<PAGE>
 
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                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
 
                               ----------------
 
                                   FORM 10-Q
 
(MARK ONE)
 
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
   ACT OF 1934
 
  For the quarterly period ended June 30, 1998
 
                                      OR
 
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
   EXCHANGE ACT OF 1934
 
  For the transition period from      to
 
                        COMMISSION FILE NUMBER 0-23911
 
                  WILSHIRE REAL ESTATE INVESTMENT TRUST INC.
            (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
               MARYLAND                              91-1851535
    (STATE OR OTHER JURISDICTION OF     (I.R.S. EMPLOYER IDENTIFICATION NO.)
    INCORPORATION OR ORGANIZATION)
 
 1776 SW MADISON STREET, PORTLAND, OR                   97205
    (ADDRESS OF PRINCIPAL EXECUTIVE                  (ZIP CODE)
               OFFICES)
 
                                (503) 223-5600
             (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
 
  Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes   X     No     .
 
  Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
 
                 CLASS                      OUTSTANDING AT AUGUST 1, 1998
  Common Stock, par value $.0001 per              11,500,000 Shares
                 share
 
 
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<PAGE>
 
          WILSHIRE REAL ESTATE INVESTMENT TRUST INC. AND SUBSIDIARIES
 
                                   FORM 10-Q
 
                                   I N D E X
 
<TABLE>
<CAPTION>
                                                                            PAGE
                                                                            ----
<S>                                                                         <C>
PART I--FINANCIAL INFORMATION
Item 1.Interim Financial Statements (Unaudited)...........................    3
   Consolidated Statement of Financial Condition at June 30, 1998.........    3
   Consolidated Statement of Operations for the three months ended June
    30, 1998..............................................................    4
   Consolidated Statement of Changes in Stockholders' Equity for the three
    months ended
    June 30, 1998.........................................................    5
   Consolidated Statement of Cash Flows for the three months ended June
    30, 1998..............................................................    6
   Notes to Consolidated Financial Statements.............................    7
Item 2.Management's Discussion and Analysis of Financial Condition and Re-
 sults of Operations......................................................   13
Item 3.Quantitative and Qualitative Disclosures about Market Risk.........   17
PART II--OTHER INFORMATION
Item 1.Legal Proceedings..................................................   18
Item 2.Changes in Securities..............................................   18
Item 3.Defaults Upon Senior Securities....................................   18
Item 4.Submission of Matters to a Vote of Security Holders................   18
Item 5.Other Information..................................................   18
Item 6.Exhibits and Reports on Form 8-K...................................   18
Signature.................................................................   19
</TABLE>
 
                                       2
<PAGE>
 
PART 1--FINANCIAL INFORMATION
 
ITEM 1. INTERIM FINANCIAL STATEMENTS
 
          WILSHIRE REAL ESTATE INVESTMENT TRUST INC. AND SUBSIDIARIES
 
                 CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
 
                                  (UNAUDITED)
 
<TABLE>
<CAPTION>
                                                                      JUNE 30,
                                                                        1998
                                                                     ----------
                                                                      (DOLLARS
                                                                         IN
                                                                     THOUSANDS)
<S>                                                                  <C>
                               ASSETS
Cash and cash equivalents...........................................  $ 56,188
Securities available for sale, at fair value........................   249,454
Loans, net..........................................................    36,319
Discount loans, net.................................................    15,437
Investment in real estate, net......................................    76,419
Due from affiliate, net.............................................     3,038
Accrued interest receivable.........................................     2,890
Other assets........................................................     2,163
                                                                      --------
                                                                      $441,908
                                                                      ========
                LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
  Short-term borrowings.............................................  $230,637
  Other borrowings..................................................    45,222
  Accounts payable and accrued liabilities..........................     2,802
  Dividends payable.................................................     3,105
                                                                      --------
    Total liabilities...............................................   281,766
                                                                      --------
Commitments and Contingencies (See Note 11)
Stockholders' Equity:
  Preferred stock, $.0001 par value; 25,000,000 shares authorized;
   no shares issued and outstanding.................................       --
  Common stock, $.0001 par value; 200,000,000 shares authorized;
   11,500,000 shares issued and outstanding.........................         1
  Additional paid-in capital........................................   166,980
  Distributions in excess of earnings...............................       (63)
  Accumulated other comprehensive income............................    (6,776)
                                                                      --------
    Total stockholders' equity......................................   160,142
                                                                      --------
                                                                      $441,908
                                                                      ========
</TABLE>
 
   The accompanying notes are an integral part of this consolidated financial
                                   statement.
 
                                       3
<PAGE>
 
          WILSHIRE REAL ESTATE INVESTMENT TRUST INC. AND SUBSIDIARIES
 
                      CONSOLIDATED STATEMENT OF OPERATIONS
 
                                  (UNAUDITED)
 
<TABLE>
<CAPTION>
                                                           FOR THE THREE MONTHS
                                                                  ENDED
                                                              JUNE 30, 1998
                                                          ----------------------
                                                          (DOLLARS IN THOUSANDS,
                                                            EXCEPT SHARE DATA)
<S>                                                       <C>
NET INTEREST INCOME:
  Loans and discounted loans.............................       $    1,324
  Securities.............................................            3,606
  Other investments......................................              160
                                                                ----------
    Total interest income................................            5,090
  Interest expense.......................................            1,501
                                                                ----------
    Net interest income..................................            3,589
                                                                ----------
INCOME FROM REAL ESTATE INVESTMENTS, NET:
  Operating income:
    Rental income........................................              949
    Other................................................              119
                                                                ----------
                                                                     1,068
                                                                ----------
  Operating expense:
    Interest expense.....................................              348
    Rental operations....................................              182
    Depreciation.........................................              175
                                                                ----------
                                                                       705
                                                                ----------
      Income from real estate investments, net...........              363
                                                                ----------
OPERATING EXPENSES:
  Management fees paid to affiliate......................              602
  Servicing fees paid to affiliate.......................               48
  Loan expenses paid to affiliate........................               85
  Other..................................................              175
                                                                ----------
                                                                       910
                                                                ----------
NET INCOME...............................................       $    3,042
                                                                ==========
EARNINGS PER SHARE:
  Basic..................................................       $     0.27
  Diluted................................................       $     0.27
WEIGHTED AVERAGE SHARES OUTSTANDING:
  Basic..................................................       11,252,941
  Diluted................................................       11,253,452
</TABLE>
 
   The accompanying notes are an integral part of this consolidated financial
                                   statement.
 
                                       4
<PAGE>
 
          WILSHIRE REAL ESTATE INVESTMENT TRUST INC. AND SUBSIDIARIES
 
           CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
 
                                  (UNAUDITED)
 
<TABLE>
<CAPTION>
                                       FOR THE THREE MONTHS ENDED JUNE 30, 1998
                         ---------------------------------------------------------------------
                           COMMON STOCK    ADDITIONAL DISTRIBUTIONS ACCUMULATED OTHER
                         -----------------  PAID-IN-    IN EXCESS     COMPREHENSIVE
                           SHARES   AMOUNT  CAPITAL    OF EARNINGS       INCOME        TOTAL
                         ---------- ------ ---------- ------------- ----------------- --------
                                       (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S>                      <C>        <C>    <C>        <C>           <C>               <C>
BALANCE at April 1,
 1998...................        --  $ --    $      2     $   --          $   --       $      2
Issuance of common
 stock.................. 11,500,000     1    166,978         --              --        166,979
Net income..............        --    --         --        3,042             --          3,042
Change in unrealized
 loss on securities
 available for sale.....        --    --         --          --           (6,776)       (6,776)
                                                                                      --------
Total comprehensive
 income.................        --    --         --          --              --         (3,734)
Dividends...............        --    --         --       (3,105)            --         (3,105)
                         ---------- -----   --------     -------         -------      --------
BALANCE at June 30,
 1998................... 11,500,000 $   1   $166,980     $   (63)        $(6,776)     $160,142
                         ========== =====   ========     =======         =======      ========
</TABLE>
 
 
 
   The accompanying notes are an integral part of the consolidated financial
                                   statement.
 
                                       5
<PAGE>
 
          WILSHIRE REAL ESTATE INVESTMENT TRUST INC. AND SUBSIDIARIES
 
                      CONSOLIDATED STATEMENT OF CASH FLOWS
 
                                  (UNAUDITED)
 
<TABLE>
<CAPTION>
                                                                FOR THE
                                                              THREE MONTHS
                                                                 ENDED
                                                             JUNE 30, 1998
                                                         ----------------------
                                                         (DOLLARS IN THOUSANDS)
<S>                                                      <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income............................................        $  3,042
   Adjustments to reconcile net income to net cash used
    in operating activities:
    Depreciation........................................             175
    Amortization of premiums and discounts, net.........            (284)
  Change in:
   Due from affiliate, net..............................          (3,038)
   Accrued interest receivable..........................          (2,890)
   Other assets.........................................          (2,163)
   Accounts payable and accrued liabilities.............           2,802
                                                                --------
    Net cash used in operating activities...............          (2,356)
                                                                --------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of securities available for sale.............        (256,285)
  Purchase of loans.....................................         (37,946)
  Purchase of discount loans............................         (17,878)
  Principal payments received on loans..................           4,131
  Investment in real estate.............................         (76,346)
  Other.................................................              28
                                                                --------
    Net cash used in investing activities...............        (384,296)
                                                                --------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from borrowings..............................         280,846
  Repayments on borrowings..............................          (4,987)
  Proceeds from issuance of common stock, net of offer-
   ing costs............................................         166,979
                                                                --------
    Net cash provided by financing activities...........         442,838
                                                                --------
NET INCREASE IN CASH AND CASH EQUIVALENTS...............          56,186
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD........               2
                                                                --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD..............        $ 56,188
                                                                ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION--
  Cash paid for interest................................        $  1,319
NONCASH FINANCING ACTIVITIES--
  Common stock dividends declared but not paid..........        $  3,105
  Additions to investment in real estate acquired in
   settlement of loans..................................             276
</TABLE>
 
   The accompanying notes are an integral part of this consolidated financial
                                   statement.
 
                                       6
<PAGE>
 
          WILSHIRE REAL ESTATE INVESTMENT TRUST INC. AND SUBSIDIARIES
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
                                 JUNE 30, 1998
                   (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
 
NOTE 1--BASIS OF PRESENTATION
 
  The accompanying interim consolidated financial statements are unaudited and
have been prepared in conformity with the requirements of Regulation S-X
promulgated under the Securities Exchange Act of 1934 as amended (the
"Exchange Act"), particularly Rule 10-01 thereof, which governs the
presentation of interim financial statements. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles ("GAAP") for complete financial statements.
 
  The accompanying consolidated financial statements include the accounts of
Wilshire Real Estate Investment Trust Inc. and its four wholly-owned
subsidiaries, including Wilshire Real Estate Partnership L.P., ("WREP"),
Wilshire Real Estate Partnership 1998-1 LLC, Wilshire Real Estate Partnership
1998-1 Member Inc., and Wilshire Real Estate Partnership Island Limited Ltd.
("WREIT" or the "Company"). Intercompany accounts have been eliminated in
consolidation.
 
  In the opinion of management, all adjustments generally comprised of normal
recurring accruals necessary for the fair presentation of the interim
financial statements have been included. Operating results for the three
months ended June 30, 1998 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1998.
 
  The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
 
NOTE 2--ORGANIZATION AND RELATIONSHIPS
 
  WREIT was incorporated in the State of Maryland on October 24, 1997. The
Company was initially formed with a capital investment of $2.0; prior to April
1998, the Company had substantially no operating activity. In April 1998, the
Company was capitalized with the sale of 11,500,000 shares of common stock,
par value $.0001 per share, at a price of $16.00 per share (the "Offering").
Total net proceeds of the Offering after underwriting and offering expenses
were $166,979.
 
  The Company has entered into a management agreement with Wilshire Real
Estate Service Corporation ("WRSC"), a wholly owned subsidiary of Wilshire
Financial Services Group Inc. ("WFSG"), under which WRSC advises the Company
on various facets of its business and manages its day-to-day operations,
subject to the supervision of the Company's Board of Directors. WFSG currently
owns 990,000 shares, or 8.6%, of the Company's outstanding common stock and
has options to purchase an additional 1,135,000 shares (25% of which vest each
year over the next four years) at an exercise price of $16.00 per share. For
its services, WRSC receives a base management fee of 1% per annum of the first
$1.0 billion of average invested assets, as defined in the related agreement,
0.75% of the next $500 million of average invested assets and 0.50% of average
invested assets above to $1.5 billion, payable quarterly. In addition, WRSC
receives incentive compensation in an amount equal the dollar amount by which
funds from operations ("FFO"), as adjusted, exceeds the general ten-year
Treasury rate plus 5% per annum. Finally, WRSC is entitled to receive
reimbursements of all due diligence costs and reasonable out-of-pocket
expenses.
 
 
                                       7
<PAGE>
 
          WILSHIRE REAL ESTATE INVESTMENT TRUST INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 CASH AND CASH EQUIVALENTS
 
  For purposes of reporting financial condition and cash flows, cash and cash
equivalents include cash and amounts due from banks, federal funds sold and
securities with original maturities less than 90 days.
 
 SECURITIES AVAILABLE FOR SALE
 
  Certain mortgage-backed securities and other securities are designated as
assets available for sale. Securities available for sale are carried at fair
value with the net unrealized gains or losses reported within accumulated
other comprehensive income. Unrealized losses on securities that reflect a
decline in value that is other than temporary, if any, are charged to
earnings. At disposition, the realized net gain or loss is included in
earnings on a specific identification basis. The amortization of premiums and
accretion of discounts are computed using the interest method after
considering actual and estimated prepayment rates, if applicable. Actual
prepayment experience is periodically reviewed and effective yields are
recalculated when differences arise between prepayments originally anticipated
and amounts actually received plus anticipated for future prepayments.
 
 LOANS, DISCOUNTED LOANS AND ALLOWANCE FOR LOAN LOSSES
 
  The Company acquires performing, sub-performing and non-performing loan
portfolios, for prices generally at or below face value (i.e., unpaid
principal balances plus accrued interest). Nonperforming loans are generally
acquired at deep discounts to face value and are classified as discounted
loans in the consolidated statement of financial condition. Loans other than
discounted loans are classified as loans.
 
  Discounted loans are presented in the consolidated statement of financial
condition net of unamortized discounts and allowance for loan losses
established for those loans. For each pool of loans acquired by the Company,
purchased discounts are allocated into (a) valuation allowances for estimated
losses against face value on specific loans ("specific valuation allowances")
and (b) portions of the discounts available for accretion to interest income.
If total cash received on a pool of loans exceeds original estimates, excess
specific valuation allowances are recorded as additional discount accretion on
the cost-recovery method. The allocated specific valuation allowances are
included in the allowance for loan losses. Where appropriate, discounts are
accreted into interest income on a cash basis.
 
  Loans, other than discounted loans, are presented in the consolidated
statement of financial condition in substantially the same manner as
discounted loans. Interest income is recognized on an accrual basis. Deferred
fees and costs are recognized in interest income over the life of the loan
using a method that approximates the interest method.
 
  The Company evaluates loans (whether classified as loans or discounted
loans) for impairment. Commercial and multi-family real estate loans are
considered to be impaired, for financial reporting purposes, when it is
probable that the Company will be unable to collect all principal or interest
due, according to the contractual terms of the loan agreement. Specific
valuation allowances are established, either at acquisition or through
provisions for losses, as described above, for impaired loans based on the
adequacy of discounted expected future cash flows or the fair value of the
underlying real estate collateral for collateral dependent loans.
 
 
                                       8
<PAGE>
 
          WILSHIRE REAL ESTATE INVESTMENT TRUST INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
  All specific valuation allowances established for pools of loans and
discounted loans are recorded in the allowance for loan losses. The allowance
for each pool is decreased by the amount of loans charged off and is increased
by the provision for estimated losses on loans and recoveries of previously
charged-off loans. The allowance for each pool is maintained at a level
believed adequate by management to absorb probable losses. Management's
determination of the adequacy of the allowance is based on an evaluation of
the portfolio, previous loan loss experience, current economic conditions,
volume, growth and composition of the portfolio and other relevant factors.
Actual losses may differ from management's estimates.
 
  It is the Company's policy to establish an allowance for uncollectible
interest on performing loans that are past due more than 90 days or sooner
when, in the judgment of management, the probability of collection of interest
is deemed to be insufficient to warrant further accrual. Upon such a
determination, those loans are placed on non-accrual status and deemed to be
non-performing. When a loan is placed on non-accrual status, previously
accrued but unpaid interest is reversed by a charge to interest income.
 
 INVESTMENT IN REAL ESTATE
 
  Real estate purchased directly or acquired in settlement of loans is
originally recorded at the lower of fair value less estimated costs to sell,
or purchase price. Any excess of net loan cost basis over the fair value less
estimated selling costs of real estate acquired through foreclosure is charged
to the allowance for loan losses. Any subsequent operating expenses or income,
reductions in estimated fair values, as well as gains or losses on disposition
of such properties, are recorded in current operations.
 
 INCOME TAXES
 
  The Company qualifies as a Real Estate Investment Trust ("REIT") under
Sections 856 through 860 of the Internal Revenue Code of 1986, as amended. A
REIT will generally not be subject to federal income taxation on that portion
of its income that qualifies as REIT taxable income to the extent that it
distributes at least 95 percent of its taxable income to its shareholders and
complies with certain other requirements. Accordingly, no provision has been
made for federal income taxes for the Company and its subsidiaries in the
accompanying consolidated financial statements.
 
 EARNINGS PER SHARE
 
  The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share" ("EPS").
SFAS No. 128 replaces primary EPS with basic EPS, and fully diluted EPS with
diluted EPS. Basic EPS excludes dilution and is computed by dividing income
available to common stockholders by the weighted average number of common
shares outstanding for the period. Diluted EPS is computed in a similar manner
as fully diluted EPS, and reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the Company.
 
NOTE 4--RECENTLY ISSUED ACCOUNTING STANDARDS
 
  The FASB recently issued SFAS No. 129, "Disclosure of Information about
Capital Structure" and SFAS No. 131, "Disclosure About Segments of an
Enterprise and Related Information. SFAS No. 129 applies to all entities that
issue any securities other than ordinary common stock and continues the
existing requirement of disclosure of the pertinent rights and privileges of
all securities. SFAS No. 131 establishes standards for the way that public
entities report information about operating segments in annual financial
statements and requires the reporting of selected information about operating
segments in interim financial reports issued to shareholders.
 
                                       9
<PAGE>
 
          WILSHIRE REAL ESTATE INVESTMENT TRUST INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
SFAS Nos. 129 and 131 are effective for fiscal years beginning after December
15, 1997 and were adopted by the Company. The adoption of SFAS Nos. 129 or 131
did not have a material impact on the financial position or results of
operations of the Company.
 
  In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Statement establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
consolidated statement of financial condition as either an asset or liability
measured at its fair value. The Statement requires that changes in the fair
value of a derivative be recognized currently in earnings unless specific
hedge accounting criteria are met. Such special accounting for qualifying
hedges allows a derivative's gains and losses to offset related results on the
hedged item in the consolidated statement of operations, and requires that a
company formally document, designate, and assess the effectiveness of
transactions that receive hedge accounting. The Company's management does not
anticipate that the adoption of SFAS No. 133 will have a material impact on
the financial position or results of operations of the Company.
 
NOTE 5--SECURITIES AVAILABLE FOR SALE
 
  The amortized cost, gross unrealized gains and losses, and fair market
values on securities available for sale as of June 30, 1998 are shown below.
Fair market value estimates were determined by management using available
market prices.
 
<TABLE>
   <S>                                                                 <C>
   Gross amortized cost............................................... $256,230
   Gross unrealized gains.............................................      731
   Gross unrealized losses............................................   (7,507)
                                                                       --------
   Fair market value.................................................. $249,454
                                                                       ========
</TABLE>
 
  Included in securities available for sale are mortgage backed securities and
$20 million of 13% WFSG Series B Notes due in 2004.
 
  The Company expects to receive payments on securities over periods that are
considerably shorter than the contractual maturities of the securities, which
range from 6 to 30 years.
 
NOTE 6--LOANS AND DISCOUNTED LOANS
 
  The Company's loans are comprised of loans and discounted loans. Following
is a summary of each loan category by type:
 
<TABLE>
<CAPTION>
                                                                      DISCOUNTED
                                                               LOANS    LOANS
                                                              ------- ----------
   <S>                                                        <C>     <C>
   Real estate loans:
     One to four units....................................... $   409  $ 1,222
     Over four units.........................................  21,763    4,421
     Commercial..............................................  31,387   18,514
     Land....................................................     197    3,545
                                                              -------  -------
       Total loans secured by real estate....................  53,756   27,702
                                                              -------  -------
   Less:
     Allowance for loan losses...............................       1    7,214
     Discount on purchased loans and deferred fees...........  17,436    5,051
                                                              -------  -------
                                                              $36,319  $15,437
                                                              =======  =======
</TABLE>
 
 
                                      10
<PAGE>
 
          WILSHIRE REAL ESTATE INVESTMENT TRUST INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
  As of June 30, 1998, the unpaid principal balance of loans with adjustable
rates of interest were $52,004 and loans with fixed rates of interest were
$29,454. Adjustable-rate loans are generally indexed to U.S. Treasury Bills,
the Federal Home Loan Bank's Eleventh District Cost of Funds Index, London
Interbank Offer Rate or the Prime Lending Rate and are subject to limitations
on the timing and extent of adjustment. Rates on the majority of loans adjust
within six months of changes in the index.
 
  At June 30, 1998, loans with an unpaid principal balance of approximately
$59,189 were pledged to secure credit line borrowings included in short-term
borrowings (see Note 7).
 
NOTE 7--SHORT-TERM BORROWINGS
 
  Short-term borrowings at June 30, 1998 include repurchase agreements and
line of credit borrowings. Proceeds from the various credit facilities are
used primarily for the acquisition of mortgage-backed securities and loan
pools. Following is information about short-term borrowings:
 
<TABLE>
<CAPTION>
                                                             REPURCHASE LINE OF
                                                             AGREEMENTS CREDIT
                                                             ---------- -------
   <S>                                                       <C>        <C>
   Average balance during the period........................  $ 84,378  $ 7,595
   Highest amount outstanding during the period.............  $198,086  $32,551
   Average interest rate--during the period.................     6.971%   6.656%
   Average interest rate--end of period.....................     6.899%   6.656%
   Carrying value of pledged assets.........................  $227,710  $44,628
</TABLE>
 
  As of June 30, 1998, the Company had committed lines of credit, including
repurchase agreements totaling $230.6 million and uncommitted lines of credit
totaling $500 million.
 
NOTE 8--OTHER BORROWINGS
 
  At June 30, 1998, the Company had $45.2 million of other borrowings, which
were used to finance the acquisition of real estate investments. The loans had
a weighted average interest rate of 8.00%. At June 30, 1998, certain
investments in real estate with a carrying amount of $63.6 million were
pledged as collateral against these loans. Maturities of these borrowings
range from 1998 to 2023.
 
NOTE 9--INVESTMENT IN REAL ESTATE
 
At June 30, 1998, the Company's investment in real estate was comprised of the
following:
 
<TABLE>
   <S>                                                                  <C>
   Office Buildings:
     Land.............................................................. $18,828
     Building and improvements.........................................  54,482
     Less: Accumulated depreciation....................................    (175)
                                                                        -------
                                                                         73,135
   Other real estate owned, net........................................   3,284
                                                                        -------
                                                                        $76,419
                                                                        =======
</TABLE>
 
 
                                      11
<PAGE>
 
          WILSHIRE REAL ESTATE INVESTMENT TRUST INC. AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
  Investment in real estate is recorded at cost less accumulated depreciation
(which in the opinion of management is less than the net realizable value of
the property). The Company reviews its investment in real estate for
impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. Depreciation is computed on a
straight-line basis over the estimated useful life of the asset as follows:
 
<TABLE>
   <S>                                                   <C>
   Buildings and improvements........................... 35 years
   Tenant improvements.................................. lesser of lease term or
                                                         useful life
   Furniture, fixtures and equipment.................... 7 years
</TABLE>
 
  Expenditures for repairs and maintenance are charged to operations as
incurred. Significant renovations are capitalized and amortized over their
expected useful lives. Fees and costs incurred in the successful negotiation
of leases are deferred and amortized on a straight-line basis over the terms
of the respective leases. Rental income is reported on the straight-line basis
over the terms of the respective leases.
 
NOTE 10--COMPREHENSIVE INCOME
 
  In 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income,"
which requires companies to report all changes in equity during a period,
except those relating to investment by owners and distributions to owners, in
the financial statement for the period in which such charges are recognized.
Comprehensive income for the three months ended June 30, 1998, encompasses net
income and unrealized losses on available for sale securities, as presented
below:
 
<TABLE>
   <S>                                                                  <C>
   Net income.......................................................... $ 3,042
   Other comprehensive loss:
     Unrealized losses on available for sale securities, net...........  (6,776)
                                                                        -------
   Total comprehensive loss............................................ $(3,734)
                                                                        =======
</TABLE>
 
NOTE 11--COMMITMENTS & CONTINGENCIES
 
  At June 30, 1998, outstanding commitments totaled $278.8 million and was
comprised of $160.0 million related to the acquisition of European loan pools,
$80 million related to the acquisition of U.S. commercial loans, $10.2 million
related to commercial real estate, and $28.6 million of subordinate interests
in commercial mortgage-backed securities.
 
  Each commitment is subject to various closing conditions including, but not
limited to, completion of satisfactory due diligence efforts, the negotiation
of definitive purchase and sales agreements and/or conditions the borrowers or
sellers must satisfy prior to the Company's funding the transactions.
 
                                      12
<PAGE>
 
          WILSHIRE REAL ESTATE INVESTMENT TRUST INC. AND SUBSIDIARIES
 
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
 
GENERAL
 
  Wilshire Real Estate Investment Trust Inc. and Subsidiaries (the "Company")
is a Maryland corporation that was formed in October 1997 and has elected to
be taxed as a real estate investment trust ("REIT"). In April 1998, the
Company consummated its initial public offering (the "Offering") of 11,500,000
shares of common stock, with net proceeds to the Company of approximately
$167.0 million. The Company has increased its asset base to $441.9 million at
June 30, 1998, including, $227.7 million of mortgage-related securities, $76.4
million of real estate, $51.8 million of domestic and international commercial
loans, and $21.8 million in other securities.
 
  The following discussion of the Company's results of operations, changes in
financial condition, and capital resources and liquidity should be read in
conjunction with the Interim Consolidated Financial Statements and related
Notes included in Item 1 hereof.
 
FUNDS FROM OPERATIONS
 
  Most industry analysts, including the Company, consider funds from
operations ("FFO") an appropriate supplementary measure of operating
performance of a REIT. In general, FFO adjusts net income for non-cash charges
such as depreciation, and certain amortization expenses and most non-recurring
gains and losses. However, FFO does not represent cash provided by operating
activities in accordance with generally accepted accounting principles
("GAAP") and should not be considered an alternative to net income as an
indication of the results of the Company's performance or to cash flows as a
measure of liquidity.
 
  In 1995, the National Association of Real Estate Investment Trusts
("NAREIT") established new guidelines clarifying its definition of FFO and
requested that REITs adopt this new definition beginning in 1996. The Company
computes FFO in accordance with the definition recommended by NAREIT. For the
three months ended June 30, 1998, the Company's FFO was $3.2 million or $0.29
per diluted weighted average common share. The following table provides the
calculation of the Company's FFO:
 
<TABLE>
<CAPTION>
                                                                 FOR THE
                                                               THREE MONTHS
                                                                  ENDED
                                                              JUNE 30, 1998
                                                          ----------------------
                                                          (DOLLARS IN THOUSANDS,
                                                            EXCEPT SHARE DATA)
   <S>                                                    <C>
   Net income............................................         $3,042
   Real estate related depreciation......................            175
                                                                  ------
     FFO.................................................         $3,217
                                                                  ======
     FFO per common share................................         $  .29
</TABLE>
 
RESULTS OF OPERATIONS
 
  The Company consummated the Offering and commenced operations on April 6,
1998. The Company's net income for the three months ended June 30, 1998
amounted to $3.0 million, or $0.27 per diluted share, which is attributable
primarily to interest income from mortgage-backed securities, loans and
discounted loans. In addition, the Company is engaged in a variety of real
estate investment activities.
 
 
                                      13
<PAGE>
 
  Interest Income. The following tables set forth information regarding the
total amount of income from interest-earning assets and the resultant average
yields. Information is based on daily average balances during the reported
period.
 
<TABLE>
<CAPTION>
                                                     FOR THE THREE MONTHS ENDED
                                                           JUNE 30, 1998
                                                    ----------------------------
                                                    AVERAGE  INTEREST ANNUALIZED
                                                    BALANCE   INCOME    YIELD
                                                    -------- -------- ----------
                                                       (DOLLARS IN THOUSANDS)
   <S>                                              <C>      <C>      <C>
   Loan portfolios................................. $ 45,038  $1,324     12.5%
   Mortgage-backed securities
    available for sale.............................  132,004   3,149     10.1
   Other securities available
    for sale.......................................   17,248     457     11.2
   Other investments...............................   14,207     160      4.8
                                                    --------  ------     ----
     Total......................................... $208,497  $5,090     10.4%
                                                    ========  ======     ====
</TABLE>
 
  Interest Expense. The following table sets forth information regarding the
total amount of interest expense associated with interest-bearing liabilities
and the resultant average rates. Information is based on daily average
balances during the reported period.
 
<TABLE>
<CAPTION>
                                                     FOR THE THREE MONTHS ENDED
                                                           JUNE 30, 1998
                                                    ----------------------------
                                                    AVERAGE  INTEREST ANNUALIZED
                                                    BALANCE  EXPENSE    YIELD
                                                    -------- -------- ----------
                                                       (DOLLARS IN THOUSANDS)
   <S>                                              <C>      <C>      <C>
   Short-term borrowings........................... $ 91,973  $1,501     6.9%
   Other borrowings................................   17,483     348     8.4
                                                    --------  ------     ---
     Total......................................... $109,456  $1,849     7.2%
                                                    ========  ======     ===
</TABLE>
 
  Real Estate Operations. Such income represents income generated from the
Company's investment in various office buildings, retail stores, and other
commercial property located in Oregon and California. During the three months
ended June 30, 1998, operating income was comprised primarily of $1.1 million
in gross rental and other income earned on such investments. Additionally,
expenses incurred on real estate investments include $0.3 million of interest
expense, $0.2 million of rental operations and $0.2 million of depreciation
expense.
 
  Operating Expenses. Management fees of $0.6 million for the three months
ended June 30, 1998, respectively, were comprised solely of the 1% (per annum)
base management fee paid to Wilshire Real Estate Service Corporation ("WRSC"),
a wholly owned subsidiary of Wilshire Financial Services Group Inc. ("WFSG")
for the period (as provided pursuant to the management agreement between WRSC
and the Company). WRSC earned no incentive fee for this period. In addition to
the management fee, the Company incurred loan service fees and expenses of
$0.1 million during the three months ended June 30, 1998, which were paid by
WRSC on behalf of the Company and for which WRSC was subsequently reimbursed
by the Company. Other expenses were comprised of professional services,
insurance premiums and other sundry expenses.
 
CHANGES IN FINANCIAL CONDITION
 
  From April 1, 1998 to June 30,1998, total assets increased to $441.9
million. This increase was primarily comprised of $56.2 million of cash and
cash equivalents, $249.5 million of securities available for sale, $76.4
million of investments in real estate and $51.8 million of loans and discount
loans. Total liabilities increased to $281.8 million during the period,
primarily as a result of $230.6 million of short-term borrowings associated
with mortgage-backed securities, $45.2 million of other borrowings on
investment in real estate, $3.1 million of declared but unpaid dividends, $0.6
million unpaid management fees due WRSC and $0.1 million of unpaid loan
servicing fees and expenses incurred in connection with the servicing of the
loan portfolios of the Company.
 
 
                                      14
<PAGE>
 
  Securities Available for Sale. At June 30, 1998, securities available for
sale include mortgage-backed securities with an aggregate market value of
$227.7 million, net of unrealized losses and $20.0 million of WFSG's 13%
Series B Notes.
 
  During the three months ended June 30, 1998, the Company purchased 117
subordinated residential mortgage-backed securities from 18 different issuers
for an aggregate purchase price of approximately $234.5 million. The weighted
average rating of these securities is BB.
 
  The balance of mortgage-backed securities available for sale of $227.7
million at June 30, 1998 was the result of $95.0 million of initial purchases,
$139.5 million of additional purchases, offset in part, by $6.8 of net
unrealized losses.
 
  Loan Portfolio. During the three months ended June 30, 1998, the Company
acquired U.S. and international commercial real estate loans with an unpaid
principal balance of $53.8 million. At June 30, 1998 all loans were current
and are serviced by an affiliate of WFSG.
 
  Discount Loan Portfolio. During the quarter ended June 30, 1998, the Company
acquired U.S. and international commercial real estate loans with an unpaid
principal balance of $27.7 million. The balance of discount loans is $15.4
million at June 30, 1998, and are also serviced by an affiliate of WFSG.
 
  The following table sets forth certain information relating to the payment
status of loans in the Company's discount loan portfolio at June 30, 1998:
 
<TABLE>
<CAPTION>
                                                             UNPAID PRINCIPAL
                                                                 BALANCE
                                                          ----------------------
                                                          (DOLLARS IN THOUSANDS)
      <S>                                                 <C>
      Past due less than 31 days.........................        $12,992
      Past due 31 to 89 days.............................            898
      Past due 90 days or greater........................         13,813
                                                                 -------
                                                                 $27,703
                                                                 =======
</TABLE>
  Allowances for Loan Losses. The Company maintains an allowance for loan
losses at a level that management considers adequate to provide for potential
losses based upon an evaluation of known and inherent risks. At June 30, 1998,
no provisions for loan losses had been provided.
 
  Investment in Real Estate. During the three months ended June 30, 1998, the
Company acquired approximately $73.3 million of properties located in
California, Oregon and the United Kingdom.
 
  For additional information regarding investments in real estate see Note 3
to the Interim Consolidated Financial Statements included in Item 1 hereof.
 
  Short-Term Borrowings. Short-term borrowings increased by approximately
$230.6 million during the three months ended June 30, 1998, resulting
primarily from the use of repurchase agreements to fund the purchase of
securities. Interest rates on borrowings under these facilities are based on
overnight to 30-day London Interbank Offer Rate ("LIBOR") rates.
 
  Other Borrowings. At June 30, 1998, the Company had $45.2 million of other
borrowings, which financed the acquisition of real estate investments. The
loans had a weighted average interest rate of 8.4%. At June 30,
 
                                      15
<PAGE>
 
1998, certain investments in real estate with a carrying amount of $63.6
million were pledged as collateral against these loans.
 
  Stockholders' Equity. Stockholders' equity increased to $160.1 million from
April 1, 1998 to June 30, 1998. The increase in stockholders' equity during
this period was attributable to net proceeds of $167.0 million from the
Offering, net income of $3.0 million, unrealized losses on securities
available for sale of $6.8 million and $3.1 million of dividends on common
stock. See the Consolidated Statement of Changes in Stockholders' Equity in
the Interim Consolidated Financial Statements included in Item 1 hereof.
 
LIQUIDITY AND CAPITAL RESOURCES
 
  Liquidity is a measurement of the Company's ability to meet potential cash
requirements, including ongoing commitments to repay borrowings, fund
investments, loan acquisition and lending activities and for other general
business purposes. The primary sources of funds for cash flow consist of
repurchase facilities and other secured borrowings and maturities and
principal payments on loans and securities and proceeds from sales thereof.
 
  The Company's operating activities used cash flows of $2.4 million during
the three months ended June 30, 1998. During this period, cash resources from
operating activities were provided primarily by net income, offset by
activities in due from affiliates, accrued interest receivable, other assets,
and accounts payable and accrued liabilities.
 
  The Company's investing activities used cash flows totaling $384.3 million
during the three months ended June 30, 1998. During this period, cash flows
from investing activities were used primarily to purchase the Company's
interest-earning and other operating assets consisting of securities available
for sale, loans and investments in real estate.
 
  The Company's financing activities provided $442.8 million during the three
months ended June 30, 1998 and consisted of $167.0 million net proceeds from
the Offering and $275.9 of net short-term and other borrowings.
 
  As discussed above, the Company has outstanding commitments of $278.8
million, subject to various closing conditions, and is currently engaged in
due diligence with respect to a variety of investments.
 
  Given the Company's rapid rate of current growth and assuming that the
Company continues to experience such growth, management believes that
additional debt and/or equity financing may be required to sustain this level
of growth once all proceeds have been invested from the Offering. There can be
no assurance that any such additional debt or equity financing will be
available to the Company on financially attractive terms in the future.
 
OTHER
 
  Many existing computer software programs use two digits to identify the year
in date fields and, as such, could fail or create erroneous results by or at
the Year 2000. The Company and its loan servicer utilize a number of software
systems to service mortgage loans and manage mortgage assets. The Company has
made and will continue to make investments in its software systems and
applications to ensure the Company is Year 2000 compliant. In addition, the
Company has taken steps to ensure that its servicer, the vendors it utilizes
in various capacities and the institutions with which it interfaces are also
taking the necessary steps to become Year 2000 compliant. This process is
expected to be essentially complete by mid-1999. The financial impact of
becoming Year 2000 compliant has not been and is not expected to be material
to the Company or its results of operations.
 
FORWARD-LOOKING STATEMENTS
 
  CERTAIN STATEMENTS CONTAINED HEREIN AND CERTAIN STATEMENTS CONTAINED IN
FUTURE FILINGS BY THE COMPANY WITH THE SEC, ARE NOT IN THE COMPANY'S PRESS
 
                                      16
<PAGE>
 
RELEASES OR IN THE COMPANY'S OTHER PUBLIC OR SHAREHOLDER COMMUNICATIONS MAY
NOT BE, BASED ON HISTORICAL FACTS AND ARE "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. FORWARD-
LOOKING STATEMENTS WHICH ARE BASED ON VARIOUS ASSUMPTIONS (SOME OF WHICH ARE
BEYOND THE COMPANY'S CONTROL) MAY BE IDENTIFIED BY REFERENCE TO A FUTURE
PERIOD OR PERIODS, OR BY THE USE OF FORWARD-LOOKING TERMINOLOGY, SUCH AS
"MAY," "WILL," "BELIEVE," "EXPECT," "ANTICIPATE," "CONTINUE," OR SIMILAR TERMS
OR VARIATIONS ON THOSE TERMS, OR THE NEGATIVE OF THOSE TERMS. ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THOSE SET FORTH IN FORWARD-LOOKING STATEMENTS DUE
TO A VARIETY OF FACTORS, INCLUDING, BUT NOT LIMITED TO, THOSE RELATED TO THE
ECONOMIC ENVIRONMENT, PARTICULARLY IN THE MARKET AREAS IN WHICH THE COMPANY
OPERATES, COMPETITIVE PRODUCTS AND PRICING, FISCAL AND MONETARY POLICIES OF
THE U.S. GOVERNMENT, CHANGES IN PREVAILING INTEREST RATES, ACQUISITIONS AND
THE INTEGRATION OF ACQUIRED BUSINESSES, CREDIT RISK MANAGEMENT,
ASSET/LIABILITY MANAGEMENT, THE FINANCIAL AND SECURITIES MARKETS AND THE
AVAILABILITY OF AND COSTS ASSOCIATED WITH SOURCES OF LIQUIDITY. THE COMPANY
DOES NOT UNDERTAKE, AND SPECIFICALLY DISCLAIMS ANY OBLIGATION, TO PUBLICLY
RELEASE THE RESULTS OF ANY REVISIONS WHICH MAY BE MADE TO ANY FORWARD-LOOKING
STATEMENTS TO REFLECT THE OCCURRENCE OF ANTICIPATED OR UNANTICIPATED EVENTS OR
CIRCUMSTANCES AFTER THE DATE OF SUCH STATEMENTS.
 
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
  It is the objective of the Company to attempt to control risks associated
with interest rate movements. In general, management's strategy is to limit
the Company's exposure to earnings variations and variations in the value of
assets and liabilities as interest rates change over time. The Company's asset
and liability management strategy is formulated and monitored by WRSC
regularly to review, among other things, the sensitivity of the Company's
assets and liabilities to interest rate changes, the book and market values of
assets and liabilities, unrealized gains and losses, including those
attributable to hedging transactions, purchase and securitization activity,
and maturities of investments and borrowings.
 
  The Company has utilized interest only securities ("IOs") to offset maturity
extension risk in the Company's loan and securities portfolio in the event
that the Company encounters slower than anticipated prepayments. Accordingly,
if the underlying mortgage collateral prepays (including prepayments as a
result of default and repurchases by the seller) at a rate faster than
anticipated, the weighted average life of the IO will be reduced, and the
market value of the IO adversely affected. Conversely, if the underlying
mortgage collateral prepays at a rate slower than anticipated, the weighted
average life of the IO will be extended, with a consequent positive effect on
the market value of the IO. Should interest rates remain at their present low
levels, or decline further, the risk of faster than anticipated prepayment
rates could increase.
 
  The Asset and Liability Committee is authorized to utilize a wide variety of
off-balance sheet financial techniques to assist them in the management of
interest rate risk. These techniques include interest rate swap agreements,
pursuant to which the parties exchange the difference between fixed-rate and
floating-rate interest payments on a specified principal amount (referred to
as the "notional amount") for a specified period without the exchange of the
underlying principal amount. Interest rate swap agreements are utilized by the
Company to protect against the narrowing of the interest spread between fixed
rate loans and associated liabilities funding those loans. At June 30, 1998,
the Company had no interest rate swap agreements in place.
 
                                      17
<PAGE>
 
                   WILSHIRE REAL ESTATE INVESTMENT TRUST INC.
 
PART II. OTHER INFORMATION
 
ITEM 1. LEGAL PROCEEDINGS.
 
  The registrant is not a party to any material legal proceedings.
 
ITEM 2. CHANGES IN SECURITIES.
 
  Not applicable.
 
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
 
  Not applicable.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
 
  No matter was submitted to a vote of security holders during the period
covered by this report.
 
ITEM 5. OTHER INFORMATION.
 
  None.
 
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
 
  (a) Exhibits
 
<TABLE>
 <C>             <S>
    Exhibit 10.1 Purchase and Sale Agreement
    Exhibit 11   Statement re Computation of Per Share Earnings
    Exhibit 27   Financial Data Schedule
</TABLE>
 
  (b) Reports on Form 8-K
 
  None.
 
                                       18
<PAGE>
 
                                  SIGNATURES
 
  PURSUANT TO THE REQUIREMENTS OF THE EXCHANGE ACT, THE REGISTRANT HAS CAUSED
THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED.
 
                                          Wilshire Real Estate Investment
                                          Trust Inc.
 
Date: August 14, 1998
                                               /s/ Lawrence A. Mendelsohn
                                          By: _________________________________
                                                   LAWRENCE A. MENDELSOHN
                                                         PRESIDENT
 
                                                    /s/ Chris Tassos
                                          By: _________________________________
                                                        CHRIS TASSOS
                                                EXECUTIVE VICE PRESIDENT AND
                                                  CHIEF FINANCIAL OFFICER
 
                                      19