
contacted Atlantic Realty to discuss a possible business combination between
Atlantic Realty and the Trust. The Trust made a proposal to Atlantic Realty
which proposal was modified in April, 2004 and was ultimately rejected by
Atlantic Realty in May, 2004 as Atlantic Realty elected to market its remaining
property for sale. On May 19, 2004, Atlantic Realty paid a distribution of $3.25
per share to holders of record on May 10, 2004. Following the distribution, the
Trust began selling some of its shares in Atlantic Realty. As of June 30, 2004,
the Trust had sold 19,700 shares in Atlantic


                                       12


             FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
                            FORM 10-Q - JUNE 30, 2004

                     NOTES TO COMBINED FINANCIAL STATEMENTS


Realty, thereby reducing its ownership to 247,300 shares or approximately 6.9%
of the outstanding shares. Effective August 3, 2004, the Trust had sold its
remaining shares in Atlantic Realty.

10.  LEGAL PROCEEDINGS

PREFERRED AND COMMON SHAREHOLDER LAWSUITS

     Kimeldorf v. First Union Real Estate Equity and Mortgage Investments, et
al.; Fink v. First Union Real Estate Equity and Mortgage Investments. Both of
these actions relate to challenges brought in the Supreme Court of New York, New
York County by the holders of the Trust's Preferred Shares (Kimeldorf) and
holders of the Trust's Common Shares (Fink) alleging, among others, breach of
contract, aiding and abetting breach of contract, tortious interference with the
contract, breach of fiduciary duties, aiding and abetting of breach of fiduciary
duties, and unconscionability against the Trust and other defendants in
connection with the proposed Gotham Transaction. The consolidated Kimeldorf case
was dismissed with prejudice on June 30, 2004 and the Fink case was dismissed
with prejudice on July 29, 2004. The Trust incurred no payments of any kind to
the plaintiffs or their counsel in connection with these dismissals. Each party
bore its own fees, costs, and expenses of the matters.

PEACH TREE MALL LITIGATION

     The Trust, as one plaintiff in a class action composed of numerous
businesses and individuals, has pursued legal action against the State of
California associated with the 1986 flood of Sutter Buttes Center, formerly
Peach Tree Mall. In September 1991, the court ruled in favor of the plaintiffs
on the liability portion of the suit, which the State of California appealed. In
the third quarter of 1999, the 1991 ruling in favor of the Trust and the other
plaintiffs was reversed by the State of California Appeals Court and the case
was remanded to the trial court for further proceedings. The Trust and the other
plaintiffs pursued a retrial before the court which commenced February 2001 and
was completed July 2001. In November 2001, the trial court issued a decision
that generally held in favor of the State of California. In February 2002, the
plaintiffs filed a notice of appeal in the California Court of Appeals and on
November 26, 2003, the Court of Appeals issued its decision reversing the
decision of the trial court. The Court held that the State was liable for the
damages caused by the flood. The Court of Appeals remanded the case to the trial
court for a determination of the damages to plaintiffs and for an award of
attorney's fees and costs. The State filed a petition for rehearing in the Court
of Appeals, which was denied on December 24, 2003. On January 2, 2004, the State
filed a petition for review with the California Supreme Court. Plaintiffs,
including the Trust, filed an opposition to the petition and the California
Supreme Court ruled in the Trust's favor during the first quarter of 2004 and
remanded the case for a new trial solely on the issue of damages. Although it is
possible that the amount ultimately received by the Trust upon determination of
the damage issue may be significant, it is not possible at this time to estimate
the amount of recovery or if any proceeds will ultimately be received by the
Trust.

INDEMNITY TO IMPERIAL PARKING LIMITED

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

     Numerous attempts to settle this matter have not been successful. If
Newcourt is successful on its claim, the Trust could be liable for interest on
the original claim amount ($600,000) at a rate of 18% per annum,


                                       13


             FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
                            FORM 10-Q - JUNE 30, 2004

                     NOTES TO COMBINED FINANCIAL STATEMENTS


compounded monthly. The trial has been scheduled for January 2005. The Trust
intends a vigorous defense against the claims and to pursue its separate claims
with respect to this matter.

11.  CONTINGENCIES

VenTek

     The Trust has provided performance and warranty bond guarantees entered
into with respect to two contracts of its subsidiary, VenTek, with transit
authorities, which contracts are in the amounts of $6.2 million and $5.3
million, respectively. These contracts are for the manufacture, installation and
maintenance of transit ticket vending equipment by VenTek. The guarantee in the
amount of $5.3 million expired in September 2003 and the remaining guarantee in
the amount of $6.2 million will expire in September 2004. As of December 31,
2003, VenTek had delivered all equipment required under the remaining contract
and no amounts had been drawn against this guarantee. If a warranty or service
claim against VenTek is made or VenTek fails or is unable to perform in
accordance with the remaining contract, the Trust may be responsible for payment
under the guarantee. In connection with one of the contracts, VenTek settled a
claim for liquidated damages for approximately $0.1 million during the year
ended December 31, 2003.

     During the third quarter of 2003, VenTek entered into a new contract with
one of the transit authorities for $2.2 million, and received a change order for
$0.8 million in the fourth quarter of 2003 from the other transit authority, to
manufacture transit ticket vending machines. Under the terms of the contract,
VenTek was required to secure a letter of credit as required by the bonding
company. The Trust provided cash collateral of $1.1 million which is equal to 50
percent of the contract value of $2.2 million to secure the letter of credit. As
of June 30, 2004, VenTek had completed and delivered all the transit ticket
vending machines required under the new contract and the change order and has
received payment in full from the transit authorities. VenTek has contacted the
appropriate parties to have the letter of credit and bond terminated.

     Ventek currently performs any requisite obligations under its remaining
performance and product warranty bond guarantees. It is expected that upon
completion or expiration of the bond and warranty period (expected to be the
fourth quarter of 2004), the remaining assets of Ventek will be disposed of and
operations will cease.

Other Contingency

     Revenue Canada has commenced a tax audit of Imperial Parking. Imperial
Parking has communicated to the Trust that it expects that Revenue Canada will
disallow deductions previously taken by Imperial Parking.

Contingency Reserve

     The Trust has accrued, as its best estimate, $1,300,000 for financial
reporting purposes related to its various loss contingencies and litigation
matters, although there can be no assurance as to the ultimate outcome of any
loss contingency or litigation matter.

12.  CIRCLE TOWER

     The Trust's ownership interest in the Circle Tower office property in
Indianapolis, Indiana, includes a leasehold interest in a ground lease. The
original ground lease was entered into in 1910, expires in 2009 with an option
for an additional 99 years which has been exercised, and contains a "gold
clause" provision that may result in a rent increase if the leasehold interest
is sold. The resulting rent increase could be substantial. In addition, the
marketability of Circle Tower is also adversely affected by the uncertainty of
the rental rate for the renewal term of the ground lease. Until the rental rates
are finalized (which is not expected to occur until the period within 90 days
prior to the expiration of the original term) or the Trust obtains ownership of
the land, it may be difficult to sell Circle Tower. In December 2003, the Trust
deposited with an escrow agent the sum of $700,000 which amount was to be
applied to the purchase of the land underlying the Indianapolis property and the
expenses associated therewith. At the time the funds were deposited with the
escrow agent, the Trust offered to purchase from each owner of the


                                       14


             FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
                            FORM 10-Q - JUNE 30, 2004

                     NOTES TO COMBINED FINANCIAL STATEMENTS

land their respective interests in the land at any time prior to May 31, 2004
for a price equal to such owner's allocable share of the amount placed in
escrow. As of June 30, 2004, the Trust had acquired interests representing
approximately a 83% interest in the land. The remaining balance held by the
escrow agent at June 30, 2004, $82,091, was released to the Trust in July, 2004.

13.  BUSINESS SEGMENTS

     The Trust's and Company's business segments include ownership of an office
building and VenTek, a transit equipment and parking ticket equipment
manufacturing company. In addition, prior to June 22, 2004 the Trust owned a
shopping mall, the operations of which are classified as discontinued
operations. Management evaluates performance based upon net operating income.
With respect to property assets, net operating income is property rent less
property operating expense, and real estate taxes. With respect to VenTek, net
operating income is sales revenue less cost of goods sold. Corporate assets
consist of cash and cash equivalents, the NorthStar loan, the West Side loan,
real estate securities and investments in US Treasury Bills and Federal Home
Loan Bank Discount Notes. The parking ticket equipment business was sold on
August 1, 2003. All intercompany transactions between segments have been
eliminated (see table of business segments).



Business Segments (in thousands)             THREE MONTHS ENDED JUNE 30,   SIX MONTHS ENDED JUNE 30,
--------------------------------             ---------------------------   -------------------------
                                                 2004           2003           2004           2003
                                               -------        -------        -------        -------

Rents and Sales
     Office Building                           $   372        $   362        $   743        $   703
     VenTek                                      1,676            718          2,985          1,444
     Corporate                                    --              100           --              100
                                               -------        -------        -------        -------
                                                 2,048          1,180          3,728          2,247
Less - Operating Expenses and Costs of
   Goods Sold
     Office Building                               152            241            348            455
     VenTek                                      1,160            879          2,094          1,966
     Corporate                                    --             --             --             --
                                               -------        -------        -------        -------
                                                 1,312          1,120          2,442          2,421
Less - Real Estate Taxes
     Office Building                                 8             22             25             44
                                               -------        -------        -------        -------
                                                     8             22             25             44
Operating Income (Loss)
     Office Building                               212            100            370            204
     VenTek                                        516           (161)           891           (522)
     Corporate                                    --              100           --              100
                                               -------        -------        -------        -------
                                                   728             39          1,261           (218)

Less - Depreciation and Amortization               133            114            203            237
Less - Interest Expense                             11            184             14            549

Corporate Income (Expense)
     Interest and Dividends                        718            250            944            510
     Gain on the sale of securities                276           --              276           --
     General and administrative                   (851)        (3,357)        (2,159)        (4,519)
                                               -------        -------        -------        -------
Income/(Loss) from continuing operations       $   727        $(3,366)       $   105        $(5,013)
                                               =======        =======        =======        =======


                                       15



             FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
                            FORM 10-Q - JUNE 30, 2004

                     NOTES TO COMBINED FINANCIAL STATEMENTS




                                           THREE MONTHS ENDED JUNE 30,        SIX MONTHS ENDED JUNE 30,
                                           ---------------------------        -------------------------
                                              2004             2003             2004             2003
                                            --------         --------         --------         --------

Capital Expenditures
     Office Building                        $    672         $     42         $    808         $     74
     VenTek                                     --               --               --                  2
                                            --------         --------         --------         --------
                                            $    672         $     42         $    808         $     76
                                            ========         ========         ========         ========

                                                                               June 30,          Dec 31,
Identifiable Assets                                                              2004             2003
-------------------                                                            --------          -------
     Shopping Center                                                              --             57,550
     Office Building                                                             3,060            2,134
     VenTek (1)                                                                    254            1,110
     Corporate                                                                 121,193           86,044
                                                                              --------         --------
Total Assets                                                                  $124,507         $146,838
                                                                              ========         ========


(1) Ventek currently performs any requisite obligations under its remaining
performance and product warranty bond guarantees. It is expected that upon
completion or expiration of the bond and warranty period (expected to be the
fourth quarter of 2004), the remaining assets of Ventek will be disposed of and
operations will cease.

14.  PARK PLAZA MALL

     On June 22, 2004, the Trust sold its Park Plaza Mall property located in
Little Rock, Arkansas for a gross sales price of $77.5 million to an subsidiary
of CBL & Associates Properties, Inc. In connection with this transaction, the
purchaser assumed the existing indebtedness encumbering the property of
approximately $41.3 million. Accordingly, net proceeds to the Company after
giving effect to the loan assumption and closing costs were approximately $33.5
million. The Company has deposited the proceeds with a qualified intermediary as
the Company will seek to use the proceeds in connection with a "like kind"
exchange pursuant to section 1031 of the Internal revenue Code. There can be no
assurance, however, that a suitable replacement property will be timely
identified in order for the Company to consummate a "like kind" exchange
transaction. In the event that a "like kind" exchange cannot be consummated, the
estimated taxable gain from the sale of this property will be approximately
$20.5 million.

15.  SUBSEQUENT EVENTS

     On August 4, 2004, the Trust acquired a 50% participation in a $20 million
first mortgage loan secured by a property located at 63 West 38th Street, New
York, New York. The loan bears interest at LIBOR plus 400 basis points (with a
minimum rate of 5.42%), has a three year term and requires payments of interest
only. The Trust obtained $7 million of financing in connection with this
investment that bears interest at LIBOR plus 175 basis points and requires
payments of interest only, resulting in a projected return on equity of 10.67%
from this investment.


                                       16


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 registration
statement 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

     In addition to its cash reserves, at June 30, 2004, the Trust owned the
following assets: 1) an office building located in Indianapolis, Indiana (Circle
Tower); 2) a loan, referred to as the NorthStar Loan, with a principal balance
of $8.0 million at June 30, 2004, which is described below and which was prepaid
in its entirety on August 4, 2004; 3) a loan participation, referred to as the
West Side Loan with a principal balance of $2.7 million at June 30, 2004, which
is described below; 4) real estate securities available for sale; and 4) U.S.
Treasury Bills and Federal National Mortgage Association Notes.

     The average occupancy rate at Circle Tower for the six months ended June
30, 2004 and June 30, 2003 was 88% and 90% respectively.

INVESTMENT POLICY

     Rather than focus on a particular type of real estate asset or a specific
geographic sector, the Trust's investments will be based, at least for the
foreseeable future, on its assessment that a potential investment is
significantly undervalued or presents an opportunity to outperform the
marketplace. Additionally, the Trust will make investments in assets believed to
be underperforming and in which it believes through an infusion of capital and
improved management an appropriate return on investment can be realized.
Consequently, with certain limitations, the Trust will seek to invest or acquire
most types of real estate asset or securities. Moreover, except as limited by
the restrictions placed on the Trust in order to meet its requirements to
maintain REIT status, the Trust's investment decisions will not be materially
affected by the nature of an investment or where that investment falls in an
entity's capital structure. The Trust will acquire entities that own real
estate, invest directly in the equity of a real estate asset exclusively or
through a venture, acquire preferred equity, mezzanine debt or, if priced
appropriately, the first mortgage debt of a real estate asset.

     In view of the foregoing, the Trust's 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, the Trust
will aggressively pursue such opportunities. For the long-term, as investments
mature in value to the point where the Trust is unlikely to achieve better than
a market return on their then enhanced value, it is likely the Trust will exit
the investment and redeploy the capital to higher yielding opportunities.

     Investments and dispositions made by the Trust during the six months ended
June 30, 2004 included the following:


                                       17


          NorthStar Loan

     On March 3, 2004, the Trust acquired from Bank of America, N.A. a loan
receivable from NorthStar Partnership, L.P. ("NorthStar") in the principal
amount of approximately $16.9 million (the "NorthStar Loan"). The NorthStar Loan
is evidenced by a Credit Agreement, Promissory Note and collateral documents.
The NorthStar Loan is secured by a first priority lien on all or a portion of
NorthStar's interest in Morgans Hotel Group LLC, Emmes & Company LLC and
Presidio Capital Investment Company, LLC as well as certain other assets of
NorthStar. Upon acquisition, the NorthStar Loan was modified to extend the
maturity date for one year to May 28, 2005 and provided for an option to
NorthStar to further extend the maturity date, upon payment of a one point fee,
for up to two optional six-month periods. The NorthStar Loan was further
modified to provide for an initial interest rate of a minimum of 12% per annum,
with a yield to maturity of 12.86%, increasing by two percentage points for each
six month renewal term. In addition, NorthStar was required to establish a
reserve equal to interest for six months and, upon the occurrence of certain
events, to increase such reserve to one year's interest. The NorthStar Loan
requires payments of interest only, is prepayable at any time, together with a
premium, and requires mandatory prepayments from asset sales or refinancings
after the first $9.0 million in proceeds from such sales or refinancings.
Further, NorthStar entered into an agreement pursuant to which the Trust has an
option to invest in certain transactions involving assets of NorthStar which are
offered to existing equityholders of NorthStar, or their affiliates.

     Due to the nature and amount of the NorthStar Loan, in order to comply with
the rules applicable to real estate investment trusts, portions of the NorthStar
Loan have been held or were held by a wholly-owned subsidiary of the Trust that
elected to be treated as a TRS. Accordingly, the portion of income allocated to
the amount of the NorthStar Loan held by the taxable REIT subsidiary will be
subject to corporate level tax. On April 12, 2004, NorthStar made a prepayment
on the loan in the amount of $8.9 million. At June 30, 2004, no portion of the
NorthStar Loan was held by the TRS. The impact of the sale of the Park Plaza
Mall property in June 2004 on the Trust's REIT tax compliance necessitated the
transfer of $2,000,000 of the NorthStar Loan to the TRS effective July 30, 2004.

     NorthStar prepaid the loan in its entirety on August 4, 2004.

          West Side Loan

     On May 19, 2004, the Trust obtained a 25% participation interest in a loan
secured by a first mortgage on a commercial property located in New York City's
Chelsea area. The total outstanding principal balance of the loan is $10.7
million of which the Trust's share is $2.7 million. The purchase price of the
participation interest was the face amount of the Trust's share of the loan. The
loan bears interest at LIBOR plus 9.5% per annum and is scheduled to mature in
April 2009.

          Atlantic Realty

     By January 9, 2004, the Trust had acquired 267,000 shares in Atlantic
Realty Trust ("Atlantic Realty") (NASD:ATLRS) representing 7.5% of the
outstanding shares in Atlantic Realty. The shares are classified in the balance
sheet as "Investments available for sale." On January 12, 2004, the Trust
contacted Atlantic Realty to discuss a possible business combination between
Atlantic Realty and the Trust. The Trust made a proposal to Atlantic Realty
which proposal was modified in April, 2004 and was ultimately rejected by
Atlantic Realty in May, 2004 as Atlantic Realty elected to market its remaining
property for sale. On May 19, 2004, Atlantic Realty paid a distribution of $3.25
per share to holders of record on May 10, 2004. Following the distribution, the
Trust began selling some of its shares in Atlantic Realty. As of June 30, 2004,
the Trust had sold 19,700 shares in Atlantic Realty thereby reducing its
ownership to 247,300 shares or approximately 6.9% of the outstanding shares.
Effective August 3, 2004, the Trust had sold its remaining shares in Atlantic
Realty.


                                       18


          Park Plaza Mall

     On June 22, 2004, the Trust sold its Park Plaza Mall property located in
Little Rock, Arkansas for a gross purchase price of $77.5 million to a
subsidiary of CBL & Associates Properties, Inc. In connection with this
transaction, the purchaser assumed the existing indebtedness encumbering the
property of approximately $41.3 million. Accordingly, net proceeds to the
Company after giving effect to the loan assumption and closing costs were
approximately $33.5 million. The Company has deposited the proceeds with a
qualified as the Company will seek to use the proceeds in connection with a
"like kind" exchange pursuant to section 1031 of the Internal revenue Code.
There can be no assurance, however, that a suitable replacement property will be
timely identified in order for the Company to consummate a "like kind" exchange
transaction. In the event that a "like kind" exchange cannot be consummated, the
estimated taxable gain from the sale of this property will be approximately
$20.5 million.

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. However, due to significant
net operating losses for federal tax purposes, the Trust does not anticipate
that any distributions will be required in the foreseeable future.

     Our primary sources of funds for liquidity consist of cash reserves, net
cash provided by operating activities, payments received on the NorthStar Loan,
the West Side Loan and the maturities of U.S. Treasury Bills and Federal Home
Loan Bank Discount Notes.

     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 several
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.

     The Trust had cash and cash equivalents of $4.1 million at June 30, 2004.
The Trust's level of liquidity based upon cash and cash equivalents decreased by
approximately $10.8 million for the six months ended June 30, 2004. The decrease
resulted from $11.6 million of cash used by investing activities, $1.2 million
used in financing activities and was partially offset by $2.0 million of cash
provided by operating activities.

     Cash used by investing activities included $34.0 million of proceeds ($33.5
million to qualified intermediary and $0.5 million relating to the pro-ration of
operations primarily relating to real estate taxes at closing) from the sale of
the Park Plaza property net of loan assumption, repayment of loan advances of
$8.0 million and proceeds from the sale of real estate securities of $3.6
million. The investing inflows were offset by an increase in restricted cash of
$31.8 million, issuance of loans receivable in the amount of $18.7 million,
expenditures for land, buildings and tenant improvements of $1.4 million and the
excess of purchases over maturities of U.S. Treasury Bills of $5.6 million.

     Cash used in financing activities included $1.0 million of cash dividends
to holders of Preferred Shares, $0.1 million of mortgage loan payments and a
$0.01 decrease in a note payable.

     The Trust declared a dividend of $0.5 million ($0.525 per share) on the
Trust's Series A Cumulative Preferred Shares of Beneficial Interest in both the
first and second quarters of 2004. The first quarter dividend was paid April 30,
2004 to beneficiaries of record at the close of business on March 31, 2004. The
second quarter dividend was paid July 31, 2004 to beneficiaries of record at the
close of business on June 30, 2004.


                                       19


     At June 30, 2004, the Trust owned $62.1 million in face value of U.S.
Treasury Bills and Federal National Mortgage Association Discount Notes. The
Trust's investments in U.S. Treasury Bills ($52.2 million) mature in less than
90 days and are classified as available for sale. Additionally, the Trust's
investments in Federal National Mortgage Association Discount Notes ($9.7
million) mature in less than two years and are classified as available for sale.
The average yields for the three months ended June 30, 2004 and 2003 were 0.98%
and 1.17%, respectively.

     The only lease with respect to which the Trust has an obligation for
payment of rent is for space occupied by VenTek, which is month to month.

VenTek

     The Trust has provided performance and warranty bond guarantees entered
into with respect to two contracts of its subsidiary, VenTek, with transit
authorities, which contracts are in the amounts of $6.2 million and $5.3
million, respectively. These contracts are for the manufacture, installation and
maintenance of transit ticket vending equipment by VenTek. The guarantee in the
amount of $5.3 million expired in September 2003 and the remaining guarantee in
the amount of $6.2 million will expire in September 2004. As of December 31,
2003, VenTek had delivered all equipment required under the remaining contract
and no amounts had been drawn against this guarantee. If a warranty or service
claim against VenTek is made or VenTek fails or is unable to perform in
accordance with the remaining contract, the Trust may be responsible for payment
under the guarantee. In connection with one of the contracts, VenTek settled a
claim for liquidated damages for approximately $0.1 million during the year
ended December 31, 2003.

     During the third quarter of 2003, VenTek entered into a new contract with
one of the transit authorities for $2.2 million, and received a change order for
$0.8 million in the fourth quarter of 2003 from the other transit authority, to
manufacture transit ticket vending machines. Under the terms of the contract,
VenTek was required to secure a letter of credit as required by the bonding
company. The Trust provided cash collateral of $1.1 million which is equal to 50
percent of the contract value of $2.2 million to secure the letter of credit. As
of June 30, 2004, VenTek had completed and delivered all the transit ticket
vending machines required under the new contract and the change order and has
received payment in full from the transit authorities. VenTek has contacted the
appropriate parties to have the letter of credit and bond terminated.

     Ventek currently performs any requisite obligations under its remaining
performance and product warranty bond guarantees. It is expected that upon
completion or expiration of the bond and warranty period (expected to be the
fourth quarter of 2004), the remaining assets of Ventek will be disposed of and
operations will cease.

CONTINGENCY

     Revenue Canada has commenced a tax audit of Imperial Parking Corp. of
Canada ("Imperial Parking"). Imperial Parking has communicated to the Trust that
it expects that Revenue Canada will disallow deductions previously taken by
Imperial Parking.

RESULTS OF OPERATIONS

Six Months Ended June 30, 2004 vs. June 30, 2003

     Net income applicable to Common Shares of Beneficial Interest for the six
months ended June 30, 2004 was $19.2 million as compared to a net loss of $5.2
million for the six months ended June 30, 2003. The primary reason for the
increased net income was the accounting gain of $19.7 million on sale of real
estate attributable to the sale on June 22, 2004 of the Park Plaza Mall
property.

     Income from continuing operations for the six months ended June 30, 2004
was $0.1 million as compared to a net loss of $5.0 million for the same period
in 2003, which as discussed further below, was primarily due to a $2.4 million
reduction in the Trust's general and administrative costs and to VenTek which
generated net income for the six months ended June 30, 2004 of $0.9 million
compared to a net loss of $0.5 for the six months ended June 30, 2003.


                                       20


VenTek had revenue of $3.0 million for the six months ended June 30, 2004
compared to $1.4 million for the same period during 2003. VenTek's costs of
goods sold for the six months ended June 30, 2004 and for the six months ended
June 30, 2003 was $2.0 million. As of June 30, 2004, VenTek had no backlog.
Backlog represents products or services that VenTek's customers have committed
by contract to purchase. VenTek is not actively seeking new contracts. Ventek
currently performs any requisite obligations under its remaining performance and
product warranty bond guarantees. It is expected that upon completion or
expiration of the bond and warranty period (expected to be the fourth quarter of
2004), the remaining assets of Ventek will be disposed of and operations will
cease.

     Property operating income, which is rent less property operating expenses
and real estate taxes, increased from $200,000 for the six months ended June 30,
2003 to $400,000 for the six months ended June 30, 2004 due to the improved
operating results at Circle Tower. The increase in property operating income
consists of a $40,000 increase in rental income, a $107,000 decrease in property
operating expenses and an $18,000 decrease in real estate tax expense.

     Interest income for the six months ended June 30, 2004 increased to $0.9
million from $0.5 million for the same period in 2003 due to a $0.6 million
increase in interest income received on loans receivable and $0.2 million
decrease in interest received on government securities.

     General and administrative expenses for the first half of 2004 decreased by
$2.4 million to $2.2 million for the six months ended June 30, 2004. During the
first six months of 2003 the largest components of the Trust's general and
administrative expenses were legal fees relating to the preferred shareholder
litigation ($0.3 million), legal fees related to the Gotham transaction ($2.8
million), other legal and accounting fees ($0.5 million), and directors and
officers insurance ($0.3 million). The balance of the first half 2003 general
and administrative costs ($0.6 million) related to management fees, costs
associated with shareholder relations and communications, trustee fees, and
other administrative costs incurred in connection with the operation and
management of the Trust. During the first six months of 2004 the largest
components of the Trust's general and administrative expenses were legal and
accounting fees ($0.5 million), directors and officers insurance ($0.4 million),
a termination fee paid to the Trust's former asset management provider, Radiant
Partners LLC ($0.1 million), the asset management fee that is charged by FUR
Advisors LLC ($0.7 million) which, as described further in the footnotes to the
combined financial statements included in this report, is based upon a
percentage of the Trust's Gross Asset Value (as defined in the agreement). Also
included in the first half 2004 general and administrative expenses were federal
and state tax expenses incurred by the TRS described above ($0.04 million) for
its share of the income earned on the NorthStar Loan. The balance of the general
and administrative expenses ($0.4 million) was for costs associated with
shareholder relations and communications, trustee fees, and other miscellaneous
costs associated with the operations of the Trust.

     Depreciation and amortization was consistent at $0.2 million for the first
six months of 2004 and the same period in 2003.

     Interest expense declined from $0.5 million during the six months ended
June 30, 2003 to $0.01 million for the same period in 2004 due to the full
satisfaction of the Trust's senior notes on October 1, 2003.

     Income from discontinued operations represents income attributable to the
Park Plaza Mall, which was sold in June 2004. During the six months ended June
30, 2003 income from the property was $0.9 million and during the six months
ended June 30, 2004, income derived from the sold property was $0.5 million for
the same period due to a $0.2 million increase in amortization of debt issuance
costs and a $0.2 million decrease in rents.

Three Months Ended June 30, 2004 vs. June 30, 2003

     Net income applicable to Common Shares of Beneficial Interest for the three
months ended June 30, 2004 was $19.9 million as compared to a net loss of $3.6
million for the three months ended June 30, 2003. The primary reason for the
increased net income was the $19.7 million gain on disposal of real estate
attributable to the sale on June 22, 2004 of the Park Plaza Mall property.


                                       21


     Income from continuing operations for the three months ended June 30, 2004
was $0.7 million as compared to a net loss of $3.4 million for the same period
in 2003, which as discussed further below, was primarily due to a $2.5 million
reduction in the Trust's general and administrative costs, and to VenTek which
generated net income for the three months ended June 30, 2004 of $0.4 million
compared to a net loss of $0.2 for the six months ended June 30, 2003.

     VenTek had revenue of $1.7 million for the three months ended June 30, 2004
compared to $0.7 million for the same period during 2003. VenTek's costs of
goods sold for the three months ended June 30, 2004 was $1.2 million and for the
three months ended June 30, 2003 was $0.9 million.

     Property operating income, which is rent less property operating expenses
and real estate taxes for the three months ended June 30, 2004 was $212,000
compared to $100,000 for the three months ended June 30, 2003. The increase in
property operating income reflects a $10,000 increase in rental income, an
$88,000 decrease in operating expenses and a $14,000 decrease in real estate
taxes.

     Interest and dividend income for the three months ended June 30, 2004
increased to $0.7 million from $0.3 million for the same period in 2003 due to a
$0.4 million increase in interest income received on loans receivable.

     General and administrative expenses decreased by $2.5 million to $0.9
million for the three months ended June 30, 2004. During the three months ended
June 30, 2003 the largest components of the Trust's general and administrative
expenses were legal fees relating to the preferred shareholder litigation ($0.1
million), legal fees related to the Gotham transactions ($2.6 million), other
legal and accounting fees ($0.3 million), and directors and officers insurance
($0.2 million). The balance of the three months ended June 30, 2003 general and
administrative costs ($0.2 million) related to management fees, costs associated
with shareholder relations and communications, trustee fees, and other
administrative costs incurred in connection with the operation and management of
the Trust. During the three months ended June 30, 2004 the largest components of
the Trust's general and administrative expenses were legal and accounting fees
($0.1 million), directors and officers insurance ($0.2 million), the asset
management fee that is charged by FUR Advisors LLC ($0.3 million) which, as
described further in the footnotes to the combined financial statements included
in this report, is based upon a percentage of the Trust's Gross Asset Value (as
defined in the agreement). The balance of the general and administrative
expenses ($0.3 million) was for costs associated with shareholder relations and
communications, trustee fees, and other miscellaneous costs associated with the
operations of the Trust.

     Depreciation and amortization was consistent at $0.1 million for the three
months ended June 30, 2004 and 2003.

     Interest expense declined from $0.2 million during the three months ended
June 30, 2003 to $0.03 million for the same period in 2004 due to the full
satisfaction of the senior notes on October 1, 2003.

     Income from discontinued operations represents income attributable to the
Park Plaza Mall which was sold in June 2004. During the three months ended June
30, 2003 income from the property was $0.2 million and during the three months
ended June 30, 2004, income derived from the sold property was $0.07 million for
the same period due to a $0.2 million increase in depreciation and amortization
and a $0.04 million decrease in rents. The increase in depreciation and
amortization was related to a write off of debt issuance costs.


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK

INTEREST RATE RISK

     The Trust's debt outstanding at June 30, 2004 has a fixed interest rate.
The Trust's investments in U.S. Treasury Bills ($52.2 million) mature in less
than 90 days. Additionally, the Trust's investments in Federal National Mortgage
Association notes ($9.7 million) mature in less than two years. The Trust
believes it has little exposure to fluctuations in market interest rates.


                                       22


ITEM 4. CONTROLS AND PROCEDURES

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


                                       23


                           PART II - OTHER INFORMATION


ITEM 1. LEGAL PROCEEDINGS.

PREFERRED AND COMMON SHAREHOLDER LAWSUITS

     Kimeldorf v. First Union Real Estate Equity and Mortgage Investments, et
al.; Fink v. First Union Real Estate Equity and Mortgage Investments. Both of
these actions relate to challenges brought in the Supreme Court of New York, New
York County by the holders of the Trust's Preferred Shares (Kimeldorf) and
holders of the Trusts Common Shares (Fink) alleging, among others, breach of
contract, aiding and abetting breach of contract, tortious interference with the
contract, breach of fiduciary duties, aiding and abetting of breach of fiduciary
duties, and unconscionability against the Trust and other defendants in
connection with the proposed Gotham Transaction. The consolidated Kimeldorf case
was dismissed with prejudice on June 30, 2004 and the Fink case was dismissed
with prejudice on July 29, 2004. The Trust incurred no payments of any kind to
the plaintiffs or their counsel in connection with these dismissals. Each party
bore its own fees, costs, and expenses of the matters.

PEACH TREE MALL LITIGATION

     The Trust, as one plaintiff in a class action composed of numerous
businesses and individuals, has pursued legal action against the State of
California associated with the 1986 flood of Sutter Buttes Center, formerly
Peach Tree Mall. In September 1991, the court ruled in favor of the plaintiffs
on the liability portion of the suit, which the State of California appealed. In
the third quarter of 1999, the 1991 ruling in favor of the Trust and the other
plaintiffs was reversed by the State of California Appeals Court and the case
was remanded to the trial court for further proceedings. The Trust and the other
plaintiffs pursued a retrial before the court which commenced February 2001 and
was completed July 2001. In November 2001, the trial court issued a decision
that generally held in favor of the State of California. In February 2002, the
plaintiffs filed a notice of appeal in the California Court of Appeals and on
November 26, 2003, the Court of Appeals issued its decision reversing the
decision of the trial court. The Court held that the State was liable for the
damages caused by the flood. The Court of Appeals remanded the case to the trial
court for a determination of the damages to plaintiffs and for an award of
attorney's fees and costs. The State filed a petition for rehearing in the Court
of Appeals, which was denied on December 24, 2003. On January 2, 2004, the State
filed a petition for review with the California Supreme Court. Plaintiffs,
including the Trust, filed an opposition to the petition and the California
Supreme Court ruled in the Trust's favor during the first quarter of 2004 and
remanded the case for a new trial solely on the issue of damages. Although it is
possible that the amount ultimately received by the Trust upon determination of
the damage issue may be significant, it is not possible at this time to estimate
the amount of recovery or if any proceeds will ultimately be received by the
Trust.

INDEMNITY TO IMPERIAL PARKING LIMITED

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

     Numerous attempts to settle this matter have not been successful. If
Newcourt is successful on its claim, the Trust could be liable for interest on
the original claim amount ($600,000) at a rate of 18% per annum, compounded
monthly. The trial has been scheduled for January 2005. The Trust intends a
vigorous defense against the claims and to pursue its separate claims with
respect to this matter.


                                       24


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

(a)  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.

(b)  Reports on Form 8-K

     The following reports on Form 8-K were filed on behalf of the Trust during
the quarter ended June 30, 2004:

     (i)  First Quarter Earnings

          Date:    May 13, 2004

          Item:    12

     (ii) Sale of Park Plaza Property

          Date:    July 2, 2004

          Item:    2



                                       25


                                   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:  August 11, 2004                 By: /s/ Michael L. Ashner
                                           -----------------------------
                                           Michael L. Ashner
                                           Chief Executive Officer


Date:  August 11, 2004                 By: /s/ Thomas C. Staples
                                           -----------------------------
                                           Thomas C. Staples
                                           Chief Financial Officer



                                       26


                                  EXHIBIT INDEX



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

(2)(a)   Agreement and Plan of Merger and Contribution by and among First Union Real Estate            (a)
         Equity and Mortgage Investments, that certain Ohio Trust, declared as of October 1,
         1996, by Adolph Posnick, Trustee, First Union Management, Inc., GGC Merger Sub,
         Inc., Gotham Partners, L.P., Gotham Golf Partners, L.P., Florida Golf Associates,
         L.P., Florida Golf Properties, Inc., and Gotham Golf Corp.

2(a)(1)  Amendment No. 1 dated as of April 30, 2002 to the Agreement and Plan of Merger and            (b)
         Contribution by and among First Union Real Estate Equity and Mortgage Investments,
         that certain Ohio Trust, declared as of October 1, 1996, by Adolph Posnick, Trustee,
         First Union Management, Inc., GGC Merger Sub, Inc., Gotham Partners, L.P., Gotham
         Golf Partners, L.P., Florida Golf Associates, L.P., Florida Golf Properties, Inc.,
         and Gotham Golf Corp.

2(a)(2)  Amendment and Restatement dated as of October 30, 2002 of Amendment No. 2 dated as            (c)
         of September 27, 2002 to the Agreement and Plan of Merger and Contribution by and
         among First Union Real Estate Equity and Mortgage Investments, that certain Ohio
         Trust, declared as of October 1, 1996, by Adolph Posnick, Trustee, First Union
         Management, Inc., GGC Merger Sub, Inc., Gotham Partners, L.P., Gotham Golf Partners,
         L.P., Florida Golf Associates, L.P., Florida Golf Properties, Inc., and Gotham Golf
         Corp.

2(a)(3)  Amendment No. 3 dated as of October 24, 2002 to the Agreement and Plan of Merger and          (d)
         Contribution by and among First Union Real Estate Equity and Mortgage Investments,
         that certain Ohio Trust, declared as of October 1, 1996, by Adolph Posnick, Trustee,
         First Union Management, Inc., GGC Merger Sub, Inc., Gotham Partners, L.P., Gotham
         Golf Partners, L.P., Florida Golf Associates, L.P., Florida Golf Properties, Inc.,
         and Gotham Golf Corp.

3(a)     By-laws of Trust as amended                                                                   (e)

3(b)     Certificate of Amendment to Amended and Restated Declaration of Trust as of March 6,          (f)
         2001

3(c)     Amendments to Amended and Restated Declaration of Trust dated April 15, 2004                  (l)

4(a)     Form of certificate for Shares of Beneficial Interest                                         (g)

4(b)     Form of Indenture governing Debt Securities, dated October 1, 1993 between Trust and          (h)
         Society National Bank

4(c)     First Supplemental Indenture governing Debt securities, dated July 31, 1998 between           (f)
         Trust and Chase Manhattan Trust Company, National Association

4(d)     Form of Note                                                                                  (h)

4(e)     Certificate of Designations relating to Trust's Series A Cumulative Redeemable                (i)
         Preferred Shares of Beneficial Interest


                                       27



4(f)     Warrant to purchase 500,000 shares of Beneficial Interest of Trust                            (e)

10(a)    1999 Trustee Share Option Plan                                                                (j)

10(b)    1999 Long Term Incentive Performance Plan                                                     (j)

10(c)    Registration Rights Agreement as of November 1, 1999 by and among First Union Equity          (k)
         and Mortgage Investments and Gotham Partners, L.P., Gotham Partners III, L.P., and
         Gotham Partners International, Ltd.

10(d)    Lease, dated as of April 26, 1910, between Frank Fauvre and Lillian Fauvre as                 (m)
         Lessors and the German American Trust Company as Lessee

10(e)    Indemnification Agreement with Neil Koenig, dated as of April 29, 2002                        (n)

10(f)    Stock Purchase Agreement between First Union Real Estate Equity and Mortgage                  (o)
         Investments and FUR Investors, LLC, dated as of November 26, 2003 ("Stock Purchase
         Agreement"), including Annex A thereto, being the list of Conditions to the Offer.

10(g)    Guaranty of Michael L. Ashner, Guarantor, dated November 26, 2003, in favor of First          (o)
         Union Real Estate Equity and Mortgage Investments, Guarantee, in the form provided
         as Annex F to the Stock Purchase Agreement.

10.3(h)  Advisory Agreement between First Union Real Estate Equity and Mortgage Investments            (o)
         and FUR Advisors, LLC.

10(i)    Exclusivity Services Agreement between First Union Real Estate Equity and Mortgage            (o)
         Investments and Michael L. Ashner.

10(j)    Covenant Agreement between First Union Real Estate Equity and Mortgage Investments            (o)
         and FUR Investors, LLC.

16       Letter from KPMG                                                                              (p)

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

32       Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                       33


     (a)  Incorporated by reference to the Trust's Form 8-K dated February 14,
          2002

     (b)  Incorporated by reference to Appendix B to Amendment No. 4 to Form
          S-4, Registration Statement No. 333-88144, of Gotham Golf Corp. and
          Southwest Shopping Centers Co. II, L.L.C.

     (c)  Incorporated by reference to Appendix C to Amendment No. 4 to Form
          S-4, Registration Statement No. 333-88144, of Gotham Golf Corp. and
          Southwest Shopping Centers Co. II, L.L.C.

     (d)  Incorporated by reference to Appendix D to Amendment No. 4 to Form
          S-4, Registration Statement No. 333-88144, of Gotham Golf Corp. and
          Southwest Shopping Centers Co. II, L.L.C.

     (e)  Incorporated by reference to the Trust's 1998 Form 10-K

     (f)  Incorporated by reference to the Trust's 2000 Form 10-K

     (g)  Incorporated by reference to the Trust's Registration Statement on
          Form S-3 No. 33-2818

     (h)  Incorporated by reference to the Trust's Registration Statement on
          Form S-3 No. 33-68002

     (i)  Incorporated by reference to the Trust's Form 8-K dated October 24,
          1996

     (j)  Incorporated by reference to the Trust's 1999 Proxy Statement for
          Special Meeting held May 17, 1999 in lieu of Annual Meeting

     (k)  Incorporated by reference to the Trust's 1999 Form 10-K


                                       28


     (l)  Incorporated by reference to the Trust's March 31, 2004 Form 10-Q

     (m)  Incorporated by reference to Exhibit 10.1 to Amendment No. 3 to Form
          S-4, Registration Statement No. 333-88144, of Gotham Golf Corp. and
          Southwest Shopping Centers Co. II, L.L.C.

     (n)  Incorporated by reference to the Trust's 2002 Form 10-K

     (o)  Incorporated by reference to the Trust's Form 8-K dated November 26,
          2003

     (p)  Incorporated by reference to the Trust's Form 8-K dated March 2, 2004.



                                       29`