10-K405

TABLE OF CONTENTS

PART I
	ITEM 1. BUSINESS.
	ITEM 2. PROPERTIES
	ITEM 3. LEGAL PROCEEDINGS.
PART II
	ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
	ITEM 6. SELECTED FINANCIAL DATA.
	ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
	ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 8. FINANCIAL STATEMENTS.
	ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
PART III
	ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
	ITEM 11. EXECUTIVE COMPENSATION.
	ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
	ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PART IV
	ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K

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

For the fiscal year ended 12-31-99 Commission file number 1-6249

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

Ohio	34-6513657
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

551 Fifth Avenue – Suite 1416 New York, New York	10176-1499
(Address of principal executive offices)	(Zip Code)

      Registrant’s telephone number, including area code: (212) 905-1100

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Name of each exchange on
which registered

Shares of Beneficial Interest
(Par Value $1 Per Share) New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

(Title of class)

      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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

Yes /X/ No / /

      State the aggregate market value of the voting stock held by non-affiliates of the registrant. The aggregate market value shall be computed by reference to the price at which the stock was sold, or the average bid and asked prices of such stock, as of a specified date within 60 days prior to the date of filing.

      As of January 31, 2000, 33,596,117 Shares of Beneficial Interest were held by non-affiliates, and the aggregate market value of such shares was approximately $161,681,313.

(APPLICABLE ONLY TO CORPORATE REGISTRANTS)

      Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

42,471,729 Shares of Beneficial Interest were outstanding as of January 31, 2000

DOCUMENTS INCORPORATED BY REFERENCE

      List hereunder the following documents if incorporated by reference and the Part of the Form 10-K into which the document is incorporated: (1) Any annual report to security holders; (2) Any proxy or information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of 1933. The listed documents should be clearly described for identification purposes.

2000 Proxy Statement

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FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
CROSS REFERENCE SHEET PURSUANT TO ITEM G,
GENERAL INSTRUCTIONS TO FORM 10-K

Item of Form 10-K		Location
		(page or pages)
	PART I
1.	Business	3 through 12
2.	Properties	13 through 15
3.	Legal Proceedings	16
4.	Submission of Matters to a Vote of Security Holders	16
	PART II
5.	Market for Registrant’s Common Equity and Related Stockholder Matters	16; Exhibit 13,  1
6.	Selected Financial Data	16; Exhibit 13,  2-3
7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16; Exhibit 13,  27-35
7A	Quantitative and Qualitative Disclosures Regarding Market Risk	17, Exhibit 13,  33
8.	Financial Statements	17 through 16; Exhibit 13,  4-26
9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	17
	PART III
10.	Directors and Executive Officers of the registrant	18; 2000 Proxy Statement
11.	Executive Compensation	18; 2000 Proxy Statement
12.	Security Ownership of Certain Beneficial Owners and Management	18; 2000 Proxy Statement
13.	Certain Relationships and Related Transactions	18; 2000 Proxy Statement
	PART IV
14.	Exhibits, Financial Statement Schedules, and Reports on Form 8-K
	(a) Financial Statements and Financial Statement Schedules	18, Exhibit 13,  4-26
	(b) Exhibits	19 through 22; Exhibit Index, page 24 through 27
	(c) Reports on Form 8-K	22

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PART I

Item 1. Business.

      The registrant is an unincorporated association in the form of a business trust organized in Ohio under a Declaration of Trust dated August 1, 1961, as amended from time to time through November 16, 1999 (the “Declaration of Trust”), which has as its principal business activity the ownership and management of real estate investments. The registrant qualifies as a real estate investment trust (“REIT”) under Sections 856 through 860 of the Internal Revenue Code (the “Code”).

      To encourage efficient operation and management of its property, and after receiving a ruling from the Internal Revenue Service with respect to the proposed form of organization and operation, the registrant, in 1971, caused a management company to be organized pursuant to the laws of the State of Delaware under the name First Union Management, Inc. (the “Management Company”), to lease property from the registrant and to operate such property for its own account as a separate taxable entity. The registrant terminated its management arrangements with the Management Company in March 1999, and self-manages its retail, apartment and office portfolios. The registrant entered into third-party management arrangements for the parking facilities it owns. Accordingly, the registrant no longer receives any rents from the Management Company.

      On July 22, 1998, tax legislation was enacted limiting the “grandfathering rules” applicable to stapled REITS such as the registrant (the “Stapled REIT Legislation”). As a result, the income and activities of the Management Company with respect to any real property interests acquired by the registrant and the Management Company after March 26, 1998, for which there was no binding written agreement, public announcement or filing with the Securities and Exchange Commission on or before March 26, 1998, will be attributed to the registrant for purposes of determining whether the registrant qualifies as a REIT under the Code.

      The registrant owns regional enclosed shopping malls, large downtown office buildings and parking facilities. The registrant’s portfolio is diversified by type of property, geographical location, tenant mix and rental market. As of December 31, 1999, the registrant owned (in fee or pursuant to long-term ground leases under which the registrant is lessee) 4 shopping malls, 5 office properties, 6 parking garages and 1 surface parking lot in the United States and 1 parking garage and 10 surface parking lots in Canada. The registrant also owns 50% of another mall in a joint venture with an unrelated party.

      All of the registrant’s shopping malls compete for tenants on the basis of the rent charged and location, and encounter competition from other retail properties in their respective market areas. Some of the registrant’s shopping malls compete with other shopping malls in the environs. However, the principal competition for the registrant’s shopping malls may come from future shopping malls locating in their market areas. Additionally, the overall economic health of retail tenants impacts the registrant’s shopping malls. Due to the overbuilding of retail space and a demand for large, open area, administrative service space in Denver, CO, in 1995, the registrant has repositioned a former retail mall into an office property and released approximately 59% of the former mall. Additionally, due to excess mall space in Abilene, TX in 1997, the registrant demolished its enclosed mall and constructed the first phase of a strip shopping center which opened in 1998 with the second phase opening in March 2000.

      The registrant’s office properties compete for tenants principally with office buildings throughout the respective areas in which they are located. In most areas where the registrant’s office buildings are located, competition for tenants has been and continues to be intense on the basis of rent, location and age of the building.

      The registrant’s parking facilities compete with other parking facilities in the immediate areas in which they are located and may compete with new parking facilities constructed in the same areas in the future.

      The registrant’s mortgage investments are collateralized by an apartment complex and the management contract of another apartment complex. In March 2000, the second mortgage secured by the apartment complex in Dayton, OH was repaid net of a 3% discount. The risks inherent with the registrant’s mortgage portfolio relate to the performance and the value of the apartment complexes

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that secure the mortgage investments. These risks may impair the realizability of the mortgage investments.

      The Management Company, in April 1997, acquired voting control of Imperial Parking Limited and its affiliates (“Impark”) which is primarily a parking management and transit ticketing manufacturing company based in Canada. Because the Management Company owns voting control of Impark, the financial statements of Impark are consolidated with the Management Company. Additionally, for financial reporting purposes, the financial statements of the Management Company are combined with those of the registrant.

      On March 27, 2000, the registrant distributed shares of Imperial Parking Corporation “Imperial”. The business and assets of Imperial include the parking business of Imperial and the Canadian real estate of the registrant. Each common shareholder of beneficial interest of the registrant received one share of Imperial for every 20 shares of the registrant that they hold. Prior to the spin-off, Ventek International, Inc. (“Ventek”), a subsidiary of Impark, was sold to the Management Company. The registrant’s Combined Financial Statements and Notes to Combined Financial Statements report Imperial as discontinued operations. Additionally, as part of the spin-off, the registrant repaid Impark’s bank credit facility (approximately $22 million at December 31, 1999), contributed a surface parking lot in San Francisco, CA to Imperial, contributed $7 million in cash and provided an $8 million secured line of credit to Imperial.

      As of December 31, 1999 Impark’s operations consisted primarily of parking management in Canada. Impark also has a market presence in Buffalo, NY, Minneapolis, MN, and Milwaukee, WI. Currently, Impark derives 71% and 29%, respectively, of revenue from its management of facilities in Canada, and the United States. Impark’s Canadian operations are not hedged against currency fluctuations. Impark faces competition from local and national parking operators in procuring management contracts from third party parking lot and garage owners. Transit ticketing products, manufactured by Ventek, are targeted to be sold to predominantly U.S. mass transit operators, and the sales of these products represent approximately 9% of Impark’s gross revenues.

      The registrant’s segment data may be found in footnote 21 to the Combined Financial Statements on page 21 to Exhibit 13.

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RISK FACTORS

      An investment in the registrant’s securities involves various risks. The following factors should be carefully considered in addition to the other information set forth in this report.

Outsourcing of Accounting and Property Management

      Effective January 1, 2000, the registrant outsourced its property management and accounting functions to third parties. The transition process could have an adverse effect on the registrant’s business, financial condition and REIT reporting requirements. The registrant’s remaining house accounting staff are contracted with the registrant through May 15, 2000.

Asset Sales Reduce Portfolio and Returns to Shareholders

      The registrant has sold 27 properties during 1999. Because the registrant used the net proceeds of these asset sales to repay outstanding indebtedness, its portfolio of properties is smaller, less diverse and less valuable and will generate less revenue for ultimate distribution to its shareholders. In addition, the registrant may elect in the future to sell other assets or merge the Registrant with another company.

Income and Activities of Management Company May Be Attributed to the Registrant Under Recent Anti-Stapling Legislation and May Threaten REIT Status

      Under the Stapled REIT Legislation, the anti-stapling rules provided in the Code apply to real property interests acquired or substantially improved after March 26, 1998 by the registrant or the Management Company, or a subsidiary or partnership in which a 10% or greater interest is owned by either the registrant or the Management Company unless:

• the real property interests are acquired pursuant to a written agreement that was binding on March 26, 1998 and at all times thereafter or

• the acquisition of such real property interests was described in a public announcement or in a filing with the Securities and Exchange Commission on or before March 26, 1998.

      Consequently, the income and activities of the Management Company with respect to any property acquired by the registrant or the Management Company after March 26, 1998, for which there was no binding written agreement, public announcement or filing with the Securities and Exchange Commission on or before March 26, 1998, will be attributed to the registrant for purposes of determining whether the registrant qualifies as a REIT under the Code. These attribution rules may make it more difficult for the registrant to qualify as a REIT and may subject the registrant to various additional taxes.

Improved Properties May Become Subject To Anti-Stapling Legislation Under Certain Circumstances and May Threaten REIT Status

      The Stapled REIT Legislation also provides that a property held by a stapled REIT but not subject to the anti-stapling rules would become subject to such rules in the event of either

• an improvement placed in service after December 31, 1999 that changes the use of the property and the cost of which is greater than 200% of

(1)	the undepreciated cost of the property (prior to the improvement) or
(2)	in the case of property acquired where there is a substituted basis, the fair market value of the property on the date it was acquired by the stapled REIT or

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• an addition or improvement that expands beyond the boundaries of the land included in such property.

The Stapled REIT Legislation contains an exception for improvements placed in service before January 1, 2004 pursuant to a binding contract in effect on December 31, 1999 and at all times thereafter.

      If previously exempt property of the registrant or the Management Company becomes subject to the anti-stapling rules upon the occurrence of any of the events described above, any income generated by, and activities conducted by the registrant and the Management Company through such properties would be attributed to the registrant for purposes of determining whether the registrant qualifies as a REIT under the Code. These attribution rules may make it more difficult for the registrant to qualify as a REIT and may subject the registrant to various additional taxes.

Other Legislation Could Adversely Affect the Registrant’s REIT Qualification

      Other legislation (including legislation previously introduced, but not yet passed), as well as regulations, administrative interpretations or court decisions, also could change the tax law with respect to the registrant’s qualification as a REIT and the federal income tax consequences of such qualification. The adoption of any such legislation, regulations or administrative interpretations or court decisions could have a material adverse effect on the results of operations, financial condition and prospects of the registrant and could restrict the registrant’s ability to grow.

Dependence on Qualification as a REIT; Tax and Other Consequences if REIT Qualification is Lost

      There can be no assurance that the registrant has operated in a manner to qualify as a REIT for federal income tax purposes in the past or that it will so qualify in the future. Qualification as a REIT involves the application of highly technical and complex provisions of the Code, for which there are only limited judicial or administrative interpretations. The complexity of these provisions is greater in the case of a stapled REIT such as the registrant. Qualification as a REIT also involves the determination of various factual matters and circumstances not entirely within the registrant’s control. In addition, the registrant’s ability to qualify as a REIT is dependent upon its continued exemption from the anti-stapling rules of Section 269B(a)(3) of the Code, which, if they were to apply, would prevent the registrant from qualifying as a REIT. The “grandfathering” rules governing Section 269B generally provide, however, that Section 269B(a)(3) does not apply to a stapled REIT (except with respect to new real property interests as described above "—Income and Activities of Management Company May Be Attributable to the registrant Under Recent Anti-Stapling Legislation and May Threaten REIT Status.”) if the REIT and its stapled operating company were stapled on June 30, 1983. On June 30, 1983, the registrant was stapled with the Management Company. There are, however, no judicial or administrative authorities interpreting this “grandfathering” rule. Moreover, if for any reason the registrant failed to qualify as a REIT in 1983, the benefit of the “grandfathering” rule would not be available to the registrant, in which case the registrant would not qualify as a REIT for any taxable year from and after 1983. The failure of the registrant to qualify as a REIT would have a material adverse effect on the registrant’s ability to make dividends to its shareholders and to pay amounts due on its indebtedness.

      If it is determined that the registrant did not qualify as a REIT during any of the preceding five fiscal years, the registrant potentially could incur corporate tax with respect to a year that is still open to adjustment by the Internal Revenue Service (“IRS”). If the registrant were to fail to qualify as a REIT, it would be subject to federal income tax (including any applicable alternative minimum tax) on its taxable income at corporate rates. In addition, unless entitled to relief under certain statutory provisions and

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subject to the discussion above regarding the impact if the registrant failed to qualify as a REIT in 1983, the registrant also would be disqualified from re-electing REIT status for the four taxable years following the year during which qualification is lost. Failure to qualify as a REIT would result in additional tax liability to the registrant for the year or years involved. In addition, the registrant would no longer be required by the Code to make dividends to its shareholders. To the extent that dividends to shareholders would have been made in anticipation of the registrant’s qualifying as a REIT, the registrant might be required to borrow funds or to liquidate certain of its investments on disadvantageous terms to pay the applicable tax.

      The failure to qualify as a REIT would also constitute a default under certain debt obligations of the registrant, which would generally allow the holders thereof to demand the immediate repayment of such indebtedness. Any acceleration of this indebtedness (including through cross-defaults) could have a material adverse effect on the registrant and its ability to make dividends to shareholders and to pay amounts due on this and other indebtedness.

      In order to continue to meet certain REIT qualification income tests of the Code for the year 2000, the Impark parking businesses must be disposed of or other sources of qualified income obtained. The Board of Trustees of the registrant determined to dispose of or distribute to its shareholders the interests of the registrant in the Impark parking businesses. On March 27, the registrant distributed shares of Imperial. Each common shareholder of beneficial interest of the registrant received one share of Imperial for every 20 shares of the registrant that they own. The registrant believes that the disposition of its interest in the Impark parking business through the aforementioned distribution (the "Impark Distribution") has eliminated the primary obstacle to the continued REIT classification of the registrant for the fiscal year ending December 31, 2000. Subsequent to such disposition, the registrant expects that it will meet the REIT income and asset tests for the fiscal year ended December 31, 2000.

Adverse Effects of REIT Minimum Dividend Requirements

      In order to qualify as a REIT, the registrant is generally required each year to distribute to its shareholders at least 95% of its taxable income (excluding any net capital gain). In addition, if the registrant were to dispose of assets acquired in certain acquisitions during the ten-year period following the acquisitions, the registrant would be required to distribute at least 95% of the amount of any “built-in gain” attributable to such assets that the registrant recognizes in the disposition, less the amount of any tax paid with respect to such recognized built-in gain. The registrant generally is subject to a 4% nondeductible excise tax on the amount, if any, by which certain distributions paid by it with respect to any calendar year are less than the sum of:

• 85% of its ordinary income for that year,

• 95% of its capital gain net income for that year, and

• 100% of its undistributed income from prior years.

      The registrant intends to make distributions to its shareholders to comply with the 95% distribution requirement and to avoid the nondeductible excise tax. Differences in timing between the recognition of taxable income and the receipt of cash available for distribution could require the registrant to borrow funds on a short-term basis on disadvantageous terms to meet the 95% distribution requirement and to avoid the nondeductible excise tax.

      Distributions to shareholders by the registrant are determined by the registrant’s board of trustees (“Board of Trustees”) and depend on a number of factors, including the amount of cash available for distribution, financial condition, results of operations, any decision by the Board of Trustees to reinvest funds rather than to distribute such funds, capital expenditures, the annual distribution requirements under the REIT provisions of the Code and such other factors as the Board of Trustees deems relevant. For federal income tax purposes, distributions paid to shareholders may consist of ordinary income, capital

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gains, return of capital, or a combination thereof. The registrant will provide shareholders with annual statements as to the taxability of distributions. The registrant intends that the Imperial distribution shall be applied against its minimum capital gain distribution requirements for 2000.

Ability to Operate Properties Directly Affects the Registrant’s Financial Condition

      The registrant’s investments will be subject to the risks inherent in owning real estate. The underlying value of the registrant’s real estate investments, the results of its operations and its ability to make distributions to its shareholders and to pay amounts due on its indebtedness will depend on its ability to operate its properties in a manner sufficient to maintain or increase revenues and to generate sufficient revenues in excess of its operating and other expenses.

Illiquidity of Real Estate

      Real estate investments are relatively illiquid. The registrant’s ability to vary its portfolio in response to changes in economic and other conditions will therefore be limited. If the registrant decides to sell an investment, no assurance can be given that the registrant will be able to dispose of it in the time period it desires or that the sales price of any investment will recoup or exceed the amount of the registrant’s investment.

Increases in Property Taxes Could Affect the Registrant’s Ability to Make Expected Shareholder Distributions

      The registrant’s real estate investments are all subject to real property taxes. The real property taxes on properties in which the registrant invests may increase or decrease as property tax rates change and as the value of the properties are assessed or reassessed by taxing authorities. Increases in property taxes may have an adverse effect on the registrant and its ability to make distributions to shareholders and to pay amounts due on its indebtedness.

Environmental Liabilities

      The obligation to pay for the cost of complying with existing environmental laws, ordinances and regulations, as well as the cost of complying with future legislation, may affect the operating costs of the registrant. Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real property may be liable for the costs of removal or remediation of hazardous or toxic substances on or under the property. Environmental laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances and whether or not such substances originated from the property. In addition, the presence of hazardous or toxic substances, or the failure to remediate such property properly, may adversely affect the registrant’s ability to borrow by using such real property as collateral.

      Certain environmental laws and common law principles could be used to impose liability for releases of hazardous materials, including asbestos-containing materials or “ACMs,” into the environment. In addition, third parties may seek recovery from owners or operators of real properties for personal injury associated with exposure to released ACMs or other hazardous materials. Environmental laws may also impose restrictions on the use or transfer of property, and these restrictions may require expenditures. In connection with the ownership and operation of any of the registrant’s properties, the registrant, the Management Company and the other lessees of these properties may be liable for any such costs. The cost of defending against claims of liability or remediating contaminated property and the cost of complying with environmental laws could materially adversely affect the registrant and the Management Company and their ability to pay amounts due on

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their indebtedness and with respect to the registrant, to make distributions to its shareholders.

      Prior to undertaking major transactions, the registrant has hired independent environmental experts to review specific properties. The registrant has no reason to believe that any environmental contamination or violation of any applicable law, statute, regulation or ordinance governing hazardous or toxic substances has occurred or is occurring. However, no assurance can be given that hazardous or toxic substances are not located on any of the properties. The registrant will also endeavor to protect itself from acquiring contaminated properties or properties with significant compliance problems by obtaining site assessments and property reports at the time of acquisition when it deems such investigations to be appropriate. There is no guarantee, however, that these measures will successfully insulate the registrant from all such liabilities.

Compliance with The ADA May Affect Expected Distributions to the Registrant’s Shareholders

      Under the Americans with Disabilities Act of 1990 (the “ADA”), all public accommodations are required to meet certain federal requirements related to access and use by disabled persons. A determination that the registrant is not in compliance with the ADA could also result in the imposition of fines and/or an award of damages to private litigants. If the registrant were required to make modifications to comply with the ADA, there could be a material adverse effect on its ability to pay amounts due on its indebtedness or to make distributions to its shareholders.

Uninsured and Underinsured Losses

      The registrant may not be able to insure its properties against losses of a catastrophic nature, such as earthquakes and floods, because such losses are uninsurable or not economically insurable. The registrant will use its discretion in determining amounts, coverage limits and deductibility provisions of insurance, with a view to maintaining appropriate insurance coverage on its investments at a reasonable cost and on suitable terms. This may result in insurance coverage that, in the event of a substantial loss, would not be sufficient to pay the full current market value or current replacement cost of the lost investment and also may result in certain losses being totally uninsured. Inflation, changes in building codes, zoning or other land use ordinances, environmental considerations, lender imposed restrictions and other factors also might make it not feasible to use insurance proceeds to replace the property after such property has been damaged or destroyed. Under such circumstances, the insurance proceeds, if any, received by the registrant might not be adequate to restore its economic position with respect to such property.

Inability to Refinance

      The registrant is subject to the normal risks associated with debt and preferred stock financings, including the risk that the registrant’s cash flow will be insufficient to meet required payments of principal and interest and distributions, the risk that indebtedness on its properties, or unsecured indebtedness, will not be able to be renewed, repaid or refinanced when due or that the terms of any renewal or refinancing will not be as favorable as the terms of such indebtedness. If the registrant were unable to refinance the indebtedness on acceptable terms, or at all, the registrant might be forced to dispose of one or more of its properties on disadvantageous terms, which might result in losses to the registrant, which losses could have a material adverse effect on the registrant and its ability to make distributions to shareholders and to pay amounts due on its indebtedness. Furthermore, if a property is mortgaged to secure payment of indebtedness and the registrant is unable to meet mortgage payments, the mortgagee could foreclose upon the property, appoint a receiver and receive an assignment of rents and leases or pursue other remedies, all with a consequent loss of revenues and asset value to the registrant.

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Foreclosures could also create taxable income without accompanying cash proceeds, thereby hindering the registrant’s ability to meet the REIT distribution requirements of the Code.

Rising Interest Rates

      The registrant has incurred and expects in the future to incur indebtedness which bears interest at variable rates. Accordingly, increases in interest rates would increase the registrant’s interest costs (to the extent that the related indebtedness was not protected by interest rate protection arrangements), which could have a material adverse effect on the registrant and its ability to make distributions to shareholders and to pay amounts due on its indebtedness or cause the registrant to be in default under certain debt instruments. In addition, an increase in market interest rates may cause holders to sell their shares of beneficial interest of the registrant (“Common Shares”) and reinvest the proceeds thereof in higher yielding securities, which could adversely affect the market price for the Common Shares.

Impact of Year 2000 Issues

      During 1999 the registrant and Impark completed the process for the year 2000 date change. This process involved identifying and remediating data recognition problems in computer systems, software and other operating equipment, working with third parties to address year 2000 issues as they pertain to the registrant and Impark and developing contingency plans to address potential risks in the event of year 2000 failures. To date, the registrant and Impark have successfully managed this transition.

      Although considered unlikely, unanticipated problems in the registrant’s and Impark’s core business process, including problems associated with non-compliant third parties and disruptions to the economy in general, could still occur despite efforts to date to remediate affected systems and develop contingency plans. The registrant and Impark will continue to monitor all business processes, including interaction with the registrant’s and Impark’s customers, vendors and other third parties, throughout 2000 to address any issues and ensure all processes continue to function properly.

Exchange Rate Losses

      At December 31, 1999, the Management Company had approximately $71 million of revenues attributable to Impark’s Canadian operations, representing approximately 39% of the registrant’s total revenues. The registrant does not hedge its foreign currency exposure and does not currently intend to do so in the future.

      The registrant recognized $1.1 million in foreign currency gains during 1999 related to unrealized exchange rate gains on loans to affiliated Canadian companies. Prior to December 31, 1999, the registrant also had recorded a loss from the translation of the Canadian operations as a separate component of shareholders’ equity. This loss accumulated to $1.7 million and was recognized in the loss recognized for discontinued operations in December 1999’s combined financial statements. There can be no assurance that foreign currency rate fluctuations will not have a material adverse effect on the registrant’s business, financial condition or results of operations in the future. However, the registrant's exposure to foreign currency rate fluctuations has been substantially lessened subsequent to the Imperial distribution.

Results of Operations Adversely Affected by Factors Beyond the Registrant’s Control

      Results of operations of the registrant’s properties may be adversely affected by, among other things:

• changes in national economic conditions, changes in local market conditions due to changes in general or local economic conditions and neighborhood characteristics;

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• changes in interest rates and in the availability, cost and terms of financing;

• the impact of present or future environmental legislation and compliance with environmental laws and other regulatory requirements;

• the ongoing need for capital improvements, particularly in older structures;

• changes in real estate tax rates and assessments and other operating expenses;

• adverse changes in governmental rules and fiscal policies;

• adverse changes in zoning and other land use laws; and

• earthquakes and other natural disasters (which may result in uninsured losses) and other factors which are beyond its control.

CAUTIONARY STATEMENTS CONCERNING FORWARD-LOOKING STATEMENTS

      Any statements in this report, including any statements in the documents that are incorporated by reference herein that are not strictly historical are forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any such forward-looking statements contained or incorporated by reference herein should not be relied upon as predictions of future events. Certain such forward-looking statements can be identified by the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “pro forma,” “estimates” or “anticipates” or the negative thereof or other variations thereof or comparable terminology, or by discussions of strategy, plans, intentions or anticipated or projected events, results or conditions. Such forward-looking statements are dependent on assumptions, data or methods that may be incorrect or imprecise and they may be incapable of being realized. Such forward-looking statements include statements with respect to:

• the declaration or payment of distributions by the registrant or the Management Company,

• the ownership, management and operation of properties,

• potential acquisitions or dispositions of properties, assets or other businesses by the registrant or the Management Company,

• the policies of the registrant or the Management Company regarding investments, acquisitions, dispositions, financings and other matters,

• the qualification of the registrant as a REIT under the Code and the “grandfathering” rules under Section 269B of the Code,

• the real estate industry and real estate markets in general,

• the availability of debt and equity financing,

• interest rates,

• general economic conditions,

• supply and customer demand,

• trends affecting the registrant or the Management Company,

• the effect of acquisitions or dispositions on capitalization and financial flexibility,

• the anticipated performance of the registrant or the Management Company and of acquired properties and businesses, including, without limitation, statements regarding anticipated revenues, cash flows, funds from operations, earnings before interest, depreciation and amortization, property net operating income, operating or profit margins and sensitivity to economic downturns or anticipated growth or improvements in any of the foregoing, and

11

• the ability of the registrant or the Management Company and of acquired properties and businesses to grow.

      Shareholders are cautioned that, while forward-looking statements reflect the respective companies’ good faith beliefs, they are not guarantees of future performance and they involve known and unknown risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of various factors. The information contained or incorporated by reference in this prospectus and any accompanying prospectus supplement, including, without limitation, the information set forth in “Risk Factors” above or in any risk factors in documents that are incorporated by reference in this report, identifies important factors that could cause such differences. Neither the registrant nor Management Company undertakes any obligation to publicly release the results of any revisions to these forward-looking statements that may reflect any future events or circumstances.

      The number of persons employed by the registrant is 202 as of December 31, 1999.

12

Item 2. Properties

      The following table sets forth certain information relating to the registrant’s investments at December 31, 1999:

								Square						Year		Total
			Date of		Ownership			feet(1)			Occupancy			construction		cost
Direct equity investments	Location		acquisition		percentage			(000)			rate(2)			completed		(000)
Shopping Malls:
Eastern
Crossroads Center		St. Cloud, MN		1/01/72		100	%		784	(3)		98	%		1966	$	35,608
Westgate Towne Center		Abilene, TX		4/22/77		100			280	(6)		98			1962		20,235
																	55,843
Southwestern:
Park Plaza		Little Rock, AR		09/01/97		100			548			100			1988		64,405
Pecanland		Monroe, LA		09/01/97		100			924			97			1985		46,890
																	111,295
																	167,138
Office Buildings:
Midwestern
55 Public Square		Cleveland, OH		01/15/63		100			390			63			1959		39,541
Circle Tower		Indianapolis, IN		10/16/74		100			102			78			1930		4,932
																	44,473
Western Redevelopment
North Valley Tech Center		Denver, CO		12/03/69		100			484			59	(8)		1967		30,705
Two Rivers Center		Clarksville, TN		9/26/75		100			231			81	(10)		1968		9,115
																	39,820
																	84,293
Parking Facilities:
United States
Huntington Garage		Cleveland, OH		12/31/75		100			1,100			—			1969		8,202
West Third St. Lot		Cleveland, OH		09/19/77		100			300			—			—		2,446
5th and Marshall Garage		Richmond, VA		02/24/98		100			793			—			1985		9,192
Long Street Garage		Columbus, OH		01/16/98		100			550			—			1978		3,928
Madison & Wells Garage		Chicago, IL		01/28/98		100			1,107			—			1998		43,184
Printer’s Alley Garage		Nashville, TN		07/01/98		100			275			—			1926		5,866
Giants Stadium Parking (12)		San Francisco, CA		12/01/99		100			4,900			—			1999		2,277
																	75,095
Canada: (12)
10th Ave. Lot		Calgary, Alberta		05/05/97		100			55			—			—		242
1009-9th Ave. Lot		Calgary, Alberta		05/05/97		100			142			—			—		621
Parkade		Edmonton, Alberta		05/05/97		100			562			—			1958		1,313
103 St. Lot		Edmonton, Alberta		05/05/97		100			61			—			—		328
107th St		Edmonton, Alberta		05/05/97		100			—	(13)		100			1973		207
221 9th Ave. Lot		Calgary, Alberta		05/05/97		100			148			—			—		1,449
Graham Ave. Lot		Winnipeg, Manitoba		05/05/97		100			175			—			—		1,189
Water Ave. Lot		Winnipeg, Manitoba		05/05/97		100			235			—			—		628
Young St. Lot		Winnipeg, Manitoba		05/05/97		100			40			—			—		104
Broadway Lot		Winnipeg, Manitoba		05/05/97		100			67			—			—		439
Donald St. Lot		Winnipeg, Manitoba		05/05/97		100			—	(14)		—			—		120
Broad St. Lot		Regina, Saskatchewan		05/05/97		100			20			—			—		37
Queens Quay		Toronto, Ontario		05/05/97		100			—	(13)		100			1950		1,276
351 Smith St		Winnipeg, Manitoba		09/09/97		100			110			—			—		846
																	8,799
																	83,894
Total equity investments																$	335,325

[Additional columns below]

[Continued from above table, first column(s) repeated]

	Mortgage Loans
				Balance			Principal
	Original			at			repayment
	balance(s)			12/31/99			for 2000		Interest			Year of
Direct equity investments	(000)			(000)			(000)		rate			maturity
Shopping Malls:
Eastern
Crossroads Center	$	79,086	(4)	$	76,436	(5)	$	800		(5	)		(5	)
Westgate Towne Center		—			—			—		—			—
		79,086			76,436			800
Southwestern:
Park Plaza		37,511			—			—		8.43			2006
Pecanland		39,344			38,162	(7)		613		12.25			2017
		76,855			38,162			613
		155,941			114,598			1,413
Office Buildings:
Midwestern
55 Public Square		21,100	(4)		21,100			—		LIBOR+3.25	%		2002
Circle Tower		—			—			—		—			—
		21,100			21,100			—
Western Redevelopment
North Valley Tech Center		16,000	(4)		16,000	(9)		—		LIBOR+2.95	%		2002
Two Rivers Center		—			—			—		—			—
		16,000			16,000			—
		37,100			37,100			—
Parking Facilities:
United States
Huntington Garage		9,300	(4)		7,920			306		8.550	%		2014
West Third St. Lot		—			—			—		—			—
5th and Marshall Garage		—			—			—		—			—
Long Street Garage		1,602	(4)		1,433	(11)		86		(11	)		(11	)
Madison & Wells Garage		30,000	(4)		30,000			—		LIBOR+1.75	%		2001
Printer’s Alley Garage		4,468	(4)		4,000			—		LIBOR+1.75	%		2001
Giants Stadium Parking		—			—			—		—			—
		45,370			43,353			392
Canada:(12)
10th Ave. Lot		—			—			—		—			—
1009-9th Ave. Lot		—			—			—		—			—
Parkade		—			—			—		—			—
103 St. Lot		—			—			—		—			—
107th St		—			—			—		—			—
221 9th Ave. Lot		—			—			—		—			—
Graham Ave. Lot		—			—			—		—			—
Water Ave. Lot		—			—			—		—			—
Young St. Lot		—			—			—		—			—
Broadway Lot		—			—			—		—			—
Donald St. Lot		—			—			—		—			—
Broad St. Lot		—			—			—		—			—
Queens Quay		—			—			—		—			—
351 Smith St		—			—			—		—			—
		—			—			—
		45,370			43,353			392
Total equity investments	$	238,411		$	195,051		$	1,805

13

(1)	The square footage shown represents gross leasable area for shopping malls and net rentable area for office buildings. The parking garages and parking facilities are shown as number of parking spaces.
(2)	Occupancy rates shown are as of December 31, 1999, and are based on the total square feet at each property.
(3)	The total mall contains 784,000 square feet; the registrant owns 671,000 square feet, the balance is separately owned by Target Stores.
(4)	The registrant obtained mortgages on the following properties subsequent to acquisition: Huntington Garage in the amount of $9,300,000 in 1993; Crossroads Center (St. Cloud, MN) in the amount of $49,500,000 in 1995 and $29,583,655 in 1999; Madison & Wells Garage in the amount of $30,000,000 in 1999; 55 Public Square in the amount of $21,100,000 in 1999; and North Valley Tech Center in the amount of $16,000,000 in 1999. The registrant assumed $4,468,000 and $1,602,000 in mortgage debt upon the acquisition of the Printer’s Alley Garage and the Long Street Garage, respectively.
(5)	This property has two mortgages. Interest rates are 7.485% and 15.0%. The mortgages mature in 2002 and 2004, respectively. The 7.485% mortgage in the principal amount of $46,914,000 has a principal payment for 2000 of $800,000. The 15.0% mortgage is interest only and matures in 2004 and allows the lender to purchase the property for $2 million in excess of the first and second mortgage loans in April 2000.
(6)	The mall is currently being redeveloped as a power strip center with Winn-Dixie occupying 65,000 square feet in July 1998. Currently, 95,000 square feet is separately owned by Montgomery Ward & Co., Incorporated. Kmart is expected to open on March 1, 2000 and occupy 117,147 square feet.
(7)	The mortgage loan participates in 55% of revenues, as defined, in excess of $5,970,516.
(8)	North Valley Tech Center was repositioned from a shopping mall to an office complex during 1995. Montgomery Ward vacated the complex in 1997 allowing the registrant to continue to retenant the former mall as an office center. The property is now anchored by major tenants Teletech and Qwest.
(9)	The mortgage secured by this property requires that all rents and other tenant charges be deposited into a bank account which serves as additional security for the lender while funding debt service and other escrow accounts.
(10)	The mall is currently being repositioned from a retail center to an office complex. Convergys opened in March 1999 and later expanded to occupy 77,179 square feet in November 1999.
(11)	This property has two mortgages. Interest rates are 8.25% and 8.625%. The mortgages mature in 2003 and 2009, respectively. The 8.25% mortgage, in the principal amount of $813,000, has a principal payment for 2000 of $50,000. The 8.625% mortgage, in the principal amount of $621,000, has a principal payment for 2000 of $46,000.
(12)	Effective March 27, 2000, the Canadian Parking facilities and Giant Stadium Parking owned by the registrant were transferred to Imperial Parking Corporation in connection with the Impark Distribution.
(13)	These properties are general use buildings currently being used as regional and city offices by Impark.
(14)	This property is currently demolished and awaiting redevelopment.

14

      As of December 31, 1999, the registrant owned in fee its interests in Crossroads Center (St. Cloud, MN), 55 Public Square, Park Plaza, Pecanland, Parkade, West Third St. Lot, 10th Avenue Lot, 1009 9th Ave. Lot, 103 St. Lot, 107th St. Lot, 221 9th Avenue Lot, Graham Ave. Lot, Water Ave. Lot, Young St. Lot, Broad St. Lot, Broadway Lot, 351 Smith St., Queens Quay, Donald St., St. Clair Development Property, Madison & Wells Garage, Long Street Garage, 5th and Marshall Garage and Printer’s Alley Garage. The registrant holds a leasehold estate or estates, or a fee interest and one or more leasehold estates in Two Rivers Center, Circle Tower and North Valley Tech Center and the Huntington Garage.

15

ITEM 3. LEGAL PROCEEDINGS.

      Registrant vs. The State of California

      The registrant has pursued legal action against the State of California associated with the 1986 flood of Sutter Buttes Center, formerly Peach Tree Center. In September 1991, the court ruled in favor of the registrant on the liability portion of this inverse condemnation suit, which the State of California appealed. However, in the third quarter of 1999, the 1991 ruling in favor of the registrant was reversed by the State of California appeals court. Accordingly, the registrant expensed $1.2 million in deferred legal fees which the earlier court ruling in favor of the registrant had allowed for recovery.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

      On November 16, 1999, the Registrant held a special meeting of shareholders of beneficial interest to consider three matters.

      (A) Sale of six shopping malls, namely: Alexandria Mall, Alexandria, LA; Brazos Mall, Lake Jackson, TX; Killeen Mall, Killeen, TX; Mesilla Valley Mall, Las Cruces, NM; Shawnee Mall, Shawnee, OK: and Villa Linda Mall, Santa Fe, NM.

For	Against		Abstain
29,993,284		348,841		95,652

      (B) Amendment to the registrant’s Amended Declaration of Trust to enable registrant to engage in certain activities in connection with the investment and financing of the registrant’s assets.

For	Against		Abstain
29,384,336		968,760		83,880

      (C) Amendment to the registrant’s Amended Declaration of Trust to enable registrant to effect a reverse or forward split of shares of beneficial interest.

For	Against		Abstain
28,142,531		2,175,327		107,026

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

      MARKET PRICE AND DIVIDEND RECORD.

      “Market Price and Dividend Record” presented on page 1 of Exhibit 13.

ITEM 6. SELECTED FINANCIAL DATA.

      “Selected Financial Data” presented on pages 2 and 3 of Exhibit 13.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

16

      “Management’s Discussion and Analysis of Financial Condition and Results of Operations” presented on pages 28 through 35 of Exhibit 13.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      Quantitative and Qualitative disclosures regarding market risk presented on page 32 and 33 of Exhibit 13.

ITEM 8. FINANCIAL STATEMENTS.

      The “Combined Balance Sheets” as of December 31, 1999 and 1998, and the “Combined Statements of Operations, Combined Statements of Comprehensive Income, Combined Statements of Changes in Cash, Combined Statements of Shareholders’ Equity” for the years ended December 31, 1999, 1998 and 1997, of the registrant, “Notes to Combined Financial Statements” and “Report of Independent Public Accountants” are presented on pages 4 through 27 of Exhibit 13.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

      None.

17

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

      (a) Directors.

      “Election of Trustees” presented in the registrant’s 2000 Proxy Statement to be filed is incorporated herein by reference.

      (b) Executive Officers.

      “Executive Officers” as presented in the registrant’s 2000 Proxy Statement to be filed is incorporated by reference.

ITEM 11. EXECUTIVE COMPENSATION.

      “Compensation of Trustees” and “Executive Compensation”, presented in the registrant’s 2000 Proxy Statement to be filed are incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

      “Security Ownership of Trustees, Officers and Others” presented in the registrant’s 2000 Proxy Statement to be filed is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      “Certain Transactions and Relationships” presented in the registrant’s 2000 Proxy Statement to be filed is incorporated herein by reference.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a) Financial Statements and Financial Statement Schedules.

      (1) Financial Statements:

      Combined Balance Sheets — December 31, 1999 and 1998 on page 4 of Exhibit 13.

      Combined Statements of Operations — For the Years Ended December 31, 1999, 1998 and 1997 on page 5 of Exhibit 13.

      Combined Statements of Comprehensive Results — For the Years Ended December 31, 1999, 1998 and 1997 on page 5 of Exhibit 13.

      Combined Statements of Shareholders’ Equity — For the Years Ended December 31, 1999, 1998 and 1997 on page 6 and 7 of Exhibit 13.

      Combined Statements of Changes in Cash — For the Years Ended December 31, 1999, 1998 and 1997 on page 8 of Exhibit 13.

      Notes to Combined Financial Statements on pages 9 through 26 of Exhibit 13.

      Report of Independent Public Accountants on page 27 of Exhibit 13.

      (2) Financial Statement Schedules:

      Report of Independent Public Accountants on Financial Statement Schedules.

      Schedule III — Real Estate and Accumulated Depreciation.

18

      Schedule IV — Mortgage Loans on Real Estate. All Schedules, other than III and IV, are omitted, as the information is not required or is otherwise furnished.

(b) Exhibits.

19

EXHIBIT		INCORPORATED HEREIN BY
NUMBER	DESCRIPTION	REFERENCE TO	PAGE
(3)(a)	By-laws of registrant as amended	1998 10-K
(3)(b)	Amended and restated Declaration of Trust of registrant as amended as of November 16, 1999.	1999 10-K	X
(4)(a)	Form of certificate for Shares of Beneficial Interest	Registration Statement on Form S-3 No. 33-2818
(4)(b)	Form of Indenture governing Debt Securities, dated October 1, 1993 between registrant and Society National Bank	Registration Statement on Form S-3 No. 33-68002
(4)(c)	Form of Note	Registration Statement on Form S-3 No. 33-68002
(4)(d)	Rights Agreement between registrant and National City Bank dated March 7, 1990	Form 8-A dated March 30, 1990 No. 0-18411
(4)(e)	Certificate of Designations relating to registrant’s Series A Cumulative Redeemable Preferred Shares of Beneficial Interest	Form 8-K dated October 24, 1996
(4)(f)	Warrant to purchase 500,000 shares of beneficial interest of registrant	1998 10-K
(10)(a)	1999 Trustee Share Option Plan	1999 Proxy Statement for Special Meeting held May 17, 1999 in lieu of Annual Meeting
(10)(b)	1999 Long Term Incentive Performance Plan —	1999 Proxy Statement for Special Meeting held May 17, 1999 in lieu of Annual Meeting
(10)(c)	Credit agreement between Imperial Parking Limited and BT Bank of Canada	March 31, 1997 Form 10-Q
(10)(d)	Put agreement entered into between BT Bank of Canada, Hong Kong Bank of Canada and First Union Real Estate Equity and Mortgage Investment	March 31, 1997 Form 10-Q
(10)(e)	Share Purchase Agreement and amendments Impark Investments Inc. and First Union Real estate Equity and Mortgage Investments	March 31, 1997 Form 10-Q
(10)(f)	Put agreement entered into between Impark Investments Inc., the Onex Associates and First Union Real Estate Equity and Mortgage Investments	March 31, 1997 Form 10-Q
(10)(g)	Senior subordinated note by 3357392 Canada Inc. to 3006302 Nova Scotia Company	March 31, 1997 Form 10-Q

20

EXHIBIT		INCORPORATED HEREIN BY
NUMBER	DESCRIPTION	REFERENCE TO	PAGE
(10)(h)	Senior subordinated note by 504463 N.B. Inc. to 3006302 Nova Scotia Company	March 31, 1997 Form 10-Q
(10)(i)	Shareholders Agreement dated April 17, 1997 between 3357392 Canada, Inc. and 3355489 Canada, Inc. and the individuals and trusts listed on Schedule A.	March 31, 1997 Form 10-Q
(10)(j)	Shareholders Agreement dated April 17, 1997 between 504308 N.B., Inc. First Union Management, Inc. and the individuals listed on Schedule A	March 31, 1997 Form 10-Q
(10)(k)	Assignment dated March 27, 1997 between First Union Real Estate Equity and Mortgage Investments and First Union Management, Inc.	March 31, 1997 Form 10-Q
(10)(l)	Assignment dated April 16, 1997 between First Union Management, Inc. and 335489 Canada, Inc.	March 31, 1997 Form 10-Q
(10)(m)	Assignment dated April 16, 1997 between 335489 Canada, Inc. and 3357392 Canada, Inc.	March 31, 1997 Form 10-Q
(10)(n)	Amendment to assignment made May 8, 1997 between First Union Real Estate Equity and Mortgage Investments and Imperial Parking Limited.	March 31, 1997 Form 10-Q
(10)(o)	Employment contract for Daniel P. Friedman	1998 Form 10-K
(10)(p)	Employment contract for Anne N. Zahner	1998 Form 10-K
(10)(q)	Employment contract for David Schonberger	1998 Form 10-K
(10)(r)	Registration Rights Agreement dated as of November 1, 1999 by and among First Union Equity and Mortgage Investments and Gotham Partners, L.P., Gotham Partners III, L.P. and Gotham Partners International, Ltd.	1999 Form 10-K	X
(12)	Statements of Ratios of Combined Income from Operations and Combined Net Income to Fixed Charges		X
(13)	1999 Annual Report to Shareholders		X
(23)(a)	Consent of Independent Public Accountants		X
(23)(b)	Consent of Independent Auditors		X
(24)	Powers of Attorney		X
(27)(a)	Financial data schedule		X
(27)(b)	Financial data schedule		X

(c) Reports on Form 8-K.

      None.

21

SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant 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

By: /s/ Daniel P. Friedman

Daniel P. Friedman, President
and Chief Executive Officer

      Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title		Date
Principal Executive Officer	President, and Chief Executive Officer		March 30, 2000
/s/ Daniel P. Friedman
Daniel P. Friedman
Principal Financial Officer	Executive Vice President- Chief Financial Officer		March 30, 2000
/s/ Brenda J. Mixson
Brenda J. Mixson
Principal Accounting Officer	Controller		March 30, 2000
/s/ Gregory C. Scott
Gregory C. Scott
Trustees:		)	Date
William A. Ackman*		)
Daniel J. Altobello*		)	March 30, 2000
David P. Berkowitz*		)
Daniel P. Friedman*		)
Stephen J. Garchik*		)
David S. Klafter*		)
William Scully*		)
Stephen S. Snider*		)
Mary Ann Tighe*		)
James A. Williams*		)
Signature
By: /s/ Daniel P. Friedman
Daniel P. Friedman, Attorney-in-Fact

22

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON

FINANCIAL STATEMENT SCHEDULES

To First Union Real Estate Equity
   and Mortgage Investments:

      We have audited in accordance with auditing standards generally accepted in the United States, the combined financial statements included in the registrant’s 1999 Annual Report, included as Exhibit 13 of this Form 10-K, and have issued our report thereon dated March 1, 2000. Our audit was made for the purpose of forming an opinion on those combined statements taken as a whole. The schedules listed under Item 14(a)(2) on page 17 are the responsibility of management and are presented for purposes of complying with the Securities and Exchange Commission’s rules and are not part of the basic combined financial statements. These schedules have been subjected to the auditing procedures applied in the audit of the basic combined financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic combined financial statements taken as a whole.

Cleveland, Ohio,
March 1, 2000.

23

INDEPENDENT AUDITORS’ REPORT

To the Board of Directors
First Union Managements, Inc.

      We have audited the combined balance sheet of the FUMI Parking Business as at December 31, 1999 and the related combined statements of operations, owner’s deficiency and cash flows for the year ended December 31, 1999 (not presented separately herein). These financial statements are the responsibility of the management of the Business. Our responsibility is to express an opinion on these financial statements based on our audits.

      We conducted our audits in accordance with United States generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

      In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of the FUMI Parking Business as at December 31, 1999 and the results of its operations and its cash flows for the year ended December 31, 1999 in accordance with generally accepted accounting principles in the United States.

/s/ KPMG LLP
Chartered Accountants

Vancouver, Canada
February 4, 2000

23

Schedule III

REAL ESTATE AND ACCUMULATED DEPRECIATION
As of December 31, 1999
(In thousands)

								Cost
								capitalized
				Initial cost to				subsequent to
				Registrant				acquisition
						Buildings		Land		Currency
		Encum-				and		and		revaluation of				Building and
Description		brances		Land		Improvements		Improvements		foreign assets		Land		Improvements		Total
Shopping Malls:
	Eastern
	Crossroads Center, St. Cloud, MN		76,436		1,680		8,303		25,625		—		5,490		30,118		35,608
	Westgate Towne Center, Abilene, TX		—		1,425		3,050		15,760		—		1,616		18,619		20,235
			76,436		3,105		11,353		41,385		—		7,106		48,737		55,843
	Southwestern
	Park Plaza, Little Rock, AR		—		5,816		58,037		552		—		5,816		58,589		64,405
	Pecanland, Monroe, LA		38,162		8,874		36,891		1,125		—		8,958		37,932		46,890
			38,162		14,690		94,928		1,677		—		14,774		96,521		111,295
			114,598		17,795		106,281		43,062		—		21,880		145,258		167,138
Office Buildings and Redevelopment:
	Midwestern
	55 Public Square, Cleveland OH		21,100		2,500		19,055		17,986		—		5,822		33,719		39,541
	Circle Tower, Indianapolis, IN		—		270		1,609		3,053		—		270		4,662		4,932
			21,100		2,770		20,664		21,039		—		6,092		38,381		44,473
	Redevelopment
	North Valley Tech Center, Denver, CO		16,000		—		7,666		23,039		—		—		30,705		30,705
	Two Rivers Center, Clarksville, TN		—		—		3,206		5,909		—		—		9,115		9,115
			16,000		—		10,872		28,948		—		—		39,820		39,820
			37,100		2,770		31,536		49,987		—		6,092		78,201		84,293

[Additional columns below]

[Continued from above table, first column(s) repeated]

		Accumu-		Year
		lated		construc-
		depreci-		tion		Date
Description		ation		completed		Acquired		Life
Shopping Malls:
	Eastern
	Crossroads Center, St. Cloud, MN		14,257		1966		01-01-72		40
	Westgate Towne Center, Abilene, TX		4,722		1962		04-22-77		40
			18,979
	Southwestern
	Park Plaza, Little Rock, AR		3,553		1988		09-01-97		40
	Pecanland, Monroe, LA		2,310		1985		09-01-97		40
			5,863
			24,842
Office Buildings and Redevelopment:
	Midwestern
	55 Public Square, Cleveland OH		25,544		1959		01-15-63		40
	Circle Tower, Indianapolis, IN		2,785		1930		10-16-74		40
			28,329
	Redevelopment
	North Valley Tech Center, Denver, CO		11,612		1967		12-03-69		40
	Two Rivers Center, Clarksville, TN		4,657		1968		09-26-75		40
			16,269
			44,598

24

Schedule III

								Cost
								capitalized
				Initial cost to				subsequent to
				Registrant				acquisition
						Buildings		Land			Currency
		Encum-				and		and			revaluation of					Building and
Description		brances		Land		Improvements		Improvements			foreign assets			Land		Improvements		Total
Parking Facilities:
	United States
	Huntington Garage, Cleveland, OH		7,920		1,600		4,407		2,195			—			1,600		6,602		8,202
	West Third St. Lot, Cleveland, OH		—		2,030		—		416			—			2,286		160		2,446
	5th and Marshall Garage, Richmond, VA		—		1,102		8,090		—			—			1,102		8,090		9,192
	Long Street Garage, Columbus, OH		1,433		1,886		2,042		—			—			1,886		2,042		3,928
	Madison & Wells Garage, Chicago, IL		30,000		16,266		26,918		—			—			16,266		26,918		43,184
	Printer’s Alley Garage, Nashville, TN		4,000		1,914		4,752		(800	)		—			1,914		3,952		5,866
	Giants Stadium Parking, San Francisco, CA		—		—		2,277		—			—			—		2,277		2,277
			43,353		24,798		48,486		1,811			—			25,054		50,041		75,095
	Canada
	10th Ave. Lot, Calgary, Alberta		—		255		—		—			(13	)		242		—		242
	1009-9th Ave. Lot, Calgary, Alberta		—		655		—		—			(34	)		621		—		621
	Parkade, Edmonton, Alberta		—		656		582		154			(76	)		622		691		1,313
	103 St. Lot, Edmonton, Alberta		—		346		—		—			(18	)		328		—		328
	107th St., Edmonton, Alberta		—		83		136		—			(12	)		79		128		207
	221 9th Ave. Lot, Calgary, Alberta		—		1,529		—		—			(80	)		1,449		—		1,449
	Graham Ave. Lot, Winnipeg, Manitoba		—		1,254		—		—			(65	)		1,189		—		1,189
	Water Ave. Lot, Winnipeg, Manitoba		—		664		—		—			(36	)		628		—		628
	Young St. Lot, Winnipeg, Manitoba		—		110		—		—			(6	)		104		—		104
	Broadway Lot, Winnipeg, Manitoba		—		464		—		—			(25	)		439		—		439
	Donald St. Lot, Winnipeg, Manitoba		—		117		—		10			(7	)		120		—		120
	Broad St. Lot, Regina, Saskatchewan		—		33		—		6			(3	)		37		—		37
	Queens Quay, Toronto, Ontario		—		404		942		—			(71	)		383		893		1,276
	351 Smith St., Winnipeg, Manitoba		—		863		—		29			(47	)		846		—		846
			—		7,433		1,660		199			(493	)		7,087		1,712		8,799
			43,353		32,231		50,146		2,010			(493	)		32,141		51,753		83,894
Other:
Real Estate net carrying value at December 31, 1999		$	195,051	$	52,796	$	187,963	$	95,059		$	(493	)	$	60,113	$	275,212	$	335,325

[Additional columns below]

[Continued from above table, first column(s) repeated]

		Accumu-		Year
		lated		construc-
		depreci-		tion		Date
Description		ation		completed		Acquired		Life
Parking Facilities:
	United States
	Huntington Garage, Cleveland, OH		3,261		1969		12-31-75		40
	West Third St. Lot, Cleveland, OH		286		—		09-19-77		10
	5th and Marshall Garage, Richmond, VA		404		1985		02-24-98		40
	Long Street Garage, Columbus, OH		134		1978		01-16-98		30
	Madison & Wells Garage, Chicago, IL		1,346		1998		01-28-98		40
	Printer’s Alley Garage, Nashville, TN		289		1926		07-01-98		25
	Giants Stadium Parking, San Francisco, CA		—		1999		12-01-99		10
			5,720
	Canada
	10th Ave. Lot, Calgary, Alberta		—		—		05-05-97
	1009-9th Ave. Lot, Calgary, Alberta		—		—		05-05-97
	Parkade, Edmonton, Alberta		46		1958		05-05-97		40
	103 St. Lot, Edmonton, Alberta		—		—		05-05-97
	107th St., Edmonton, Alberta		9		1973		05-05-97		40
	221 9th Ave. Lot, Calgary, Alberta		—		—		05-05-97
	Graham Ave. Lot, Winnipeg, Manitoba		—		—		05-05-97
	Water Ave. Lot, Winnipeg, Manitoba		—		—		05-05-97
	Young St. Lot, Winnipeg, Manitoba		—		—		05-05-97
	Broadway Lot, Winnipeg, Manitoba		—		—		05-05-97
	Donald St. Lot, Winnipeg, Manitoba		—		—		05-05-97
	Broad St. Lot, Regina, Saskatchewan		—		—		05-05-97
	Queens Quay, Toronto, Ontario		60		1950		05-05-97		40
	351 Smith St., Winnipeg, Manitoba		—		—		09-09-97
			115
			5,835
Other:
Real Estate net carrying value at December 31, 1999		$	75,275

Aggregate cost for federal tax purposes is $282,600.

25

Schedule III
— Continued

      The following is a reconciliation of real estate assets and accumulated depreciation for the years ended December 31, 1999, 1998 and 1997:

			(In thousands)
			Years Ended December 31,
			1999			1998			1997
Asset reconciliation:
	Balance, beginning of period		$	806,859		$	756,308		$	459,084
	Additions during the period:
		Property acquisitions		—			69,551			318,345
		Improvements		12,215			21,515			20,258
		Equipment and appliances		273			1,588			1,396
		Capital lease obligation		—			133			—
		Reduction in reserve on carrying value of real estate assets		48,633			—			3,855
	Deductions during the period:
		Sales of real estate		(522,952	)		(4,878	)		(45,632	)
	Reserve on carrying value of real estate assets			(9,800	)		(36,000	)		—
	Prior period adjustment of reserve balance Currency revaluation of foreign real estate			493			(810	)		—
		Other – write-off of assets and certain fully depreciated tenant alterations		(396	)		(548	)		(998	)
	Balance, end of period		$	335,325		$	806,859		$	756,308
Accumulated depreciation reconciliation:
	Balance, beginning of period		$	165,357		$	142,082		$	139,614
	Additions during the period:
		Depreciation		19,489			23,761			17,301
	Deductions during the period:
		Sales of real estate		(109,247	)		—			(14,480	)
	Write-off of assets and certain fully depreciated tenant alterations			(324	)		(485	)		(353	)
	Balance, end of period		$	75,275		$	165,358		$	142,082

26

Schedule IV

MORTGAGE LOANS ON REAL ESTATE AND NOTES RECEIVABLE

As of December 31, 1999
(In thousands, except for payment terms and footnotes)

	Current
	effective		Final				Carrying
	rate on net		maturity		Face amount		amount of
Description	investment		date	Periodic payment terms	of mortgage		mortgage
Second Mortgage Loan: Secured by apartment complex in Dayton, OH		8.75%	12-1-02	Interest calculated at stated rate of 8.75% with installments of principal and interest payable monthly through maturity; prepayment without penalty subject to certain conditions.	$	2,600	$	2,560
Second Mortgage Loan: Secured by building in Victoria, British Columbia		8%	6-30-09	Interest and principal calculated at stated rate of 8% from July 1, 1999 to June 30, 2004 and 9.25% from July 1, 2004 through June 30, 2009. $897,000 lump sum principal payment due on June 30, 2004.		325		329
Note Receivable: Secured by management contract on apartment complex in Atlanta, GA		10%	3-1-08	Interest calculated at stated rate of 10% with installments of principal and interest payable monthly through maturity; prepayment without penalty subject to certain conditions.		1,800		1,666
Note Receivable: Secured by Temple Mall Company		6%	10-19-23	Monthly interest on principal at LIBOR plus .375%, principal due at maturity, no prepayment penalty.		1,200		1,200
Note Receivable: Secured by security business in Vancouver, British Columbia		12%	6-30-01	Interest only at stated rate of 12% from July 1, 1999 to June 30, 2000 and 16% from July 1, 2000 through June 30, 2001.		508		518
Note Receivable: Secured by parking management business in Vancouver, British Columbia		8%	5-31-09	Interest and principal calculated at stated rate of 8% from June 1, 1999 through May 31, 2004 and 9.25% from June 1, 2004 through May 31, 2009. $138,000 lump sum principal payment due on May 31, 2004.		2,114		2,144
				Totals, December 31, 1999	$	8,547	$	8,417	(A)

      (A) Aggregate cost for federal tax purposes is the carrying amount of the mortgages.

27

Schedule IV
— Continued

      The following is a reconciliation of the carrying amounts of the mortgage loans outstanding for the years ended December 31, 1999, 1998 and 1997:

		(In thousands)
		Years Ended December 31,
		1999			1998			1997
Balance, beginning of period		$	5,508		$	30,686		$	42,266
Additions during the period:
Second mortgage loan on apartment complex in Dayton, OH									2,600
Second mortgage on building in Victoria, British Columbia			325
Note receivable secured by parking management company in Victoria, British Columbia			2,114
Note receivable secured by a security company in Vancouver, British Columbia			508
Note receivable on apartment complex in Atlanta, GA									1,800
Note receivable on Temple Mall Company									1,200
Deferred interest on:
	Wraparound mortgage on garden apartments in Atlanta, GA								48
	Mortgage on mall in Fairmount, WV					6			74
Effect of currency on Canadian denominated mortgage and note receivable			47
Deductions during the period:
Payoff of wraparound mortgage loan on garden apartments in Atlanta, GA									(17,086	)
Payoff of mortgage loan on Mall in Fairmount, WV						(6,206	)
Payoff of first mortgage loan on office building in Cleveland, OH						(18,839	)
Collection of principal			(85	)		(139	)		(216	)
Balance, end of period		$	8,417		$	5,508		$	30,686

28

Exhibit		Incorporated Herein by
Number	Description	Reference to	Page
Exhibit Index
(3)(a)	By-laws of registrant as amended	1998 10-K
(3)(b)	Amended and restated Declaration of Trust of registrant as amended as of November 16, 1999.	1999 10-K	X
(4)(a)	Form of certificate for Shares of Beneficial Interest	Registration Statement on Form S-3 No. 33-2818
(4)(b)	Form of Indenture governing Debt Securities, dated October 1, 1993 between registrant and Society National Bank	Registration Statement on Form S-3 No. 33-68002
(4)(c)	Form of Note	Registration Statement on Form S-3 No. 33-68002
(4)(d)	Rights Agreement between registrant and National City Bank dated March 7, 1990	Form 8-A dated March 30, 1990 No. 0-18411
(4)(e)	Certificate of Designations relating to registrant’s Series A Cumulative Redeemable Preferred Shares of Beneficial Interest	Form 8-K dated October 24, 1996
(4)(f)	Warrant to purchase 500,000 shares of beneficial interest of registrant	1998 10-K
(10)(a)	1999 Trustee Share Option Plan	1999 Proxy Statement for Special Meeting held May 17, 1999 in lieu of Annual Meeting
(10)(b)	1999 Long-term Incentive Performance Plan	1999 Proxy Statement for special meeting held May 17, 1999 in lieu of Annual Meeting
(10)(c)	Credit agreement between Imperial Parking Limited and BT Bank of Canada	March 31, 1997 Form 10-Q
(10)(d)	Put agreement entered into between BT Bank of Canada, Hong Kong Bank of Canada and First Union Real Estate Equity and Mortgage Investment	March 31, 1997 Form 10-Q
(10)(e)	Share Purchase Agreement and amendments Impark Investments Inc. and First Union Real estate Equity and Mortgage Investments	March 31, 1997 Form 10-Q
(10)(f)	Put agreement entered into between Impark Investments Inc., the Onex Associates and First Union Real Estate Equity and Mortgage Investments	March 31, 1997 Form 10-Q

29

Exhibit		Incorporated Herein by
Number	Description	Reference to	Page
(10)(g)	Senior subordinated note by 3357392 Canada Inc. to 3006302 Nova Scotia Company	March 31, 1997 Form 10-Q
(10)(h)	Senior subordinated note by 504463 N.B. Inc. to 3006302 Nova Scotia Company	March 31, 1997 Form 10-Q
(10)(i)	Shareholders Agreement dated April 17, 1997 between 3357392 Canada, Inc. and 3355489 Canada, Inc. and the individuals and trusts listed on Schedule A.	March 31, 1997 Form 10-Q
(10)(j)	Shareholders Agreement dated April 17, 1997 between 504308 N.B., Inc. First Union Management, Inc. and the individuals listed on Schedule A.	March 31, 1997 Form 10-Q
(10)(k)	Assignment dated March 27, 1997 between First Union Real Estate Equity and Mortgage Investments and First Union Management, Inc.	March 31, 1997 Form 10-Q
(10)(l)	Assignment dated April 16, 1997 between First Union Management, Inc. and 335489 Canada, Inc.	March 31, 1997 Form 10-Q
(10)(m)	Assignment dated April 16, 1997 between 335489 Canada, Inc. and 3357392 Canada, Inc.	March 31, 1997 Form 10-Q
(10)(n)	Amendment to assignment made May 8, 1997 between First Union Real Estate Equity and Mortgage Investments and Imperial Parking Limited.	March 31, 1997 Form 10-Q
(10)(o)	Employment contract for Daniel P. Friedman	1998 Form 10-K
(10)(p)	Employment contract for Anne N. Zahner	1998 Form 10-K
(10)(q)	Employment contract for David Schonberger	1998 Form 10-K
(10)(r)	Registration Rights Agreement dated as of November 1, 1999 by and among First Union Equity and Mortgage Investments and Gotham Partners, L.P., Gotham Partners III, L.P. and Gotham Partners International, Ltd.	1999 Form 10-K	X
(12)	Statements of Ratios of Combined Income from Operations and Combined Net Income to Fixed Charges		X
(13)	1999 Annual Report to Shareholders		X
(23)(a)	Consent of Independent Public Accountants		X
(23)(b)	Consent of Independent Auditors		X
(24)	Powers of Attorney		X
(27)(a)	Financial data schedule		X
(27)(b)	Financial data schedule		X

30 EX-3.B 2 EXHIBIT 3(B) 1 Exhibit (3)(b) FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS AMENDED AND RESTATED DECLARATION OF TRUST (AS AMENDED THROUGH NOVEMBER 16, 1999) 2 TABLE OF CONTENTS -----------------

ARTICLE I NAME OF TRUST - TITLE TO TRUST PROPERTY......................................................1 Section 1.1. Name of the Trust..........................................................1 Section 1.2. Title to Trust property....................................................1 Section 1.3. Purposes of Trust..........................................................2 ARTICLE II POWERS AND AUTHORITY OF TRUSTEES.............................................................2 Section 2.1. General....................................................................2 Section 2.2. Power to Acquire, Hold and Dispose of Real and Personal property...........3 Section 2.3. Power to Acquire, Hold and Dispose of Securities...........................3 Section 2.4. Name in Which Title Held...................................................3 Section 2.5. Power to Borrow, Mortgage and Pledge.......................................3 Section 2.6. Power to Lend and Invest...................................................3 Section 2.7. Power to Pay Taxes.........................................................4 Section 2.8. Power to Transfer Trust to Corporation.....................................4 Section 2.9. Power as to Securities.....................................................4 Section 2.10. Power to Delegate..........................................................5 Section 2.11. General Power to Enforce and Collect Securities............................5 Section 2.12. Power to Incur Expenses, Appoint and Employ Officers and Agents............5 Section 2.13. Power to Endorse and Guarantee.............................................6 Section 2.14. Power as to Bank Deposits..................................................6 Section 2.15. Power to Determine Capital and Income......................................6 Section 2.16. Power to Value Trust Property and Keep Books...............................6 Section 2.17. Power to Solicit Proxies etc...............................................6 ARTICLE III LIMITATIONS OF LIABILITY OF BENEFICIARIES, TRUSTEES AND OTHERS...............................7 Section 3.1. No Personal Liability of Beneficiaries.....................................7 Section 3.2. Trustee's Liability Other Than to the Trust or Beneficiary.................7 Section 3.3. Trustee's Liability to Trust and Beneficiaries - Indemnification and Expense - Bond and Security............................7 Section 3.4. No Implied Covenants or Obligations to be Read Into this Instrument; Trustees' Right to Rely on Investment Advisers and Counsel and Accountants.......................................9 ARTICLE IV SHARES OF BENEFICIAL INTEREST................................................................9 Section 4.1. Shares $1 Par Value; Non-Assessable and Not Limited in Number..............9 Section 4.2. Shares Certificates.......................................................10 Section 4.3. Issue of Shares...........................................................10

3

Section 4.4. Trustees Right to Own Shares...........................................11 Section 4.5. Indemnification of Underwriters........................................11 Section 4.6. Change of Number of Issued Shares of Beneficial Interest...............11 ARTICLE V RECORD AND TRANSFER OF SHARES............................................................12 Section 5.1. Register of Shares - Record Owners.....................................12 Section 5.2. Transfer Agents and Registrars.........................................12 Section 5.3. Deposit of Certificates with Transfer Agents...........................12 Section 5.4. Transfer on Records of Trust...........................................12 Section 5.5. Transfer by Operation of Law...........................................13 Section 5.6. Joint Owners of Shares.................................................13 Section 5.7. Duty of Trustees in Share Transfers....................................13 Section 5.8. Lost Certificates......................................................13 Section 5.9. Regulations on Transfer................................................14 ARTICLE VI CHARACTERISTICS OF SHARES................................................................14 Section 6.1. Trustees in Complete Control...........................................14 Section 6.2. Trust Not Affected by Death of Beneficiary.............................14 Section 6.3. Shares Held by Trust...................................................14 ARTICLE VII MEETINGS OF BENEFICIARIES................................................................15 Section 7.1. Annual and Special Meetings Call.......................................15 Section 7.2. Notice of Meetings.....................................................15 Section 7.3. Beneficiaries Cannot Bind Trustees.....................................15 Section 7.4. Closing Transfer Books - Record Date...................................15 Section 7.5. Voting.................................................................16 Section 7.6. Report at Annual Meeting...............................................16 Section 7.7. Inspection of Records..................................................16 ARTICLE VIII TRUSTEES.................................................................................16 Section 8.1. Number of Trustees.....................................................16 Section 8.2. Election of Trustees; Terms of Office..................................17 Section 8.3. Resignation and Removal................................................17 Section 8.4. Filling Vacancy........................................................18 Section 8.5. Trust Continues........................................................18 Section 8.6. Trustees' Meetings and Action..........................................18 Section 8.7. Trustees' Compensation.................................................18 Section 8.8. By-Laws of Trust.......................................................19 Section 8.9. Executive Committee....................................................19 Section 8.10. Trustee's Other Business Activities....................................19

4

ARTICLE IX DISTRIBUTIONS TO BENEFICIARIES.............................................................19 Section 9.1. Trustees May Make Distributions..........................................19 Section 9.2. Retained Amounts.........................................................20 Section 9.3. Information to Beneficiaries.............................................20 ARTICLE X AMENDMENT OF TRUST.........................................................................20 Section 10.1. Amendment................................................................20 ARTICLE XI MISCELLANEOUS..............................................................................21 Section 11.1. Failure to Qualify as Real Estate Investment Trust.......................21 Section 11.2. Laws of Ohio Govern......................................................21 Section 11.3. Counterparts.............................................................21 Section 11.4. Certifications...........................................................21 Section 11.5. Recording................................................................21 Section 11.6. Annual Financial Statements..............................................22 Section 11.7. Information on Share Ownership...........................................22 Section 11.8. Fiscal Year..............................................................22 Section 11.9. Notices..................................................................23 Section 11.10. Contingent Powers of Beneficiaries.......................................23 Section 11.11. Investment Policy........................................................23 Section 11.12. Notices on Distributions.................................................25 Section 11.13. Transactions with Interested Parties.....................................25 Section 11.14. Advisers.................................................................26 Section 11.15. Limitation on Expenses...................................................26 Section 11.16. Appraisals...............................................................26 Section 11.17. Prohibited Investments...................................................26 Section 11.18. Prohibited Activities....................................................26 Section 11.19. No Power to Disqualify Trust as a Real Estate Investment Trust...........27 Section 11.20. Purpose of Article and Section Headings..................................27 Section 11.21. Controlling Effect of Article XI.........................................27 Section 11.22. Trustees' Power to Incur Indebtedness and Other Obligations - Limitations Thereon....................................................27 Section 11.23. Trustees' Power to Invest in New Buildings and Partnerships, Joint Ventures and Unimproved Land for New Buildings.....................28 Section 11.24. Trustees' Power to Invest in Real Estate Mortgages and in Certain Evidences of Indebtedness.....................................29 Section 11.25. Options Respecting Trust Securities......................................29 Section 11.26. Authority of Trustees to Authorize Additional Restrictions...............30 Section 11.27. Authority of Trustees to Authorize Certain Investment, Financing and Other Activities...........................................30

5

ARTICLE XII DURATION OF THE TRUST......................................................................30 Section 12.1. Term of Trust............................................................30 Section 12.2. Sale of All Trust Property...............................................31 Section 12.3. Liquidation..............................................................31

6 FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS AMENDED AND RESTATED DECLARATION OF TRUST (As amended through November 16, 1999) - -------------------------------------------------------------------------------- BY THIS AMENDED AND RESTATED DECLARATION OF TRUST, effective November 16, 1999, amending the Amended Declaration of Trust made August 1, 1961, and thereafter amended from time to time through July 25, 1986 (said Amended and Restated Declaration of Trust, as heretofore and hereby amended, being referred to herein as "this Declaration") by such persons as may from time to time be Trustees: The Trustees of First Union Real Estate Equity and Mortgage Investments hereby agree and declare that they will hold all property of every type and description which they have acquired or may hereafter acquire as such Trustees, together with the proceeds thereof and the rents an other income therefrom, IN TRUST, on the terms and conditions set forth in this Declaration, for the benefit of the holders from time to time of the certificates representing the shares of beneficial interest in the Trust property issued by the Trust. Where the context permits, "Beneficiaries" shall mean the record holders from time to time of shares of beneficial interest in the Trust property, "Trustees" or "Trust" shall mean William A. Ackman, Daniel J. Altobello, David P. Berkowitz, Daniel P. Friedman, Stephen J. Garchik, David S. Klafter, William A. Scully, Daniel Shuchman, Steven S. Snider, Mary Ann Tighe and James A. Williams, and any successor or additional trustees who shall be appointed and duly qualify, so long as they shall continue as such duly qualified trustees, and said terms shall refer to such persons in their capacity as trustees and not in their individual capacities and shall not include the officers, agents, representatives or Beneficiaries of the Trust, and "Trust Property" shall mean the property from time to time subject to this Declaration. ARTICLE I NAME OF TRUST - TITLE TO TRUST PROPERTY - --------------------------------------- SECTION 1.1. NAME OF THE TRUST. The name of this Trust shall be: "First Union Real Estate Equity and Mortgage Investments" and, so far as may be practicable, the business of the Trust shall be conducted in that name, the trade name "First Union", or such other trade name as the Trustees may adopt in order to satisfy governmental regulation. The Trustees may make and execute deeds, mortgages, leases, contracts, and other instruments, acquire, mortgage, lease, convey and transfer real or personal property, and sue and be sued under any of the aforesaid names. SECTION 1.2. TITLE TO TRUST PROPERTY. Legal title to all Trust property shall be vested in the Trustees, and held by and transferred to the Trustees, except as provided in Section 2.4 or elsewhere herein. 7 SECTION 1.3. PURPOSES OF TRUST. Notwithstanding anything to the contrary contained in this Declaration of Trust, the purposes of the Trust hereby created shall be to purchase, acquire, hold, improve, lease, sell or mortgage or otherwise encumber real property or real and personal property or interests in real or personal property, to receive the income, interest, rents and profits thereof, and to reinvest them or distribute them, in accordance with the provisions of this Declaration of Trust, to the holders of beneficial interests in the Trust. ARTICLE II POWERS AND AUTHORITY OF TRUSTEES - -------------------------------- SECTION 2.1. GENERAL. The Trustees shall have, without prior or further authorization, absolute and exclusive power, control and authority over the Trust property held by them at any time hereunder, over the management and disposition thereof, and over the management and conduct of the business of the Trust to the same extent as if the Trustees were the sole owners of such property and business in their own right, free from any power of control on the part of the Beneficiaries, subject only to the limitations herein expressly stated. No person (the word "person" whenever used in this Declaration, except where the context otherwise requires, shall be deemed to mean any individual, individuals, association, trust, partnership, corporation, or other entity) shall in any event be bound to see to the application of any money or property paid to or delivered to the Trustees or their authorized representative. No investment or reinvestment of the Trust property hereunder shall be deemed improper because of its speculative character, whether or not the same be producing income or be of the kind commonly regarded by law as proper investments for trust funds, or because a greater proportion of the Trust property is invested therein that is usual for trustees. The Trustees shall have all powers necessary, convenient or appropriate to effectuate the purposes of the Trust and may take any action which they may deem necessary or desirable to that end, although such matters or things are not herein specifically mentioned. Any determination of the purposes of the Trust made by the Trustees in good faith shall be conclusive. In construing the provisions of this Declaration, the presumption shall be in favor of the grant of owners to the Trustees. Without restricting or limiting the generality of the foregoing, such powers of the Trustees shall include the powers enumerated below in this Declaration; provided however, that the powers granted in this Declaration are subject to and limited by the provisions of Article XI hereof. SECTION 2.2. POWER TO ACQUIRE, HOLD AND DISPOSE OF REAL AND PERSONAL PROPERTY. The Trustees shall have power for such consideration and on such terms and conditions as they may deem proper, through the issuance of shares of beneficial interest in the Trust property or through 2 8 the issuance of notes, debentures, bonds, or other obligations of the Trust, for cash, or otherwise, to purchase or acquire, to hold, manage, improve, lease (including building leases, part of the consideration for which is the building on or adding to the premises by the lessee) for any term, whether or not extending beyond the possible termination of the Trust, to rent, convey, sell, option, exchange, mortgage (with or without power of sale), release, partition, or otherwise deal in personal property or in real estate of any type and description, including fee, leasehold, mortgage, ground rent and any other type of interest therein, and/or buildings and structures and tangible personal property of any type and description situated thereon or elsewhere, to adjust boundaries and grant or obtain easements or options with or without consideration, and to erect, construct, alter, repair, demolish or otherwise physically affect any buildings or structures of any type or description. SECTION 2.3. POWER TO ACQUIRE, HOLD AND DISPOSE OF SECURITIES. The Trustees shall have power, for such consideration and on such terms and conditions as they may deem proper, through the issuance of shares of beneficial interest in the Trust property, through the issuance of notes, debentures, bonds, or other obligations or securities of the Trust, for cash, or otherwise to acquire, and to hold, sell, exchange, pledge, collect and pay, stocks, bonds, notes, certificates of indebtedness, debentures, mortgages (first or otherwise), bank acceptances, drafts, certificates of interest, securities, obligations, and in general any property or rights (legal or equitable) owned, held, created, or issued by or representing an interest in any corporation, business trust (including the business trust created by these presents), trust, partnership, or other organization whether domestic or foreign, any individual, the United States of America or any of the several states or territories or any political subdivisions or agencies thereof, or foreign governments or political subdivisions thereof. SECTION 2.4. NAME IN WHICH TITLE HELD. The Trustees shall have power to cause legal title to (or evidences of title to) any property of this Trust to be held in the name of the Trust, of one or more of the Trustees or of any other person, on such terms, in such manner, and with such powers as the Trustees hereunder may determine and without disclosure that the Trustees are interested therein). SECTION 2.5. POWER TO BORROW, MORTGAGE AND PLEDGE. The Trustees shall have power to borrow money for the purposes of this Trust, to give notes, debentures, bonds, and other negotiable or nonnegotiable instruments of this Trust therefor, to enter into other obligations on behalf of the Trust, and to mortgage and pledge the real and personal property of this Trust or any part thereof to secure any of the foregoing. SECTION 2.6. POWER TO LEND AND INVEST. The Trustees shall have power to lend money (other than to Beneficiaries, officers, employees, or Trustees of the Trust) and to invest and reinvest any funds of the Trust as they shall deem wise; and 3 9 to create a reserve fund or reserve funds for such purposes as the Trustees deem advisable and invest or reinvest the same in such manner as they may deem best. SECTION 2.7. POWER TO PAY TAXES. The Trustees shall have power to pay all taxes or assessments, of whatever kind or nature, imposed upon or against the Trustees individually or collectively in connection with the Trust property, or upon or against the Trust property or any part thereof; and for any of the foregoing purposes to make such returns and do all such other acts and things as may be deemed by the Trustees as necessary or desirable. SECTION 2.8. POWER TO TRANSFER TRUST TO CORPORATION. The Trustees, with the approval of the holders of a majority of the shares then outstanding, shall have power to cause to be organized or assist in organizing under the laws of any jurisdiction a corporation or corporations or any other trust, association, or other organization to take over the Trust property or any part or parts thereof or to carry on any business in which this Trust shall directly or indirectly have any interest, and to sell, convey, and transfer the Trust property or any part or parts thereof to any such corporation, trust, association, or organization in exchange for the shares or securities thereof or otherwise, and to lend money to, subscribe for the shares or securities of, and enter into any contracts with any such corporation, trust, association or organization, or any corporation, trust, partnership, association, or organization in which this Trust holds or is about to acquire shares or any other interest. Provided, however, that no transfer of substantially all of the Trust property shall be made to any corporation, trust, association, or other organization if the Federal Income Tax benefits equivalent to those available under Sections 856 to 858 of the Internal Revenue Code to "real estate investment trust" which receive and distribute the income from such property would not be available to such transferee. SECTION 2.9. POWER AS TO SECURITIES. The Trustees shall have power to exercise all the rights, powers, and privileges appertaining to the ownership of all or any securities forming part of the Trust property to the same extent that an individual might, and, without limiting the generality of the foregoing, to vote, or give any consent, request, or notice, or waive any notice, either in person or by proxy or power of attorney, with or without power of substitution, to one or more persons, which proxies and powers of attorney may be for meetings or action generally or for any particular meetings or action, and may include the exercise of discretionary powers. 4 10 SECTION 2.10. POWER TO DELEGATE. Except as otherwise provided herein, the Trustees shall have power to delegate from time to time to such one or more of their number, or to such other person or persons as the Trustees may deem appropriate, the doing of such things and the execution of such deeds or other instruments either in the names of all the Trustees or as the Trust's agents, officers, employees, attorneys or representatives, as the Trustees may from time to time deem expedient. SECTION 2.11. GENERAL POWER TO ENFORCE AND COLLECT SECURITIES. The Trustees shall have power to collect, sue for, receive and receipt for all sums of money coming due to this Trust, to consent to the extension of the time for payment of, to waive defaults in respect of, or to consent to the renewal of any bonds or other securities or obligations, and to engage or intervene in, prosecute, defend, compound, compromise, abandon or adjust, by arbitration or otherwise, any actions, suits, proceedings, disputes, claims, demands, or things relating to the Trust property; to be parties to reorganizations and to transfer to and deposit with any corporation, committee, voting trustees, or other persons, any stocks, shares, or bonds, or other securities or obligations of any corporation, trust, association, or other organization, the securities of which form a part of the Trust property, for the purposes of any reorganization of any such corporation, trust, association, or other organization, or otherwise to participate in any arrangement for enforcing or protecting the interests of the Trustees as the owners or holders of such stocks, shares, bonds, or other securities or obligations and to pay any assessment levied in connection with such reorganization or arrangements; and to give time with or without security for the payment or delivery of any debts or property and to execute and enter into releases, agreements, and other instruments; and to pay or satisfy any debts or claims upon evidence that the Trustees think sufficient. SECTION 2.12. POWER TO INCUR EXPENSES, APPOINT AND EMPLOY OFFICERS AND AGENTS. The Trustees shall have power to incur and pay from the Trust property, or reimburse other for payments made in connection with, any charges or expenses which, in the opinion of the Trustees, are necessary or incidental to, or proper for the organizing or financing of the Trust or for the carrying out of any of the purposes of the Trust without regard to whether such charges or expenses are for services rendered before or after the execution of this Declaration and without regard to any interest of any Trustee in such payment; to employ such clerical assistance as they deem necessary to the transaction of the business of the Trust; to appoint, engage, or employ officers and other persons, firms or corporations, including consultants, accountants, technical, financial, real estate or investment advisers or managers, attorneys, real estate agents or brokers, corporate fiduciaries, depositories, transfer agents for the transfer of shares in the Trust, registrars, underwriters, investment bankers, or others for the sale of shares or securities of, or financing of, the Trust; and to fix their titles, duties, periods of employment and compensation. The same persons may be employed in multiple capacities and may receive compensation from the Trust in as many capacities as they may be engaged or employed by the Trust, and the Trustees, or any of them, may be the persons, or be interested in the persons, so employed. 5 11 SECTION 2.13. POWER TO ENDORSE AND GUARANTEE. The Trustees shall have power to endorse or guarantee the payment of any notes or other obligations of any person; to make contracts of guaranty or suretyship, or enter into other obligations therefor; and to mortgage and pledge the real and personal property of the Trust or any part thereof to secure any or all of such obligations provided that no such endorsement, guaranty, or suretyship shall relate to the individual obligation of any officer, employee or Trustee of the Trust. SECTION 2.14. POWER AS TO BANK DEPOSITS. The Trustees shall have power to deposit any moneys or securities included in the Trust property with any one or more banks, trust companies, or other banking institutions deemed by the Trustees to be responsible, without regard to whether such accounts will earn interest, such moneys or securities to be subject to withdrawal on notice or upon demand and in such manner as the Trustees may determine, and the Trustees shall have no responsibility for any loss which may occur by reason of the failure of the person with whom the moneys or securities have been deposited properly to account for the moneys or securities so deposited. SECTION 2.15. POWER TO DETERMINE CAPITAL AND INCOME. The Trustees shall have power to determine conclusively whether any monies, securities, or other properties of the Trust are for the purposes of the Trust to be considered as capital or income and in what manner any expenses or disbursements are to be borne as between capital and income whether or not in the absence of the provision such moneys, securities, or other properties would be regarded as capital or as income and whether or not in the absence of this provision such expense or disbursement would ordinarily be charged to capital or to income. SECTION 2.16. POWER TO VALUE TRUST PROPERTY AND KEEP BOOKS. The Trustees shall have power from time to time to determine conclusively the value of, and to revalue, any of the real estate, securities, or other properties of this Trust and any services, securities, property or other consideration hereafter to be acquired by this Trust in accordance with such appraisals or other information as they deem satisfactory, and in accordance with methods of valuation consistently applied; and to keep the books of the Trust and render reports to the Beneficiaries of the Trust on the basis of the figures so adopted. SECTION 2.17. POWER TO SOLICIT PROXIES ETC. The Trustees shall have power to solicit proxies of the Beneficiaries, to adopt and use a seal, and to determine the fiscal year of the Trust and the method or form in which its accounts shall be kept and to change from time to time the fiscal year or method or form of accounts. 6 12 ARTICLE III LIMITATIONS OF LIABILITY OF BENEFICIARIES, TRUSTEES AND OTHERS - -------------------------------------------------------------- SECTION 3.1. NO PERSONAL LIABILITY OF BENEFICIARIES. No Beneficiary of this Trust shall be held to any personal liability whatsoever, in tort, contract or otherwise, in connection with Trust property or the affairs of this Trust, nor shall any Beneficiary be liable to assessment in connection therewith. The Trustees shall have no power to bind the Beneficiaries personally, and all persons shall look solely to the Trust property for satisfaction of claims of any nature arising in connection with Trust property or the affairs of this Trust, whether rounded upon any debt, demand, judgment, decree or obligation of any nature whatsoever against or incurred by the Trust, or by the Trustees, or by any officer, employee, or agent thereof. The Trustees shall maintain such insurance against possible liability on the part of the Trust and on the part of the Beneficiaries and any officers or Trustees of the Trust in the course of trust business as the Trustees in their sole discretion deem to be appropriate to protect the Trust property, the Beneficiaries and the officer or Trustees of the trust. In every written order, contract, bond, note, mortgage, instrument or obligation given or executed by the Trustees or with their authority, the Trustees shall cause to be inserted a provision that the Beneficiaries shall not be personally liable and that the other party shall look solely to the property of the Trust for the payment of any claim thereunder. The omission, however, of such provision from any such document or instrument shall not affect the validity thereof or render the Beneficiaries personally liable thereon, nor shall the Trustees or any officer, employee or agent of the Trust be liable for such omission, nor shall such omission in any way affect any right of the Trustees or Beneficiaries to indemnification from the Trust property. SECTION 3.2. TRUSTEE'S LIABILITY OTHER THAN TO THE TRUST OR BENEFICIARY. No Trustee, officer, employee or agent of this Trust shall be held to any personal liability whatsoever, in tort, contract or otherwise, to others than the Trust or the Beneficiaries in connection with Trust property or the affairs of this Trust; and all such persons shall look solely to the Trust property for satisfaction of claims of any nature arising in connection with Trust property or the affairs of this Trust. If the Trustees, as Trustees, are made parties to any suit or proceedings to enforce any such obligation or liability, they shall not on account thereof be held to any personal liability. SECTION 3.3. TRUSTEE'S LIABILITY TO TRUST AND BENEFICIARIES - INDEMNIFICATION AND EXPENSE - BOND AND SECURITY. No Trustee, officer, employee or agent of this Trust shall be personally liable for any act or omission of any other Trustee (including without limitation the failure to compel in any way any former or acting or future Trustee to redress any breach of trust), officer, employee or agent. Except for such 7 13 of his own acts as constitute bad faith, willful misfeasance, or willful disregard of his duties, and except as otherwise prohibited by law, each Trustee, officer, employee or agent of the Trust shall be indemnified and held harmless from and against, and reimbursed for any and all loss, cost, liability, obligation and amounts paid in settlement incurred in connection with any threatened, pending or completed action, suit, arbitration or proceeding whether civil, criminal, administrative or investigative (including, without limitation, any action brought by or in the right of the Trust), arising out of or in connection with Trust property or the affairs of the Trust or which he may suffer because he is or was or consented to become a Trustee, officer, employee or agent of the Trust or is or was serving at the request of the Trust as a trustee, director, officer, employee or agent of another corporation or enterprise. The rights accruing to any person under these provisions shall not exclude any other right to which he may be lawfully entitled, nor shall anything contained herein restrict the right of this Trust to indemnify or reimburse such Trustee, officer, employee or agent in any proper case even though not specifically provided for herein, nor shall anything contained herein restrict such rights of a Trustee to contribution as may be available under applicable law. The Trustees may make advance payments in connection with indemnification under this section provided that the indemnified Trustee, officer, employee or agent of the Trust shall have given a written undertaking to repay such amount in the event that it is ultimately determined that he is not entitled to such indemnification for such amounts under applicable law, this Declaration of Trust, any agreement entered into pursuant to this Section 3.3 or otherwise. In order to carry out the intent and purposes of this section, and to assure the Trust's performance of its obligations hereunder, the Trust shall have the power to enter into agreements with Trustees, officers, employees or agents designated by the Trustees, without specific approval thereof by the shareholders of this Trust. The terms of any such agreements need not be identical to the terms of any other such agreement and any such agreement which had been entered into may subsequently be amended or changed by mutual agreement of the parties thereto, without specific approval thereof by the shareholders of the Trust. The Trust shall have the power to dedicate the assets of the Trust to establish arrangements for funding its indemnification obligations under this section, including but not limited to depositing assets in trust funds, obtaining bank letters of credit in favor of indemnified persons or entities, establishing specific reserve accounts and otherwise funding special self-insurance arrangements for these purposes. No Trustee shall be obligated to give any bond or surety or other security for the performance of any of his duties. 8 14 SECTION 3.4. NO IMPLIED COVENANTS OR OBLIGATIONS TO BE READ INTO THIS INSTRUMENT; TRUSTEES' RIGHT TO RELY ON INVESTMENT ADVISERS AND COUNSEL AND ACCOUNTANTS. GENERAL RIGHT TO RELY. Without in any respect relieving the Trustees of this Trust from liability for bad faith, willful misfeasance, negligence, or willful disregard of their duties, it is expressly agreed that (1) The duties and obligations of the Trustees shall be determined solely by the express provisions of this instrument and the Trustees shall not be liable except for the performance of such duties and obligations as are specifically set forth in this instrument and no implied duties or obligations shall be read into this instrument, and (2) The Trustees are authorized to rely conclusively, as to the truth of the statements and the correctness of the opinions and facts expressed therein, upon any opinion or statements furnished to the trustees by the Trust's investment advisers. The Trustees of this trust shall not incur any personal liability whatsoever for their reliance on such opinions and statements and/or any action or lack of action based on such opinions or statements. (3) The Trustees may consult with counsel and independent public accountants selected by the Trustees and the opinion of such counsel or independent public accountants shall be full and complete authorization and protection in respect of any action taken or suffered by the Trustees in accordance with or based on the opinion of such counsel or independent public accountants. (4) The Trustees shall incur no personal liability whatsoever in acting upon any demand, notice, request, opinion, consent, waiver, certificate, document, statement of facts or instrument believed by them to be genuine or to have been signed or presented by the proper persons or properly or duly made. ARTICLE IV SHARES OF BENEFICIAL INTEREST - ----------------------------- SECTION 4.1. SHARES $1 PAR VALUE; NON-ASSESSABLE AND NOT LIMITED IN NUMBER. Beneficial interest in the Trust property shall be divided into and represented by shares issued to Beneficiaries hereunder which shares shall be of $1 par value. All such shares shall be non-assessable and non-redeemable and shall be of the same class with equal voting, distribution, liquidation and other rights. There shall be no limit on the number of shares which the Trust is authorized to issue. The Trustees shall initially issue 1,060,000 shares for such consideration, not less than par value, and on such terms as may be determined by the persons designated in this Declaration as original Trustees. Certificates for the initial shares shall be in the form provided in the By-Laws and shall be signed on behalf of the Trust by the facsimile signature of the two original Trustees and shall be countersigned by the Transfer Agent and Registrar. The Transfer Agent for 9 15 the shares shall be The Union Commerce Bank, of Cleveland, Ohio, and the Registrar shall be The Cleveland Trust Company, Cleveland, Ohio, or such other persons as may be appointed by the Trustees. SECTION 4.2. SHARES CERTIFICATES. Every Beneficiary shall be entitled to receive a transferable certificate, in such form as the Trustees shall from time to time approve, specifying the number of shares of beneficial interest in the Trust property held by him. The certificates in the form so approved shall be treated as negotiable, and title thereto and to the shares represented thereby shall be transferred by delivery thereof endorsed either in blank or to a specified person by the person appearing by the certificate to be the owner of the shares represented thereby or by delivery of the certificate and of a separate document containing either a written assignment of the certificate or a power of attorney to sell, assign or transfer the certificate or the shares represented thereby, which separate document is signed by the person appearing by the certificate to be the owner of the shares represented thereby, and which assignment or power of attorney is either in blank or to a specified person. Unless otherwise determined by the Trustees, such certificates shall be signed, manually or by facsimile, by one or more of the Trustees or officers of this Trust designated for that purpose from time to time by the Trustees by instrument in writing filed with the transfer agent and registrar, if any, and shall be countersigned by a transfer agent, and registered by a registrar, if any. mere shall be filed with each transfer agent and registrar, if any, a certified copy of the form of certificate so approved by the Trustees, and such form shall continue to be used unless and until the Trustees approve some other form. In case any one or more officers or Trustees of this Trust who shall have signed certificates shall cease to be such Trustees or officers before the certificates so signed shall have been actually issued, such certificates may nevertheless be issued with the same effect as though the persons who signed such certificates had not ceased to be such officers or Trustees of this Trust. The Trustees may in their discretion authorize certificates to be signed or authenticated by the facsimile signature of the Trustees or officers who are authorized to sign such certificates; provided that any certificate signed or authenticated by the facsimile signature of an officer or Trustee shall not be valid unless countersigned by a transfer agent and registered by a registrar, if any. SECTION 4.3. ISSUE OF SHARES. The Trustees in their discretion may from time to time without vote of the Beneficiaries issue shares of this Trust, in addition to the then issued and outstanding shares and shares, if any, held in the treasury, to such party or parties and for such property or consideration, at such time or times, and on such terms as the Trustees may deem best, and may in such manner acquire other assets (real, personal, or mixed) and businesses, and no prior offering thereof to any Beneficiaries need be made. 10 16 SECTION 4.4. TRUSTEES RIGHT TO OWN SHARES. A Trustee may acquire, hold or dispose of shares in the Trust for his individual account or the account of another and may exercise all rights of a Beneficiary to the same extent as though he were not Trustee. SECTION 4.5. INDEMNIFICATION OF UNDERWRITERS. Without in any way limiting the generality of the other applicable provisions of this Declaration, it is expressly understood that the Trustees shall have power in connection with the sale of shares or securities of the Trust, to indemnify and save harmless, or to obtain insurance to indemnify and save harmless, any underwriter, dealer or other participant in the purchase or distribution of securities of the Trust (including persons in whom a Trustee or officer has an interest), in respect of such matters, in such amounts and for such periods of time as the Trustees shall, in their sole discretion, determine to be necessary or desirable. SECTION 4.6. CHANGE OF NUMBER OF ISSUED SHARES OF BENEFICIAL INTEREST. (a) The Trustees are hereby empowered, from time to time and without action of the Beneficiaries, to change the then issued shares of beneficial interest ("Old Shares") into a lesser number (a "Reverse Split") of shares of beneficial interest ("New Shares"). In connection therewith, in lieu of a fractional New Share, each holder of an Old Share who otherwise would be entitled to receive a fractional New Share will be entitled to receive cash in an amount equal to the market value of each Old Share that would have been converted into a fraction of a New Share but for this sentence, upon surrender of the certificate for such Old Share. For this purpose, the market value of each Old Share shall be the unweighted average of the closing price of a common share of beneficial interest for each of the ten business days ending on the date immediately preceding the date on which the Reverse Split becomes effective. The Trustees are hereby empowered to adopt rules and regulations concerning the surrender of certificates with respect to Old Shares, issuance of certificates with respect to the New Shares and payment for fractional shares resulting from any Reverse Split that the Trustees may, from time to time, authorize. (b) The Trustees are hereby empowered, from time to time and without action of the Beneficiaries, to change the Old Shares into a greater number (a "Forward Split") of shares of beneficial interest ("Forward New Shares"). In connection therewith, the Trustees are hereby empowered to adopt rules and regulations concerning the surrender of certificates with respect to Old Shares, issuance of certificates with respect to the Forward New Shares and payment for fractional shares resulting from any Forward Split that the Trustees may, from time to time, authorize. (c) In connection with the implementation of a specific Reverse Split or Forward Split, the Trustees may, but shall not be required to, change the par value per Share. 11 17 ARTICLE V RECORD AND TRANSFER OF SHARES - ----------------------------- SECTION 5.1. REGISTER OF SHARES - RECORD OWNERS. A register shall be kept by or on behalf of the Trustees, under the direction of the Trustees, which shall contain the names and addresses of the Beneficiaries and the number of shares held by them respectively and the numbers of the certificates representing the same and a record of all transfers thereof. Only Beneficiaries whose certificates are so recorded shall be entitled to vote or to receive dividends or otherwise to exercise or enjoy the rights of Beneficiaries. No Beneficiary shall be entitled to receive payment of any dividend, nor to have notice given to him as herein provided, until he has given his address to a transfer agent or such other officer or agent of the Trustees as shall keep the said register for entry thereon. The persons in whose names the shares are registered pursuant to this Section 5.1 shall be deemed the absolute owners thereof, and, until a transfer is effected on the books of the Trust, the Trustees shall not be affected by any notice, actual or constructive, of any transfer and the Trustees may treat the persons in whose names shares stand of record as the absolute owners thereof for all purposes. SECTION 5.2. TRANSFER AGENTS AND REGISTRARS. The Trustees shall have power to employ in any city a transfer agent or transfer agents, and if they so determine a registrar or registrars. The transfer agent or transfer agents may keep the register of the Trust and record therein the original issues and transfers, if any, of the said shares and countersign certificates of shares issued to the persons entitled to the same. SECTION 5.3. DEPOSIT OF CERTIFICATES WITH TRANSFER AGENTS. Signed certificates for shares in blank may be deposited with any transfer agent of this Trust, to be used by the transfer agent in accordance with authority conferred upon it as occasion may require, and in so doing the signers of such certificates shall not be responsible for any loss resulting therefrom. SECTION 5.4. TRANSFER ON RECORDS OF TRUST. Shares shall be transferable on the records of the Trust (other than by operation of law) only by the record holder thereof or by his agent hereunto duly authorized in writing, upon delivery to the Trustees or a transfer agent of this Trust of the certificate or certificates therefor, properly endorsed or accompanied by duly executed instrument or instruments of transfer, together with such evidence of the genuineness of each such endorsement, execution and authorization and of other matters as may reasonably be required. Upon such delivery the transfer shall be recorded on the register of the Trust and a new certificate for the shares so transferred shall be issued to the transferee, and in case of a transfer of only a part of the shares represented by any certificate a new certificate for the residue thereof shall be issued to the transferor. But until such record is made, the Beneficiary of record 12 18 shall be deemed to be the holder of such shares for all purposes hereof, and neither the Trustees nor any transfer agent or registrar nor any officer or agent of this Trust shall be affected by any notice of the proposed transfer. SECTION 5.5. TRANSFER BY OPERATION OF LAW. Any person becoming entitled to any shares in consequence of the death, bankruptcy or insolvency of any Beneficiary, or otherwise by operation of law, shall be recorded as the holder of the said shares and receive a new certificate for the same upon production of the proper evidence thereof and delivery of the existing certificate to the Trustees or a transfer agent of this Trust. But until such record is made, the Beneficiary of record shall be deemed to be the holder of such shares for all purposes hereof and neither the Trustees nor any transfer agent or registrar nor any officer or agent of this Trust shall be affected by any notice of such death, bankruptcy, or insolvency. SECTION 5.6. JOINT OWNERS OF SHARES. The Trustees may treat two or more persons holding any share as joint tenants of the entire interest therein unless their ownership is expressly otherwise recorded on the register of the Trust, but no entry shall be made in the register or in any certificate that any person is in any other manner entitled to any future, limited or contingent interest in any share; provided, however, that any person recorded as a holder of any share may, subject to the provisions hereinafter contained, be described in the register or in any certificate as a fiduciary of any kind and any customary words may be added to the description of the holder to identify the nature of such fiduciary relationship. SECTION 5.7. DUTY OF TRUSTEES IN SHARE TRANSFERS. The Trustees shall not, nor shall the Beneficiaries, or any officer, transfer agent or other agent of this Trust or of the Trustees, be bound to see the execution of any trust, express, implied or constructive, or of any charge, pledge, or equity to which any of the shares in the Trust or any interests therein are subject, or to ascertain or inquire whether any sale or transfer of any such shares or interest therein by any Beneficiary or his personal representatives is authorized by such trust, charge, pledge, or equity, or to recognize any person as having any interest therein except for the person recorded as such Beneficiary. The receipt of the person in whose name any share is recorded, or, if such share is recorded in the name of more than one person, the receipt of any such persons shall be a sufficient discharge for all dividends and other money and for all shares, bonds, obligations and other property payable, issuable, or deliverable in respect of such shares and from all liability to see to the application thereof. SECTION 5.8. LOST CERTIFICATES. In case of the loss, mutilation or destruction of any certificate for shares hereunder, the Trustees may issue or cause to be issued a new certificate on such terms as they may see fit. 13 19 SECTION 5.9. REGULATIONS ON TRANSFER. The Trustees may from time to time adopt such regulations as they see fit relating to issue, transfer, recording and registry of shares and the effects thereof, the issuance or prohibition of fractional shares, the use of scrip in place of fractional shares and the Trustees, by provision in the By-Laws may restrict or regulate issuance or transfer of shares in such manner as they, with advice of counsel, shall deem advisable to prevent disqualification of the Trust for taxation as a real estate investment trust under the Internal Revenue Code and the regulations (proposed or in effect) thereunder; provided that the Trustees shall not amend or waive Article VI, Section 6 of the By-Laws of the Trust unless either (i) action is taken to so amend or waive by at least 70% of the Trustees then in office or (ii) action is taken by a majority but less then 70% of such Trustees and such action is approved by the holders of at least 70% of the outstanding shares. ARTICLE VI CHARACTERISTICS OF SHARES - ------------------------- SECTION 6.1. TRUSTEES IN COMPLETE CONTROL. The ownership of the Trust property of every description and the right to conduct the affairs of the Trust are vested exclusively in the Trustees, and the Beneficiaries shall have no legal title to the Trust property, their interest being equitable only and limited to the beneficial interest conferred by their shares issued hereunder, and they shall have no right to call for any partition or division of any property, profits, rights, or interests of the Trust. SECTION 6.2. TRUST NOT AFFECTED BY DEATH OF BENEFICIARY. The death of a Beneficiary during the continuance of this Trust shall not terminate the Trust nor give his or her legal representative a right to an accounting or to take any action in the courts or otherwise against other Beneficiaries or the Trustees or the property held hereunder, but shall simply entitle the legal representatives of the deceased Beneficiary to demand and receive a new certificate representing shares of beneficial interest in the Trust in place of the certificate held by the deceased Beneficiary, and upon the acceptance of which such legal representatives shall succeed to all the rights of the deceased Beneficiary under the Trust. SECTION 6.3. SHARES HELD BY TRUST. Shares issued hereunder and purchased or otherwise acquired by the Trustees for the account of the Trust shall be canceled. 14 20 ARTICLE VII MEETINGS OF BENEFICIARIES - ------------------------- SECTION 7.1. ANNUAL AND SPECIAL MEETINGS CALL. Annual meetings of the Beneficiaries shall be held at 2:00 P.M. Eastern Standard Time on the second Tuesday of the fourth month following the end of each fiscal year at such place as the Trustees may from time to time decide. Special meetings of the Beneficiaries may be called at any time and place when ordered by a majority of the Trustees, or upon the written request of the holders of one-quarter of the outstanding shares, specifying the purpose or purposes for which such meeting is called. If for any reason the annual meeting of the Beneficiaries as herein provided for shall be omitted, a special meeting of the Beneficiaries may subsequently be held in lieu thereof and the business of the annual meeting may be transacted thereat. SECTION 7.2. NOTICE OF MEETINGS. Notice of all annual and special meetings of the Beneficiaries shall be given by a Trustee or other officer by mail to each Beneficiary at his address as recorded in the register of the Trust, mailed at least ten days before the meeting. No business shall be transacted at any special meeting of Beneficiaries unless notice of such business has been given in the call for the meeting. Any adjourned meeting may be held as adjourned without further notice. The holders of shares entitling them to exercise a majority of the voting power of the Trust present in person or by proxy shall constitute a quorum for any annual or special meeting of Beneficiaries. SECTION 7.3. BENEFICIARIES CANNOT BIND TRUSTEES. Except as provided in Articles VIII, X, and XI, no action taken by the Beneficiaries at any meeting shall in any way bind the Trustees. SECTION 7.4. CLOSING TRANSFER BOOKS - RECORD DATE. For the purpose of determining the Beneficiaries who are entitled to receive notice of, or to vote at, a meeting of Beneficiaries, or to receive payment of any dividend or distribution, or to receive or exercise rights of purchase of or subscription for, or exchange or conversion of, shares or other securities, the Trustees may from time to time close the transfer books for such period not exceeding twenty days as the Trustees may determine; or, without closing the transfer books, the Trustees may fix a record date, which shall not be earlier than the date on which the record date is fixed and shall not be more than sixty days preceding the date of the meeting of the Beneficiaries or the date fixed for the payment of any dividend or distribution, or the date for the receipt or exercise of rights, as the case may be, as the record date for determination of the Beneficiaries who are entitled to such notice or to vote at such meeting or to receive payment of such dividend or distribution or to receive or exercise such rights, and any Beneficiary who was a Beneficiary at the time so fixed shall be entitled to such notice or to vote at such meeting or any adjournment thereof, or to receive such 15 21 dividend or distribution or to receive or exercise such rights even though he has since that date disposed of his shares, and no Beneficiary becoming such after such date shall be entitled to such notice, vote, dividend, distribution or rights. SECTION 7.5. VOTING. At any meeting of the Beneficiaries, any holder of shares entitled to vote thereat may vote in person or by proxy. Only Beneficiaries of record shall be entitled to vote. When any share is held jointly by several persons, any one of them may vote at any meeting in person or by proxy in respect of such share, but if more than one of them shall be present at such meeting in person or by proxy, and such joint owners or their proxies so present disagree as to any vote to be cast, no vote shall be received in respect of such share. If any such holder of a share is a minor and subject to guardianship or is subject to the legal control of any other person as regards the charge or management of such share, he may vote by his guardian or such other person appointed or having such control, and such vote may be given in person or by proxy. SECTION 7.6. REPORT AT ANNUAL MEETING. At each annual meeting of the Beneficiaries the Trustees shall make a report upon the affairs of the Trust and upon its business and operations, together with a statement of its financial standing as shown by the books of account of the Trust. SECTION 7.7. INSPECTION OF RECORDS. Beneficiaries shall have the right, at reasonable times during business hours and for proper purposes to inspect the records and books of account of the Trust and the records of the meetings of the Beneficiaries and Trustees. ARTICLE VIII TRUSTEES - -------- SECTION 8.1. NUMBER OF TRUSTEES. The number of Trustees shall be not less than three nor more than fifteen, as from time to time determined at annual or special meetings of the Beneficiaries by affirmative vote of the holders of a majority of the shares represented and entitled to vote at such meetings. Trustees shall be divided into three classes, to be known as Class I, Class II and Class III. The classes shall be nearly equal in size as possible. In case of any increase or decrease in the number of Trustees, the additional or remaining Trustees, as the case may be, shall be distributed among several classes as nearly equally as possible. A decrease in the number of Trustees shall not shorten the term of any Trustee then in office. 16 22 A Trustee may be any individual (who is a citizen of the United States and not a minor) or a corporation. Whenever there shall be a vacancy, until such a vacancy is filled, the continuing or surviving Trustee or Trustees then in office shall have all the powers granted to the Trustees and discharge all the duties imposed upon the Trustees by this Declaration. A majority of the Trustees shall not be affiliated with an adviser of the Trust or any organization affiliated with an adviser of the Trust. The term "majority of the Trustees" whenever used herein shall include one Trustee if only one Trustee is at the time in office regardless of the fixed number of trusteeships. SECTION 8.2. ELECTION OF TRUSTEES; TERMS OF OFFICE The term of office for each Trustee shall be three years and the members of one class of Trustees shall be elected annually to serve for such term; except that, initially or whenever necessary, a Trustee may be elected for a shorter term in order to provide for a proper rotation of Trustees. A Trustee shall hold office until the Annual Meeting of Shareholders coinciding with the termination of the term of the class of Trustees to which he was elected and until his successor shall be elected and qualified or until his earlier resignation, removal from office or death. At any meeting of the Beneficiaries at which Trustees are to be elected, only persons nominated as candidates by Beneficiaries entitled to vote at such meeting shall be eligible for election as Trustees. me election as Trustee of a person who, at the time of his election, fails to meet the qualifications for Trustees specified in this Declaration of Trust shall, unless within thirty days thereafter such person meets such qualifications, be null and void and the vacancy in the number of Trustees so created may be filled by the Trustees as provided in Section 8.4 hereof. At all elections of Trustees the candidates receiving the greatest number of votes shall be elected. SECTION 8.3. RESIGNATION AND REMOVAL. Any Trustee may resign his trust in instrument in writing signed by him and delivered or mailed to the other Trustees at the principal office of the Trust, and such resignation shall take effect immediately or at a later date according to the terms of the instrument. Any Trustee may be removed at any time by written instrument signed by all the other Trustees specifying the date when such removal shall become effective; provided, however, that such removal shall not be effective until approved by affirmative vote of the holders of a majority of the shares present or represented and entitled to vote at a duly held meeting of the Beneficiaries call for the purpose. Any Trustee may also be removed by affirmative vote for his removal cast by a majority of Trustees then in office if such Trustee does not meet the qualifications for Trustees specified in this Declaration of Trust for more than thirty (30) consecutive days during his term of office. 17 23 SECTION 8.4. FILLING VACANCY. In case a vacancy in the number of Trustees shall occur, the remaining Trustees, though less than a majority of the whole authorized number of Trustees, may, by a vote of a majority of their number, fill any vacancy in the Board of Trustees for the unexpired term of the Trustee whose office has become vacant. No appointment or election of a Trustee, other than reelection, shall become effective until the person so appointed or elected shall have signed this Declaration and an instrument bearing the acceptance of the person so appointed shall have been acknowledged by one or more of the existing Trustees and recorded in the manner provided in Section 11.5 hereof. Hereupon the Trust property shall vest in the new Trustee jointly with the continuing Trustee or Trustees without further act or conveyance. SECTION 8.5. TRUST CONTINUES. The death, resignation, incompetency or removal of any one or more of the Trustees shall not operate to annul the Trust or to revoke any existing agency created pursuant to the terms of this Declaration or invalidate any action theretofore taken by the Trustees. SECTION 8.6. TRUSTEES' MEETINGS AND ACTION. The Trustees may act with or without a meeting. Meetings of the Trustees shall be called and held as provided in the By-Laws. Notice of any meetings may be waived by any Trustee either before or after such meeting. The concurrence of all the Trustees shall not be necessary for the validity of any action taken by them, but a decision expressed in a vote passed at a meeting by a majority of the Trustees present, or expressed in writing signed by a majority of the Trustees without a meeting, shall constitute the action of the Trustees and have the same effect as if assented to by all. At any meeting a majority of the Trustees shall constitute a quorum. Any deed, mortgage, lease or other instrument or writing executed by any Trustee or officer of the Trust shall be valid and binding upon the Trustees and upon the Trust if such Trustee or officer acted under authority granted by the Trustees by a vote or writing passed or signed as above provided. In the event that any Trustee or Trustees shall notify the other Trustees in writing that they do not wish to participate in the approval or disapproval of any particular matter presented to the Trustees, a majority of the other Trustees shall have authority to act for the Trust with respect to such matter. SECTION 8.7. TRUSTEES' COMPENSATION. The Trustees shall receive reasonable compensation for their services as Trustees and officers hereunder as fixed by the Trustees. 18 24 SECTION 8.8. BY-LAWS OF TRUST. The By-Laws shall be as set forth in Exhibit A attached to this Declaration. The Trustees may from time to time amend or repeal said By-Laws which may, among other things, provide for the conduct of their business, define the duties of the officers, agents, employees and representatives and provide for their appointment, number and qualification, fix the time, place and notice of meetings of the Trustees, provide for the form of certificates representing shares of beneficial interest and regulate or restrict issuance or transfer of shares as provided in Section 5.9 of this Declaration. SECTION 8.9. EXECUTIVE COMMITTEE. The Trustees, acting unanimously, may appoint from among their own number an executive committee of two or more persons to whom they, acting unanimously, may delegate such of the powers herein given to the Trustees as they may deem expedient, except as herein otherwise provided. SECTION 8.10. TRUSTEE'S OTHER BUSINESS ACTIVITIES. Each Trustee may, from time to time, for his own account engage in, or directly or indirectly be interested in, business activities of the types conducted or to be conducted by the Trust; provided however, that any person who owns, directly or indirectly, more than one percent 1% of the securities of, or acts as an officer, trustee, director, employee of or consultant for, or is otherwise affiliated with or controlled by, any real estate investment trust, or any other real estate company (a) that competes with the Trust for investments, (b) that is a major supplier of services to the Trust, or (c) in which the Trust has a significant financial interest, or any person who is an agent of, or is otherwise affiliated with or controlled by any such person, shall not be qualified to serve as a Trustee. ARTICLE IX DISTRIBUTIONS TO BENEFICIARIES - ------------------------------ SECTION 9.1. TRUSTEES MAY MAKE DISTRIBUTIONS. The Trustees may from time to time distribute ratably among the Beneficiaries such proportion of the cash available from operations of the Trust, net profits, surplus (including paid-in surplus) or capital or assets of the Trust as they may deem proper, and such distribution may be made in cash or in property (including any type of obligation of the Trust or any assets thereof); and the Trustees may distribute ratably among the Beneficiaries additional shares issuable hereunder in such manner and on such terms as the Trustees may deem proper. In making such distributions the Trustees shall be guided by the requirements for qualification of the Trust as a "real estate investment trust" under provisions of the Internal Revenue Code, as now enacted or as may hereafter be amended from time to time, but nevertheless the amount of all distributions and the time of declaration and payment thereof shall be wholly in the discretion of the Trustees, as shall also the determination of what constitutes cash available from operations of the Trust, net profits or surplus. Such distributions may 19 25 be among the Beneficiaries of record at the time of declaring a distribution or among the Beneficiaries of record at such other date (not more than thirty days prior to payment of such distribution) as the Trustees shall determine. SECTION 9.2. RETAINED AMOUNTS. The Trustees may always retain from the net profits or cash receipts such amount as they may deem necessary to pay the debts or expenses of the Trust or to meet obligations of the Trust, or as they may deem desirable to use in the conduct of its affairs or to retain for future requirements or extensions of the business. SECTION 9.3. INFORMATION TO BENEFICIARIES. The Trust shall furnish to the Beneficiaries from time to time such statements, certificates or other information as is then required by the law, or regulation thereunder, applicable to a "real estate investment trust" qualifying as such under the Internal Revenue Code. ARTICLE X AMENDMENT OF TRUST - ------------------ SECTION 10.1. AMENDMENT. At any time when no shares in the Trust are outstanding, the Trustees may amend any provisions of this Declaration. A certificate signed by a majority of the Trustees, setting forth such amendment and reciting that it was duly adopted by the Trustees, or a copy of the Declaration as amended executed by a majority of the Trustees, shall be recorded as provided in Section 11.5 hereof and lodged among the records of the Trust and shall be conclusive evidence of such amendment. At any time when shares in the Trust are outstanding, the Trustees may amend the Declaration in any particular, except with respect to the liability of beneficiaries, with the approval of the owners of a majority of all the shares in the Trust, in writing or by vote at a meeting of the Beneficiaries, provided that the notice of the meeting shall have set forth the nature of the proposed amendment. A certificate signed by a majority of the Trustees setting forth an amendment and reciting that it was duly adopted by the Trustees and approved as aforesaid, or a copy of the Declaration as amended executed by a majority of the Trustees, shall be recorded as provided in Section 11.5 hereof and lodged among the records of the Trust and shall be conclusive evidence of such amendment. Notwithstanding the foregoing (and notwithstanding the fact that some lesser percentage may be permitted by Law), the approval of the owners of at least 70% of the outstanding shares of the Trust shall be required to amend or repeal Sections 5.9, 8.1, 8.2, 8.4, 11.19, 12.2 and this Section 10.1 of this Declaration unless at least 70% of the Trustees have voted to amend or repeal such sections, in which event the approval of the owners of only a majority of the outstanding shares shall be required. 20 26 ARTICLE XI MISCELLANEOUS - ------------- SECTION 11.1. FAILURE TO QUALIFY AS REAL ESTATE INVESTMENT TRUST. The failure of the Trust to qualify as a "real estate investment trust" under the Internal Revenue Code shall not render the Trustees liable to the Beneficiaries or to any other person or in any manner operate to annul the Trust. SECTION 11.2. LAWS OF OHIO GOVERN. This instrument is executed by the Trustees and delivered in the State of Ohio and with reference to the laws thereof, and the rights of all parties and the construction and effect of every provision hereof shall be subject to and construed according to the laws of said State. The Trust will not, in dealing with any Trustee, investment adviser, officer or employee of the Trust enter into any transactions contrary to the obligations imposed upon trustees by courts of equity of the State of Ohio. SECTION 11.3. COUNTERPARTS. This Declaration may be simultaneously executed in several counterparts, each of which so executed shall be deemed to be an original, and such counterparts, together, shall constitute but one and the same instrument, which shall be sufficiently evidenced by any such original counterpart. SECTION 11.4. CERTIFICATIONS. Any certificate signed by a person (who according to the records of the Trust appears to be a Trustee hereunder) concerning the number or identity of Trustees or Beneficiaries, showing that the execution of any instrument or writing has been duly authorized, showing the form of any vote passed at a meeting of Trustees or Beneficiaries, the fact that the number of Trustees or Beneficiaries present at any meeting or executing any written instrument satisfied the requirements of this Declaration of Trust, the form of any by-laws adopted by or the identity of any officer appointed by the Trustees or the existence or non-existence of any fact or facts which in any manner relate to the affairs of the Trust shall be conclusive evidence as to the matters so certified in favor of any person dealing with the Trustees, or any one or more of them, and the successors of such person. SECTION 11.5. RECORDING. This Declaration of Trust, any amendment thereof, evidence of any change of Trustees and of the By-Laws and amendments thereto, and evidence of effectiveness of Section 11.10 shall, and any other matters relating to the Trust or its officers, Trustees or powers may be recorded with the Trust's Transfer Agent or such other bank or trust company as the Trustees shall from time to time designate. Anyone dealing with the Trust may rely conclusively upon such recording and 21 27 instruments so recorded, and on any certificate of the kind described in Section 11.4 hereof which is signed by a person who according to such recording appears to be a Trustee hereunder. SECTION 11.6. ANNUAL FINANCIAL STATEMENTS. The Trustees shall cause to be prepared for each fiscal year of the Trust an annual report consisting of a detailed statement of the activities of the Trust during each such fiscal year and a balance sheet and a statement of income and surplus of the Trust, which financial statement shall contain an opinion thereon of an independent certified accountant or independent public accountant based on an examination of the records and books of account of the Trust made in accordance with generally accepted auditing procedures. A copy of such annual report shall be delivered to each Beneficiary hereunder within ninety days after the close of the period covered by the report and prior to the annual meeting of Beneficiaries for the next fiscal year following the close of such period. A manually signed copy of the report shall also be filed with the Trustees. In addition, the Trustees shall cause to be prepared and delivered to Beneficiaries hereunder interim financial reports, at least quarterly containing a current balance sheet which may be unaudited. SECTION 11.7. INFORMATION ON SHARE OWNERSHIP. Every Beneficiary shall be obligated to furnish to the Trustees upon demand a written statement disclosing the actual and constructive (as the terms "actual" and "constructive" are defined for purposes of the "real estate investment trust" provisions in the Internal Revenue Code and the regulations proposed or in effect thereunder) ownership of the shares registered in the name of such Beneficiary. A list of the Beneficiaries failing or refusing to comply in whole or in part with a demand of the Trustees for such written statement shall be maintained by the Trustees as part of the records of the Trust. The Trustees may establish such requirements as to furnishing of information as to actual or constructive ownership of shares as they may from time to time deem advisable and may, under provision in the By-Laws, condition the issuance of certificates and registration of ownership of shares in the name of any person upon the furnishing of such information and on such information showing that issuance of the certificate and registration of such person as a Beneficiary will not, in the opinion of counsel for the Trust, result in the Trust becoming disqualified for taxation as a real estate investment trust under the Internal Revenue Code. SECTION 11.8. FISCAL YEAR. The Trustees may establish a fiscal year and from time to time alter or change the same. SECTION 11.9. NOTICES. Notices delivered or sent by mail to any Beneficiary at his last address of record as shown by the register of the Trust shall be deemed properly delivered and be binding upon all parties. 22 28 SECTION 11.10. CONTINGENT POWERS OF BENEFICIARIES. If, in the opinion of counsel for the Trust delivered to the Trustees, this Declaration may contain the following provision without causing the Beneficiaries to be personally liable for the obligations of the Trust and without impairing the right of the Trust to continue to do business or own property under the applicable laws in the states in which it is at the time doing business, and without preventing the Trust from qualifying as a "real estate investment trust" under the Internal Revenue Code as amended and the Regulations thereunder, then such provision shall be deemed to be included in this Declaration and to be controlling over any inconsistent provision. Upon the delivery of any such opinion of counsel, the Trustees shall cause an instrument in writing, setting forth such delivery and the effectiveness of this Section 11.10 to be acknowledged by one or more of the Trustees and recorded as provided in Section 11.5 hereof. This Declaration may be amended or altered, except as to the exemption from personal liability of Trustees and Beneficiaries and the prohibition of assessments upon Beneficiaries, at any meeting of the Beneficiaries called for the purpose by the affirmative vote of the holders of not less than three-fourths of the shares entitled to vote at the meeting. Prior to each annual meeting of the Beneficiaries the Trustees shall request the opinion of counsel for the Trust whether, under the applicable laws in the states in which the Trust is then doing business or owns property, this Declaration of Trust may contain the foregoing provision without causing the Beneficiaries to be personally liable for the obligations of the Trust, without impairing the right of the Trust to continue to do business under the laws of such states, and without preventing the Trust from qualifying as a "real estate investment trust" under the Internal Revenue Code as amended and the Regulations thereunder. SECTION 11.11. INVESTMENT POLICY. The initial investment of the Trust shall consist of the Union Commerce Building which shall be subject to a net lease to The Union Commerce Bank on the terms described in Registration Statement File Number 2-18814, as from time to time amended, and exhibits thereto filed with the Securities and Exchange Commission. The Trustees in office are authorized in their sole discretion to determine the final terms of purchase of said property and lease of the same and to effect such purchase and lease for the Trust. After the initial investment, the Trustees shall be guided by the following investment policy: Investments by the Trust shall be directed primarily to the acquisition and holding of income-producing real estate used for industrial, commercial, or multiple family residential purposes. Special emphasis is to be given to favorably located properties which may be subjected to a net lease to a single tenant which has sufficient resources to give substantial security to its rental commitments under such net lease and which would itself occupy the premises or would sublet rental space. 23 29 Investments by the Trust may also include properties which offer opportunities for a higher, but less secure, return. In general, the Trust will not invest in unimproved real property or in leaseholds on which permanent buildings have not been completed and will confine its investments in industrial property to those which can be leased on a long term basis to a financially responsible single tenant. The Trust will purchase properties for long term investment and will not engage in short term sales and purchases unless the nature of particular properties indicates special reasons for believing that the proceeds of their sale might better be invested in other properties. The Trust may engage in mortgage financing of its acquisitions where the same appears feasible and advantageous, and may pledge the individual properties so acquired or its other properties under such mortgages. However, the Trust will not borrow maximum percentages of purchase prices or take any other steps which would give the Trust securities a high leverage. The Trust will generally use, as a charge against its income, straight line depreciation based on its best estimate of the useful life of each property. If in particular cases the use of accelerated depreciation appears advisable, the Trust may use that method in particular cases. The Trust policy regarding depreciation and sales of property may in the future be affected by changes in the laws and regulations of the United States and its political subdivisions, particularly those relating to federal income taxes, and such policy may be adjusted in the light of any such changes. The Trust will not engage in underwriting securities of other issuers, will not invest substantially in securities of other issuers for the purpose of exercising control or in securities of or interests in persons primarily engaged in real estate activities, will not make loans to other persons, and will not invest in real estate mortgages; provided, however, that this paragraph shall not apply to or prevent investment in shares (or transferable certificates of beneficial interest) in other real estate investment trusts which meet the requirements of Part II of Subchapter M of Chapter I of Subtitle A of the Internal Revenue Code, or other securities the holdings of which would not disqualify the Trust as a real estate investment trust under said Part II. The Trust may from time to time borrow money on a short term basis in addition to long term mortgage financing. Ordinarily the Trust will acquire investments for cash with or without mortgage financing. If it seems advisable, however, future acquisitions may be financed in whole or in part, by the issuance of shares or senior securities which may or may not be convertible and may or may not be accompanied by share purchase warrants. The Trust may also pay for investments by exchanging properties. United States Government obligations, Ohio bank accounts, and state or municipal obligations may be held as a means of providing liquid assets for contingencies and future investment, but any such investment will be on a temporary basis, will not be in amounts which would in the opinion of counsel for the Trust disqualify the Trust for treatment as a "real estate investment trust" under the Internal Revenue Code and Regulations (proposed or in effect) thereunder, and will not be of a type 24 30 which would in the opinion of counsel for the Trust prevent exemption of the shares from the Ohio Intangibles Tax. There is to be no restriction on the portion of the Trust's assets which may be invested in any particular type of real estate or in any single property. Generally, investment in assets other than real estate will not at any time exceed 10% of the Trust's. The Trust may make investments in any state of the United States and any other jurisdiction where, in the opinion of counsel for the Trust, the Trust may legally operate without affecting the limited liability of the shareholders except in respect to tort claims, contract claims where shareholder liability is not negated, claims for taxes and certain statutory liabilities. SECTION 11.12. NOTICES ON DISTRIBUTIONS. All distributions to beneficiaries shall be accompanied by a written statement advising of the sources of funds or properties so distributed. In case there is any doubt as to such source the communication may so state, and, in such event, a further statement shall be mailed to Beneficiaries not later than sixty (60) days after the close of the fiscal year of the Trust in which the distribution was made. Such statements may be based on the figures shown by the books of account of the Trust. SECTION 11.13. TRANSACTIONS WITH INTERESTED PARTIES. No Trustee, officer or adviser of the Trust, or any person affiliated with any such persons, shall sell any property or assets to the Trust or purchase any property or assets from the Trust, directly or indirectly, nor shall any such person receive any commission or any other remuneration, directly or indirectly, in connection with the purchase or sale of Trust assets, except pursuant to transactions that are fair and reasonable to the shareholders of the Trust and that relate to: (a) the acquisition by the Trust of federally insured or guaranteed mortgages at prices not exceeding the currently quoted prices at which the Federal National Mortgage Association is purchasing comparable mortgages; (b) the acquisitions of other mortgages on terms no less favorable than similar transactions involving unaffiliated parties; or (c) the acquisition by the Trust of other property at prices not exceeding the fair value thereof as determined by independent appraisal. All such transactions and all other transactions in which any such persons have any direct or indirect interest shall be approved by a majority of the Trustees, including a majority of the independent Trustees. If the Trust has an adviser, all commissions or remuneration received by any such persons in connection with any such transactions shall be deducted from the advisory fee. SECTION 11.14. ADVISERS. Subject to the provisions of this Declaration, the Trustees may employ any person, firm or corporation as adviser. Any advisory contract shall be for a period not longer than one year. Any such advisory contract shall provide that it may be terminated at any time, without penalty, by the 25 31 Trustees or by the holders of majority of the outstanding shares of beneficial interest upon not less than 60 days' written notice to the adviser. SECTION 11.15. LIMITATION ON EXPENSES. The aggregate annual expenses of every character paid or incurred by the Trust, excluding interest, taxes, expenses in connection with the issuance of securities, shareholder relations, acquisition, operation, maintenance, protection and disposition of Trust properties, but including advisory fees and mortgage servicing fees and all other expenses, shall not exceed the greater of: (a) 1-1/2% of the average net assets at cost before deducting depreciation reserves, less total liabilities, calculated at least quarterly on a basis consistently applied; or (b) 25% of the net income of the Trust, excluding provision for depreciation and realized capital gains and losses and extraordinary items, and before deducting advisory and servicing fees and expenses, calculated at least quarterly on a basis consistently applied; but in no event shall aggregate annual expenses exceed 1-1/2% of the total invested assets of the Trust. If the Trust has an adviser, the adviser shall reimburse the Trust for the amount by which aggregate annual expenses paid or incurred by the Trust as defined herein exceed the amounts herein provided. SECTION 11.16. APPRAISALS. The consideration paid for real property acquired by the Trust after its initial investment in the Union Commerce Building shall be based upon the value of the property to the Trust as determined by the Trustees on the basis of a real estate appraisal prepared by a qualified, disinterested, independent appraiser. SECTION 11.17. PROHIBITED INVESTMENTS. The Trust shall not invest in (a) mortgages, land contracts, unimproved real property which in the aggregate exceed 5% of its gross assets, as shown on its books at the time of such investment (b) real property subject to a mortgage other than an insurance company, bank or institutional lender and then only if, on the basis of independent appraisal, the unpaid balance of such mortgage does not exceed 2/3 of the fair market value, (c) securities in any company holding investments or engaging in activities prohibited by this Declaration for this Trust, or (d) commodities. SECTION 11.18. PROHIBITED ACTIVITIES. The Trust shall not do any of the following: (a) engage in any short sale, borrow unsecured more than 8% of its net worth or encumber any of its real property for more than 2/3 of the fair market value of such property as shown by independent appraisal, (b) engage in trading activities, (c) issue more than one class of securities or securities redeemable at the option of the holder, except that the Trust may issue securities evidencing borrowing secured by real estate not in excess of 2/3 of the value of such security as determined by independent appraisal, (d) engage in distribution of securities 26 32 issued by others, or (e)issue warrants, options, or similar evidence of a right to buy Trust securities other than to all shareholders ratably. SECTION 11.19. NO POWER TO DISQUALIFY TRUST AS A REAL ESTATE INVESTMENT TRUST. No Trustee and no Beneficiary shall take any action which would cause the Trust to abandon its purpose of providing an investment vehicle for numerous shareholders with small holdings or which would, in the opinion of counsel for the Trust, furnished prior to such action, prevent the Trust from qualifying or continuing to qualify as a "real estate investment trust" under the Internal Revenue Code and the Regulations (proposed or in effect) thereunder unless either (i) 70% or more of the Trustees then in office have recommended such action and holders of at least a majority of the outstanding shares have voted to approve such action or (ii) at least a majority but less than 70% of such Trustees have recommended such action and holders of 70% or more of the outstanding shares have voted to approve such action. No Beneficiary shall have any power to control the Trustees or the affairs of this Trust, or to exercise any voting or approval powers, if such powers would at the time in the opinion of counsel for the Trust (a) prevent the Beneficiaries from being free from personal liability for the obligations of the Trust under any applicable law, or (b) cause the Trust to be an illegal or invalid organization under the law of any jurisdiction in which it owns property or does business. SECTION 11.20. PURPOSE OF ARTICLE AND SECTION HEADINGS. The Article and Section headings inserted in this Declaration are for convenience of reference and are not to be taken or affect the meaning, construction, or effect of any provision hereof. SECTION 11.21. CONTROLLING EFFECT OF ARTICLE XI. The provisions of this Article XI shall be controlling in all respects over any other provisions of this Declaration. SECTION 11.22. TRUSTEES' POWER TO INCUR INDEBTEDNESS AND OTHER OBLIGATIONS - LIMITATIONS THEREON. Notwithstanding anything to the contrary in this Declaration of Trust, the Trustees may issue, assume, incur or secure Indebtedness or shares or other securities of any class or classes which may or may not have preferences or restrictions not applicable to "Shares of Beneficial Interest, $1 Par Value" subject only to the limitations of clause (b) of this Section 11.22. The terms of Indebtedness and shares or other securities shall be determined by the Trustees at or before incurring or issuing the same and may include any terms deemed advisable by the Trustees including, but not limited to, dividend or interest rates, dividend restrictions and priorities, conversion rights and prices, voting rights, redemption rights and prices, maturity dates, provisions for acceleration of maturity, rights on liquidation, subordination provisions, sinking fund provisions, remedies on default and other provisions. The obligations of the Trust under Indebtedness or shares or other securities may be 27 33 secured in any manner determined by the Trustees. All or part of the properties of the Trust may be subjected to, or may be acquired subject to, mortgage or pledge to secure Indebtedness (within the limitations on the same provided in this Section 11.22) without regard to the extent of the encumbrance in relation to the value of the individual properties. The Trustees shall not without the same shareholder approval that would be required for amendment of this Declaration of Trust, issue, assume or incur Indebtedness: (a) if, immediately after issuing, assuming or incurring the same, the outstanding Indebtedness would exceed 83-1/3% of the value of the assets of the Trust, which shall be conclusively deemed to be that determined by the Trustees except that in connection with any issue of bonds or debentures representing a debt of more than 10% of the book value of the assets of the Trust before deducting depreciation, the value of the land and buildings of the Trust shall be as determined by an independent appraiser chosen by the Trustees (b) unless the existing cash flow of the Trust, or the reasonably projected future cash flow of the Trust, excluding extraordinary items, is sufficient to cover the interest on the Indebtedness. As used in this Section 11.22, "Indebtedness" means all liabilities which would be included as liabilities in accordance with generally accepted accounting principles in effect at February 12, 1974, but not including items constituting "Shareholders' Equity and reserve. Compliance with the 83-1/3% limitation in this Section 11.22 may be determined at any time by a national accounting firm designated by the Trustees and such determination shall be conclusive. In making such determination the accounting firm may rely upon certificates of the Chairman or Secretary of the Trust or appraisers or other experts as to factual matters or as to the determination of fair value of the assets of the Trust by the Trustees and, as to legal matters, said accounting firm may rely upon the opinion of counsel for the Trust. SECTION 11.23. TRUSTEES' POWER TO INVEST IN NEW BUILDINGS AND PARTNERSHIPS, JOINT VENTURES AND UNIMPROVED LAND FOR NEW BUILDINGS. Notwithstanding anything to the contrary contained in this Declaration of Trust, the Trustees shall have power to acquire an interest or interests in improved or unimproved real estate or leaseholds or in partnerships, joint ventures, corporations or other associations owning improved or unimproved real estate or leaseholds and having as their principal purpose the development of real estate into income producing property; provided however, that, (a) the Trustees shall not have power to make such investment in such unimproved property or in such partnership, joint venture, corporation, or other association owning unimproved property, unless such unimproved property is acquired or held for purposes of development into income producing property within a reasonable period of time or is acquired or held incidental to income producing property and (b) the Trustees shall have no power to make such investment in a partnership, joint venture or similar association unless the Trust shall have received an opinion of counsel to the effect that the Trust will not be liable for the obligations 28 34 or liabilities of the partnership, joint venture or similar association and that the investment will not result in disqualification of the Trust as a real estate investment trust under the Internal Revenue Code. In connection with the incurring of indebtedness or issue of securities, and notwithstanding provisions of Section 10.1, the Trustees, without shareholder approval, may impose any restrictions which they deem advisable on the powers granted by Section 11.23 and may make such restrictions part of the Declaration of Trust. SECTION 11.24. TRUSTEES' POWER TO INVEST IN REAL ESTATE MORTGAGES AND IN CERTAIN EVIDENCES OF INDEBTEDNESS. Notwithstanding anything to the contrary contained in this Declaration of Trust, the Trustees shall have the power (a) to invest in real estate mortgages without limitation as to amount and (b) in addition to those temporary investments authorized by the ninth paragraph of Section 11.11 hereof to invest in or acquire and hold evidences of indebtedness having a period remaining to maturity, at the time of investment or acquisition, of not more than two (2) years. Investment in or acquisition of evidences of indebtedness is authorized hereunder only in the amounts which would not in the opinion of counsel of the Trust disqualify the Trust for treatment as a "real estate investment trust" under the Internal Revenue Code and Regulations (proposed or in effect) thereunder. The Trustees are hereby empowered, whether by amendment to this Section by action of the Trustees or otherwise, to place limitations on the authorizations set forth in the first sentence hereof if in their judgment such limitations are necessary or desirable in connection with the incurring of indebtedness or issuance of securities by the Trust, or in connection with qualification by the Trust to do business in any state. To the extent that this provision is inconsistent with the other terms of this Declaration of Trust, including without limitation Sections 11.11 (Investment Policy) and 11.17 (Prohibited Investments), and Article X (Amendment of Trust), this provision shall prevail. SECTION 11.25. OPTIONS RESPECTING TRUST SECURITIES. Notwithstanding anything to the contrary contained in this Declaration of Trust, including without limitation the provisions of subsection 11.18(e) hereof, the Trust may from time to time grant options, warrants or other rights to purchase securities of the Trust. The Trustees are hereby empowered, whether by amendment to this Section by action of the Trustees or otherwise, to place limitations on the authorizations set forth in the first sentence hereof if in their judgment such limitations are necessary or desirable in connection with the incurring of indebtedness or issuance of securities by the Trust, or in connection with qualification by the Trust to do business in any state. To the extent that this provision is inconsistent with the other terms of this Declaration of Trust, including without limitation Article X (Amendment of Trust), this provision shall prevail. 29 35 SECTION 11.26. AUTHORITY OF TRUSTEES TO AUTHORIZE ADDITIONAL RESTRICTIONS. The Trustees are hereby empowered, by amendment to this Declaration of Trust without shareholder action, or by agreement or otherwise, to place limitations on the authority of the Trustees if in their judgment such limitations are necessary or desirable in connection with the incurring of indebtedness or issuance of securities by the Trust or in connection with the Trust's entering into any contract or agreement or doing business in any state. SECTION 11.27. AUTHORITY OF TRUSTEES TO AUTHORIZE CERTAIN INVESTMENT, FINANCING AND OTHER ACTIVITIES. Notwithstanding anything to the contrary in this Declaration of Trust, the Trustees are hereby empowered to authorize the following activities in connection with the investment or financing of the assets of the Trust: making loans to other persons, notwithstanding the provisions of Section 11.11; making investments in real estate mortgages regardless of maturity, notwithstanding the provisions of Sections 11.11 and 11.24; investing in excess of 10% of its assets in assets other than real estate, notwithstanding the provisions of Section 11.11; purchasing assets without the necessity of obtaining a real estate appraisal prepared by a qualified, disinterested, independent appraiser, notwithstanding the provisions of Section 11.16; investing in mortgages, land contracts or unimproved property which in the aggregate exceed 5% of its assets, notwithstanding the provisions of Section 11.17; investing in real property subject to a mortgage even if the unpaid balance of such mortgage exceeds two-thirds of the fair market value of the real property, notwithstanding the provisions of Section 11.17; effectuating short sales of securities, notwithstanding the provisions of Section 11.18; borrowing unsecured more than 8% of its net worth or encumbering any of its real property for more than two-thirds of the fair market value of such property, notwithstanding the provisions of Section 11.18; issuing securities evidencing borrowings secured by real estate in excess of two-thirds of the value of such security, notwithstanding the provisions of Section 11.18; and making investments in unimproved property or in a partnership, joint venture, corporation or other association owning unimproved property without receiving an opinion of counsel with respect thereto to the effect that the Trust will not be liable for the obligations or liabilities of the partnership, joint venture or association and the investment will not result in disqualification of the Trust as a real estate investment trust under the Internal Revenue Code, notwithstanding the provisions of Section 11.23. ARTICLE XII DURATION OF THE TRUST - --------------------- SECTION 12.1. TERM OF TRUST. This Trust shall continue without limitation of time, except that (a) the Trust is subject to termination pursuant to Sections 2.8 or 12.2 or, when applicable, Section 11.10, and (b)in the event that Ohio Revised Code, Section 2131.08, or any other statute or rule of law shall provide that the Trust may not continue perpetually, then the Trust shall continue for the longest period of time permitted by 30 36 law, unless sooner terminated as herein provided, and to the extent that measuring lives in being are required to determine the term of the Trust, such measuring lives in being shall be the following persons living at the time of the execution of this Declaration, and the Trust shall in such event continue until the death of the last survivor of them plus such maximum additional period of years as is permitted by law, unless sooner terminated as herein provided: Robert F. Black, James D. Ireland, Gilbert H. Scribner, Stuart F. Silloway, Russell J. Olderman and the following:

Karen Fredonia Black Sharron Pendleton Black Elizabeth Harrison Black Robert Fager Black III Michael Frazer Black Elizabeth Frazer Vehring Pamela Harrow Vehring Alexander Todd Vehring Tracy Leseure Yeomans Patricia Yeomans Richard Black Yeomans Jeanne Carol Olderman Helen Eaton Scribner Nancy Van Dyke Scribner II Wm. Van Dyke Scribner II William Gilbert Smith Edith Goodrich Kirk Nancy V. D. Kirk William Douglass Kirk, Jr. Donald Scribner Kirk Robert D. Judson, Jr. Gilbert Hilton Judson Douglas Stahl Judson Duncan Scribner Judson Frank Van Dyke Judson Hunter Romeyn Judson Carol Yeomans Jill Francis Olderman Virgina Kraft Olderman

SECTION 12.2. SALE OF ALL TRUST PROPERTY. No merger of the Trust into another entity, no consolidation or combination of the Trust with one or more other entities, and no sale, exchange or other disposition (otherwise than by lease or other arrangement for the Trust's operational and management purposes or by mortgage, pledge or other financing technique) of more than 50% of the Trust property or the sale of the whole or any part of the Trust property for any shares, bonds, or other securities or obligations of the purchaser as a step in proceedings that would result in the merger, consolidation, dissolution or termination of the Trust shall be made without the consent of the holders of at least (i) a majority of the outstanding shares if at least 70% of the Trustees have approved such action or (ii) 70% of the outstanding shares if at least a majority but less than 70% of the Trustees have approved such action, in either case given at a meeting of the shareholders held for that purpose; provided that the voting requirements of Section 2.8 shall apply with respect to any merger intended merely to change the Trust from a trust entity to a corporation and provided further that no vote of Trust shareholders shall be required with respect to a merger of the Trust with another entity if the Trust would be the surviving entity and if, after the transaction, no shareholder would be in violation of any limitation on share ownership adopted pursuant to Section 5.9. SECTION 12.3. LIQUIDATION. On disposal of the Trust property pursuant to Sections 2.8, 11.10 or 12.2, the Trustees shall make provision for the payment of all outstanding obligations, taxes and other liabilities, accrued or contingent, of the Trust, and shall then distribute the remaining assets of the Trust ratably among the holders of the outstanding shares. Upon completion of the distribution of such remaining assets, the 31 37 Trust shall terminate and the Trustees shall be discharged of any and all further liabilities and duties hereunder and the right, title and interest of all parties shall be canceled and discharged. The powers of the Trustees shall continue until the affairs of the Trust shall have been wound up and all obligations discharged. IN WITNESS WHEREOF, the undersigned, being all of the Trustees of First Union Real Estate Equity and Mortgage Investments, have hereunto set their hands to this Amended and Restated Declaration of Trust this 7th day of December, 1999 and hereby certify that the Trustees amended and restated the Declaration of Trust with the approval of the owners of a majority of the shares of beneficial interest in the Trust on November 16, 1999, and that this Amended and Restated Declaration of Trust sets forth each and every provision of this Declaration as amended through November 16, 1999, and further certify that the Trustees named on the first page of this Declaration constitute all the present Trustees of the Trust. /s/ William A. Ackman /s/ William A. Scully ------------------------------- ----------------------------- William A. Ackman William A. Scully /s/ Daniel J. Altobello /s/ Daniel Shuchman ------------------------------- ----------------------------- Daniel J. Altobello Daniel Shuchman /s/ David P. Berkowitz /s/ Steven S. Snider ------------------------------- ----------------------------- David P. Berkowitz Steven S. Snider /s/ Daniel P. Friedman /s/ Mary Ann Tighe ------------------------------- ----------------------------- Daniel P. Friedman Mary Ann Tighe /s/ James A. Williams /s/ David S. Klafter ------------------------------- ----------------------------- James A. Williams David S. Klafter Signed in the Presence of: /s/ F. Ronald O'Keefe ------------------------------- F. Ronald O'Keefe Witness as to the above signatories /s/ Stephen J. Garchik ------------------------------- Stephen J. Garchik Signed in the Presence of: /s/ Roxanne Escandar ------------------------------- Roxanne Escandar Witness as to the signature of Stephen J. Garchick 32 38 STATE OF NEW YORK ) ) SS: COUNTY OF NEW YORK ) BEFORE ME, Rosalie Souders, the undersigned, personally appeared William A. Ackman, Daniel J. Altobello, David P. Berkowitz, Daniel P. Friedman, David S. Klafter, William A. Scully, Daniel Shuchman, Steven S. Snider, Mary Ann Tighe and James A. Williams, known to me to be persons whose names were subscribed to the within instrument and acknowledged that they executed the same for the purposes and the capacities therein set forth. IN WITNESS WHEREOF, I have hereunto set my hand and official seal at New York, New York this 7th day of December, 1999. /s/ Rosalie Souders - -------------------------------- NOTARY PUBLIC STATE OF VIRGINIA ) ) SS: COUNTY OF FAIRFAX ) BEFORE ME, Tamara S. DePaolis, the undersigned, personally appeared Stephen J. Garchik, known to me to be the person whose name was subscribed to the within instrument and acknowledged that he executed the same for the purposes and the capacities therein set forth. IN WITNESS WHEREOF, I have hereunto set my hand and official seal at Reston, Virginia this 9th day of December, 1999. /s/ Tamara S. DePaolis - -------------------------------- NOTARY PUBLIC 33 EX-10.R 3 EXHIBIT 10(R) 1 Exhibit (10)(r) ------------------------------- Registration Rights Agreement Dated as of November 1, 1999 between First Union Real Estate Equity and Mortgage Investments and The Parties Signatory Hereto ------------------------------- 2 REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (the "Agreement") is made and entered into as of the 1st day of November, 1999, between First Union Real Estate Equity and Mortgage Investments, an Ohio business trust (the "Company"), and Gotham Partners, L.P., Gotham Partners III, L.P. and Gotham Partners International, Ltd. (each, a "Purchaser" and collectively, the "Purchasers"). WHEREAS, the Company and the Purchasers have entered into those certain Standby Purchase Agreements, each dated as of August 11, 1998, and a Letter Agreement, dated as of April 19, 1999 (collectively, the "Standby Agreement"), which provides for the sale by the Company and the purchase by the Purchasers of the Company's shares of beneficial interest, $1.00 par value per share (the "Common Shares"), in connection with the Offerings (as defined in the Standby Agreement) contemplated thereby; and WHEREAS, in connection with the Standby Agreement, the Company has agreed to provide to the Purchasers, their respective successors, assigns and direct and indirect transferees the registration rights set forth in this Agreement. ACCORDINGLY, the parties hereto agree as follows: 1. DEFINITIONS. As used in this Agreement, the following capitalized defined terms shall have the following meanings: "1933 ACT" shall mean the Securities Act of 1933, as amended from time to time. "1934 ACT" shall mean the Securities Exchange Act of l934, as amended from time to time. "ADDITIONAL PIGGYBACK RIGHTS" shall have the meaning set forth in Section 2.3(c) hereof. "COMPANY" shall have the meaning set forth in the preamble and shall also include the Company's successors. "DEMAND EXERCISE NOTICE" shall have the meaning set forth in Section 2.3(a)(i) hereof. "DEMAND REGISTRATION REQUESTS" shall have the meaning set forth in Section 2.3(a)(i) hereof. 3 "DEMAND REGISTRATIONS" shall have the meaning set forth in Section 2.3(a)(i) hereof. "EFFECTIVENESS PERIOD" shall have the meaning set forth in Section 2.1(a)(ii) hereof. "ENTERPRISE SHARES" shall mean the "Warrant Shares" entitling Enterprise Asset Management, Inc. to purchase 500,000 Common Shares as referred to in the Agreement, dated as of November 2, 1998, between Enterprise Asset Management, Inc. and the Company. "FILING DATE" shall have the meaning set forth in Section 2.1(a)(i). "HOLDERS" shall mean the Purchasers and their respective affiliates, for so long as they own any Registrable Securities, and their respective successors, assigns and direct and indirect transferees who become registered owners of Registrable Securities. "MATERIAL TRANSACTION" shall have the meaning set forth in Section 2.1(a)(ii) hereof. "MATERIAL TRANSACTION TOLLING PERIOD" shall have the meaning set forth in Section 2.1(a)(ii) hereof. "NASD" shall mean the National Association of Securities Dealers, Inc. "OFFERING" shall mean the rights offering conducted by the Company pursuant to the Prospectus, dated April 13, 1999, as supplemented by the Prospectus Supplement, dated April 21, 1999, and consummated on May 14, 1999. "OTHER DEMAND RIGHTS" shall have the meaning set forth in Section 2.2(b)(ii) hereof. "PERSON" shall mean an individual, partnership (general or limited), corporation, limited liability company, trust or unincorporated organization, or a government or agency or political subdivision thereof. "PIGGYBACK REGISTRATION" shall mean a registration effected pursuant to Section 2.2 hereof. "PIGGYBACK REGISTRATION STATEMENT" shall have the meaning assigned thereto in Section 2.2 hereof. "PIGGYBACK RIGHTS" shall have the meaning assigned thereto in Section 2.2(a) hereof. "PROSPECTUS" shall mean the prospectus included in a Registration Statement, including any preliminary prospectus, and any such prospectus as amended or supplemented by any prospectus supplement, including any such prospectus supplement with respect to the terms of the offering of any portion of the Registrable Securities covered by a Registration Statement, and by all other amendments and supplements to a prospectus, -2- 4 including post-effective amendments, and in each case including all material incorporated by reference therein. "PURCHASER" shall have the meaning set forth in the preamble. "REGISTERED REGISTRABLE SECURITIES" shall have the meaning set forth in Section 2.4 hereof. "REGISTRABLE SECURITIES" shall mean the Securities; provided, however, that Securities shall cease to be Registrable Securities when (i) a Registration Statement with respect to such Securities shall have been declared effective under the 1933 Act and such Securities shall have been disposed of pursuant to such Registration Statement, (ii) such Securities have been sold to the public pursuant to Rule l44 (or any similar provision then in force) under the 1933 Act, or (iii) such Securities shall have ceased to be outstanding. "REGISTRATION EXPENSES" shall mean any and all expenses incurred by the Company or any Holder in connection with any registration, filing or qualification of Registrable Securities, including without limitation: (i) all SEC, securities exchange or NASD registration and filing fees, (ii) all fees and expenses incurred in connection with compliance with state securities or blue sky laws and compliance with the rules of the NASD (including reasonable fees and disbursements of counsel for any underwriters or Holders in connection with blue sky qualification of any of the Registrable Securities and any filings with the NASD), (iii) all expenses incurred in connection with the preparation, word processing, printing and distribution of any Registration Statement, any Prospectus, any amendments or supplements thereto, any underwriting agreements and securities sales agreements, (iv) all fees and expenses incurred in connection with the listing, if any, of any of the Registrable Securities on any securities exchange or exchanges, (v) the fees and disbursements of counsel for the Company and of the independent public accountants of the Company, including the expenses of any special audits or "cold comfort" letters required by or incident to such performance and compliance, (vi) the fees, disbursements and expenses of any "qualified independent underwriter" engaged pursuant to Section 3(p) hereof, (vii) the reasonable fees and disbursements of one counsel representing the Holders and (viii) any fees and disbursements of the underwriters customarily required to be paid by issuers of securities and the fees and expenses of any special experts retained by the Company in connection with any Registration Statement, but excluding underwriting discounts and commissions and transfer taxes, if any, relating to the sale or disposition of Registrable Securities by the Holders. "REGISTRATION STATEMENT" shall mean any registration statement of the Company which covers any of the Registrable Securities pursuant to the provisions of this Agreement, and all amendments and supplements to any such Registration Statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. -3- 5 "SEC" shall mean the United States Securities and Exchange Commission or any successor agency or government body performing the functions currently performed by the United States Securities and Exchange Commission. "SECTION 2.2 SALE NUMBER" shall have the meaning set forth in Section 2.2(b) hereof. "SECTION 2.3 SALE NUMBER" shall have the meaning set forth in Section 2.3(d) hereof. "SECURITIES" shall mean (i) the Common Shares acquired by each Purchaser and its affiliates in connection with the Offering; and (ii) any equity securities of the Company issued or issuable with respect to any of such Common Shares in connection with a reclassification, recapitalization, merger, consolidation or other reorganization, stock dividend or stock split. "SHELF REGISTRATION" shall mean a registration effected pursuant to Section 2.1 hereof. "SHELF REGISTRATION STATEMENT" shall mean a "shelf" registration statement of the Company pursuant to the provisions of Section 2.1 of this Agreement which (i) covers all of the Registrable Securities and all of the Enterprise Shares (including any equity securities of the Company issued or issuable with respect to any of such Enterprise Shares in connection with a reclassification, recapitalization, merger, consolidation or other reorganization, stock dividend or stock split) and (ii) covers no other securities of the Company that have been or will be issued and which shelf registration statement is on a Form S-3 or a successor form pursuant to Rule 415 under the 1933 Act, or any similar rule that may be adopted by the SEC, and all amendments to such registration statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. "STANDBY AGREEMENT" shall have the meaning set forth in the preamble. "UNDERWRITERS' REPRESENTATIVE" shall mean the managing underwriter, or, in the case of a co-managed underwriting, the managing underwriter designated as the Underwriters' Representative by the co-managers. "VALID BUSINESS REASON" shall have the meaning set forth in Section 2.1(a)(ii) hereof. 2. REGISTRATION UNDER THE 1933 ACT. 2.1 SHELF REGISTRATION. (a) The Company shall: (i) not later than the date that is 45 days after the Purchasers deliver a written request to the Company (the date such request is delivered to be determined in accordance with Section 5.3 hereto) with respect to the filing of the Shelf Registration Statement hereinafter -4- 6 referred to (the "Filing Date"), file with the SEC, and thereafter shall use its best efforts to cause to be declared effective as promptly as practicable, but not later than 120 days after the Filing Date, a Shelf Registration Statement relating to the offer and sale of the Registrable Securities by the Holders from time to time in accordance with the methods of distribution (including an underwritten offering) elected from time to time by the Holders participating in the Shelf Registration and set forth in such Shelf Registration Statement; (ii) use its best efforts to keep the Shelf Registration Statement continuously effective until the earliest to occur of: (A) the date when all Registrable Securities covered by the Shelf Registration Statement have been sold pursuant to any Registration Statement under this Agreement or cease to be outstanding or otherwise to be Registrable Securities; (B) the date on which all of the following conditions have been satisfied: (1) the Registrable Securities represent less than five percent (5%) of the outstanding Common Shares of the Company; (2) none of the Holders have designees on the Company's Board of Trustees and (3) the Company delivers to the Holders an opinion of counsel reasonably acceptable to the Holders to the effect that (x) the Holders are not and have not been "affiliates" (within the definition of Rule 144 under the 1933 Act) of the Company for the preceding three consecutive months and (y) the Registrable Securities may be freely disposed of pursuant to Rule 144 under the 1933 Act or otherwise; and (C) the date which is seven years from the date hereof (the "Effectiveness Period"), PROVIDED, HOWEVER, that if the Company determines by a resolution of the Board of Trustees of the Company or authorized committee thereof that in its good faith judgment (a "Valid Business Reason") the continued availability of the Shelf Registration Statement would materially interfere with any material financing, acquisition, corporate reorganization or merger or other transaction (including any significant regulatory event) involving the Company (a "Material Transaction"), the continued availability of the Shelf Registration Statement may be suspended for a reasonable period of time; PROVIDED, HOWEVER, that (1) in the case of a Material Transaction that requires the Company to seek the approval of the Company's shareholders or would require the Company to prepare and file with the SEC a registration statement under the 1933 Act or the 1934 Act, such suspension shall in no event exceed 120 days or (2) in the case of any other Material Transaction, such suspension shall in no event exceed 90 days; PROVIDED, FURTHER that such suspensions shall not occur more than two times and in no event for more than 180 days in the aggregate in any consecutive twelve-month period during the Effectiveness Period (such period during which the Effectiveness Period may be suspended, the "Material Transaction Tolling Period"); and -5- 7 (iii) notwithstanding any other provisions hereof, use its best efforts to ensure that (A) the Shelf Registration Statement and any amendment thereto and any Prospectus forming a part thereof complies in all material respects with the 1933 Act and the rules and regulations thereunder, (B) the Shelf Registration Statement and any amendment thereto does not, when it becomes effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (C) the Prospectus forming a part of the Shelf Registration Statement does not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements, in light of the circumstances under which they were made, not misleading. (b) Each Holder of Registrable Securities agrees that, upon receipt of any notice from the Company that the Company has determined to suspend the availability of the Shelf Registration Statement for use by the Holders pursuant to Section 2.1(a)(ii) above, such Holder will discontinue its disposition of Registrable Securities pursuant to the Shelf Registration Statement and, if so directed by the Company, will deliver to the Company (at the Company's expense) all copies, other than permanent file copies, then in such Holder's possession of the Prospectus covering such Registrable Securities that was in effect at the time of receipt of such notice. (c) (i) If any Holder of Registrable Securities requests that some or all of its Registrable Securities covered by the Shelf Registration Statement be sold in an underwritten offering, the Company shall, as promptly as practicable, but no later than ten days after receipt of such request, give written notice of such request to all Holders of Registrable Securities. Any Holder of Registrable Securities who wishes to participate in the underwritten offering may, within ten days of receipt of such notice, elect to have all or any of its Registrable Securities included in such underwritten offering; PROVIDED, HOWEVER, that if the number of Registrable Securities requested to be included in such registration, in the opinion of the Underwriters' Representative, exceeds the largest number that can be sold in an orderly manner in such offering within a price range acceptable to the Holders of a majority of the Registrable Securities proposed to be registered, then the number of such Registrable Securities to be included in such underwritten registration shall be allocated pro rata among all Holders requesting that their Registrable Securities be included in such registration, based on the number of Registrable Securities proposed to be sold by each Holder. Notwithstanding the foregoing, the Company shall have no obligations under Section 3(l) in respect of an underwritten offering of Registrable Securities unless and until the Company shall have received written notification from the Holders of Registrable Securities that the intended method of distribution is an underwritten offering of Registrable Securities with a reasonably anticipated aggregate offering price to the public of at least ten million ($10,000,000) dollars. (ii) If any of the Registrable Securities covered by the Shelf Registration Statement are to be sold in an underwritten offering, the Underwriters' Representative will be selected by the Holders of a majority of the Registrable Securities to be included in such offering and shall be reasonably acceptable to the Company. No Holder may participate in any underwritten registration hereunder unless such Holder (a) agrees to sell such Holder's Registrable Securities on the basis provided in any underwriting arrangements approved by the Holders of a -6- 8 majority of the Registrable Securities to be included in the offering and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements. In connection with any underwritten offering under this Section 2.1, each of the participating Holders and the Company shall be a party to the underwriting agreement with the underwriters and may be required to make certain customary representations and warranties (in the case of the participating Holders as to the Registrable Securities being sold by the participating Holder in such underwritten offering and the plan of distribution thereof) and provide certain customary indemnification for the benefit of the underwriters. 2.2 PIGGYBACK REGISTRATION. (a) If at any time the Company proposes to register (including for this purpose a registration effected by the Company for the account of the Company or shareholders of the Company other than the Holders of the Registrable Securities for offer and sale Common Shares under the 1933 Act (other than pursuant to registrations on Form S-4 or Form S-8 or similar forms solely for registration of securities in connection with an employee benefit plan or dividend reinvestment plan, merger or consolidation or exchange offer), as soon as practicable (but in no event less than ten business days prior to the date of filing any related Registration Statement), the Company shall give the Holders of the Registrable Securities written notice of such registration. Upon the written request of any Holder given within ten days following the date such notice is delivered (as determined in accordance with Section 5.3 hereof), the Company shall use all reasonable efforts to cause to be included in such Registration Statement (a "Piggyback Registration Statement"), and use all reasonable efforts to cause to be registered under the 1933 Act, all the Registrable Securities that such Holder shall have requested to be registered (such right of Holders to request that their Registrable Shares be included in a Piggyback Registration Statement, "Piggyback Rights"). Notwithstanding anything to the contrary in this Section 2.2(a), the Company shall not be required to include any Registrable Securities in such Piggyback Registration Statement if (i) the Piggyback Registration Statement is a "shelf" registration statement on Form S-3 or other appropriate form pursuant to Rule 415 under the 1933 Act and (ii) the Shelf Registration Statement is effective and available for sales of Registrable Securities. The Company shall have the absolute right to withdraw or cease to prepare or file any Piggyback Registration Statement for any offering referred to in this Section 2.2 without any obligation or liability to the Holders; PROVIDED, that the Company shall promptly notify the Holders in writing of any such action and shall, subject to the provisions of Section 2.5, reimburse Holders of Registrable Securities requested to be included in such Piggyback Registration Statement for all reasonable out-of-pocket expenses incurred by such Holders in connection with such Piggyback Registration Statement prior to such withdrawal by the Company. (b) If any Piggyback Registration Statement relates to an underwritten offering of Common Shares and such Common Shares and the number of Registrable Securities requested to be included in such registration, in the opinion of the Underwriters' Representative, exceeds the largest number (the "Section 2.2 Sale Number") that can be sold in an orderly manner in such offering, then the Company shall include in such registration: (i) all Common Shares that the Company proposes to register for its own account (the "Company Securities"); -7- 9 (ii) if the number of Company Securities is zero, all securities being included in such registration pursuant to the terms of any contractual demand registration rights granted to any Person other than a Holder ("Other Demand Rights"); and (iii) (x) to the extent that the number of Company Securities is more than zero but less than the Section 2.2 Sale Number, all securities being included in such registration pursuant to the terms of any Other Demand Rights and all Registrable Securities requested to be included in such registration by Holders of Registrable Securities; provided, however, that, if the number of such Registrable Securities, securities being included pursuant to Other Demand Rights and Company Securities exceeds the Section 2.2 Sale Number, the aggregate number of such Registrable Securities and securities being included pursuant to Other Demand Rights (not to exceed the Section 2.2 Sale Number) to be included in such registration shall be allocated on a pro rata basis among all Holders requesting that Registrable Securities be included in such registration and all Persons exercising Other Demand Rights based on the number of Registrable Securities then owned by each such Holder requesting inclusion or the number of securities to be included pursuant to Other Demand Rights then owned by each such Person, as applicable, in relation to the aggregate number of Registrable Securities then owned by all such Holders requesting inclusion and all Persons exercising Other Demand Rights; and (y) to the extent that the number of Company Securities is zero, and the number of securities being included pursuant to Other Demand Rights is less than the Section 2.2 Sale Number, all Registrable Securities requested to be included in such registration by Holders of Registrable Securities, PROVIDED, HOWEVER, that, if the number of such Registrable Securities and securities being included pursuant to Other Demand Rights exceeds the Section 2.2 Sale Number, the aggregate number of such Registrable Securities (not to exceed the Section 2.2 Sale Number) to be included in such registration shall be allocated on a pro rata basis among all Holders requesting that Registrable Securities be included in such registration based on the number of Registrable Securities then owned by each such Holder requesting inclusion in relation to the aggregate number of Registrable Securities then owned by all such Holders requesting inclusion. (c) No Holder may participate in any underwritten registration pursuant to this Section 2.2 unless such Holder (a) agrees to sell such Holder's Registrable Securities on the basis provided in any underwriting arrangements entered into by the Company and the underwriters and (b) completes and executes all customary questionnaires, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements. (d) The holders of the Registrable Securities shall be entitled to have their Registrable Securities included in an unlimited number of Piggyback Registrations pursuant to this Section 2.2. 2.3 DEMAND REGISTRATION. (a) (i) If the Shelf Registration Statement is not available for use by the Holders for a period exceeding ten consecutive business days because the Company has failed to satisfy the eligibility requirements for the use of a registration statement on Form S-3, each Holder shall have the right, subject to the next sentence and to Section 2.3(b) and Section 2.3(d) below, to require the Company to file a Registration Statement under the 1933 Act (which -8- 10 Registration Statement shall only include such securities as shall be permitted to be included in the Shelf Registration Statement) covering all or any part of its respective Registrable Securities, by delivering a written request therefor to the Company specifying the number of Registrable Securities to be included in such registration by such Holder and the intended method of distribution thereof. If the Company again becomes eligible to use a registration statement on Form S-3 before a Holder exercises the right described in the immediately preceding sentence, such Holder will no longer be permitted to exercise that right with respect to that particular instance of the Company's failure to meet those eligibility requirements. All such requests by any Holder pursuant to this Section 2.3(a)(i) are referred to herein as "Demand Registration Requests," and the registrations so requested are referred to herein as "Demand Registrations" (with respect to any Demand Registration, the Holder(s) making such demand for registration being referred to as the "Initiating Holder"). As promptly as practicable, but no later than five business days after receipt of a Demand Registration Request, the Company shall give written notice (the "Demand Exercise Notice") of such Demand Registration Request to all Holders of record of Registrable Securities. (ii) The Company, subject to Section 2.3(d) and Section 2.3(e), shall include in a Demand Registration (x) the Registrable Securities of the Initiating Holder and (y) the Registrable Securities of any other Holder which shall have made a written request to the Company for inclusion in such registration (which request shall specify the maximum number of Registrable Securities intended to be disposed of by such Holder) within ten days following the date of the Demand Exercise Notice. (iii) The Company shall use its best efforts to promptly effect such registration under the 1933 Act of the Registrable Securities which the Company has been so requested to register, for distribution in accordance with such intended method of distribution. (b) The Demand Registration rights granted in Section 2.3(a) to the Holders are subject to the following limitations: (i) each registration in respect of a Demand Registration Request must include, in the aggregate (based on the Common Shares included in such registration by the Company, all Holders and all holders of Piggyback Rights and Additional Piggyback Rights (each as defined below) participating in such registration), Common Shares having an aggregate market value of at least $5 million; (ii) the Company shall not be required to cause a registration pursuant to Section 2.3(a)(i) to be declared effective within a period of 90 days after the effective date of a registration statement filed by the Company covering a firm commitment public offering; (iii) if the Company is involved in a Material Transaction for which the Board of Trustees of the Company or an authorized committee thereof has concluded that any registration of Registrable Securities should not be made or continued because a Valid Business Reason exists, (x) the Company may postpone filing a Registration Statement relating to a Demand Registration Request until such Valid Business Reason no longer exists, but in no event for a period longer than the Material Transaction Tolling Period, and (y) in case a Registration Statement has been filed or is effective, in each case, relating to a Demand Registration Request, the Company may cause such Registration Statement to be withdrawn and/or its availability for use by the Holders suspended or may postpone amending or supplementing such Registration Statement until such Valid Business Reason no longer exists, but in no event for a period longer than the Material Transaction Tolling Period; and the Company shall give written notice of its -9- 11 determination to postpone, withdraw or suspend the availability for use by the Holders of a Registration Statement and of the fact that the Valid Business Reason for such postponement, withdrawal or suspension no longer exists, in each case, promptly after the occurrence thereof; and (iv) the Company's obligations under this Section 2.3 shall terminate at such time as the Company's obligation to keep the Shelf Registration Statement effective pursuant to Section 2.1(a)(ii) shall terminate. Each Holder of Registrable Securities agrees that, upon receipt of any notice from the Company that the Company has determined to withdraw or suspend the availability for use by the Holders of any Registration Statement pursuant to clause (iii) above, such Holder will discontinue its disposition of Registrable Securities pursuant to such Registration Statement and, if so directed by the Company, will deliver to the Company (at the Company's expense) all copies, other than permanent file copies, then in such Holder's possession of the Prospectus covering such Registrable Securities that was in effect at the time of receipt of such notice. If the Company shall have withdrawn or prematurely terminated a Registration Statement filed under Section 2.3(a)(i) (whether pursuant to clause (iii) above or as a result of any stop order, injunction or other order or requirement of the SEC or any other governmental agency or court), the Company shall not be considered to have effected an effective registration for the purposes of this Agreement until the Company shall have filed a new Registration Statement covering the Registrable Securities covered by the withdrawn Registration Statement and such Registration Statement shall have been declared effective and shall not have been withdrawn. If the Company shall give any notice of withdrawal, postponement or suspension of a Registration Statement, the Company shall, at such time as the Valid Business Reason that caused such withdrawal or postponement no longer exists (but in no event later than such number of days after the date of the postponement or withdrawal that equals the Material Transaction Tolling Period), use its best efforts to effect the registration under the 1933 Act of the Registrable Securities covered by the withdrawn or postponed Registration Statement in accordance with this Section 2.3 (unless the Initiating Holder shall have withdrawn such request, in which case the Company shall be considered to have effected an effective registration for the purposes of this Agreement). (c) The Company, subject to Section 2.3(d) and Section 2.3(e), may elect to include in any Registration Statement and offering made pursuant to Section 2.3(a)(i), (i) any authorized but unissued Common Shares and (ii) any other Common Shares which are requested to be included in such registration pursuant to the exercise of piggyback registration rights granted by the Company after the date hereof ("Additional Piggyback Rights"); PROVIDED, HOWEVER, that such inclusion shall be permitted only pursuant to and subject to the terms of the underwriting agreement or arrangements, if any, entered into by the Initiating Holder. -10- 12 (d) If any requested registration pursuant to Section 2.3(a) involves an underwritten offering and the number of securities to be included in such registration (at the request of the Holders or any other Persons (including any Common Shares requested by the Company, by Holders exercising Piggyback Rights or by holders exercising Additional Piggyback Rights)) in the opinion of the Underwriters' Representative exceeds the largest number (the "Section 2.3 Sale Number") that can be sold in an orderly manner in such offering within a price range acceptable to the Initiating Holder, the Company shall include in such registration: (i) all Registrable Securities requested to be included in such registration by Holders of Registrable Securities; PROVIDED, HOWEVER, that, if the number of such Registrable Securities exceeds the Section 2.3 Sale Number, the number of such Registrable Securities (not to exceed the Section 2.3 Sale Number) to be included in such registration shall be allocated on a pro rata basis among all Holders requesting that Registrable Securities be included in such registration based on the number of Registrable Securities then owned by each such Holder requesting inclusion in relation to the aggregate number of Registrable Securities then owned by all such Holders requesting inclusion; (ii) to the extent that the number of Registrable Securities to be included by all Holders is less than the Section 2.3 Sale Number, Common Shares that the Company proposes to register; and (iii) to the extent that the number of Registrable Securities to be included by all Holders and the number of Common Shares to be included by the Company is less than the Section 2.3 Sale Number, any other Common Shares that the holders thereof propose to register pursuant to the exercise of Additional Piggyback Rights. If, as a result of the proration provisions of this Section 2.3(d), any Holder shall not be entitled to include all Registrable Securities in a registration that such Holder has requested be included, such Holder may elect to withdraw his request to include Registrable Securities in such registration or may reduce the number requested to be included; PROVIDED, HOWEVER, that (x) such request must be made in writing prior to the execution of the underwriting agreement and (y) such withdrawal shall be irrevocable. (e) In connection with any Demand Registration, the Initiating Holder shall have the right to designate the Underwriters' Representative for such registration, PROVIDED that such Underwriters' Representative is reasonably satisfactory to the Company. No Holder may participate in any underwritten registration hereunder unless such Holder (a) agrees to sell such Holder's Registrable Securities on the basis provided in any underwriting arrangements approved by the Initiating Holder and (b) completes and executes all questionnaires, underwriting agreements and other documents required under the terms of such underwriting arrangements. 2.4 REDUCTION OF AVAILABILITY ON SHELF REGISTRATION STATEMENT. If any Registrable Securities are registered for sale and sold in connection with any registration pursuant to Section 2.2 or Section 2.3 (the "Registered Registrable Securities"), the extent to which the Shelf Registration Statement is available for the sale of Registrable Securities by Holders shall be reduced by a number of Securities equal to the number of Registered Registrable Securities. -11- 13 2.5 EXPENSES. The Company shall pay all Registration Expenses in connection with any registration pursuant to Section 2.1 and Section 2.3 and, except as hereinafter provided, Section 2.2. The Company shall pay the Registration Expenses associated with the first two Piggyback Registrations, and the Holders shall be responsible for any Registration Expenses associated with any subsequent registration pursuant to Section 2.2. Each Holder shall pay all underwriting discounts and commissions and transfer taxes, if any, relating to the sale or disposition of such Holder's Registrable Securities pursuant to any Registration Statement. 3. REGISTRATION PROCEDURES. In connection with the obligations of the Company with respect to Registration Statements pursuant to Section 2.1, Section 2.2 or Section 2.3 hereof, the Company shall: (a) prepare and file with the SEC the Registration Statement, within the relevant time period specified in Section 2.1, Section 2.2 or Section 2.3 hereof, as applicable, on the appropriate form under the 1933 Act reflecting the methods of distribution (including an underwritten offering) of the Registrable Securities elected from time to time by the Holders, which form (i) shall be selected by the Company, (ii) shall be available for the sale of the Registrable Securities by the selling Holders thereof and (iii) shall comply as to form in all material respects with the requirements of the applicable form and include or incorporate by reference all financial statements required by the SEC to be filed therewith or incorporated by reference therein, and use its best efforts to cause such Registration Statement to become effective and remain current (which obligation may be satisfied by filing reports with the SEC pursuant to the Company's reporting obligations under the 1934 Act) and in compliance with the provisions of the 1933 Act for the period specified in Section 2.1, Section 2.2 or Section 2.3, as applicable; (b) prepare and file with the SEC such amendments and post-effective amendments to each Registration Statement as may be necessary under applicable law to keep such Registration Statement current (which obligation may be satisfied by filing reports with the SEC pursuant to the Company's reporting obligations under the 1934 Act) and in compliance with the provisions of the 1933 Act for the period specified in Section 2.1, Section 2.2 or Section 2.3, as applicable, and to facilitate the disposition of all securities covered by each Registration Statement during the applicable period in accordance with the intended method or methods of distribution (including an underwritten offering) by the selling Holders thereof and cause each Prospectus to be filed pursuant to Rule 424 (or any similar provision then in force) under the 1933 Act and comply with the provisions of the 1933 Act, the 1934 Act and the rules and regulations thereunder applicable to them with respect to the disposition of all securities covered by each Registration Statement during the applicable period in accordance with the intended method or methods of distribution (including an underwritten offering) by the selling Holders thereof; (c) furnish to each Holder and to each underwriter of an underwritten offering of Registrable Securities, if any, without charge, as many copies of each Prospectus, including each preliminary Prospectus, as such Holder or underwriter may reasonably request, including -12- 14 financial statements and schedules and, if the Holder so requests, all exhibits in order to facilitate the public sale or other disposition of the Registrable Securities; (d) register or qualify the Registrable Securities under all applicable state securities or "blue sky" laws of such jurisdictions as any Holder covered by a Registration Statement and each underwriter of an underwritten offering of Registrable Securities shall reasonably request by the time the applicable Registration Statement is declared effective by the SEC, and do any and all other acts and things which may be reasonably necessary or advisable to enable each such Holder and underwriter to consummate the disposition in each such jurisdiction of such Registrable Securities owned by such Holder; (e) notify promptly each Holder, their counsel and the Underwriters' Representative, if any, and promptly confirm such advice in writing (i) when a Registration Statement has become effective and when any post-effective amendments thereto become effective, (ii) of any request by the SEC or any state securities authority for post-effective amendments to a Registration Statement and Prospectus or for additional information after the Registration Statement has become effective, (iii) of the issuance by the SEC or any state securities authority of any stop order suspending the effectiveness of a Registration Statement or the initiation of any proceedings for that purpose, (iv) if, between the effective date of a Registration Statement and the closing of any sale of Registrable Securities covered thereby, the representations and warranties of the Company contained in any underwriting agreement, securities sales agreement or other similar agreement, if any, relating to the offering cease to be true and correct in all material respects, (v) of the happening of any event or the discovery of any facts during the period a Registration Statement is effective which makes any statement made in such Registration Statement or the related Prospectus untrue in any material respect or which requires the making of any changes in such Registration Statement or Prospectus in order to make the statements therein not misleading or otherwise to comply in all material respects with the provisions of the 1933 Act, (vi) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose and (vii) of the reasonable determination by the Company that a post-effective amendment to such Registration Statement would be appropriate; (f) furnish counsel for the Holders and the Underwriters' Representative, if any, copies of any comment letters received from the SEC or any other request by the SEC or any state securities authority for amendments or supplements to a Registration Statement and Prospectus or for additional information; (g) obtain the withdrawal of any order suspending the effectiveness of a Registration Statement at the earliest possible moment; (h) furnish to each Holder, and each underwriter, if any, without charge, at least one conformed copy of each Registration Statement and any post-effective amendment thereto, including financial statements and schedules (without documents incorporated therein by reference and all exhibits thereto, unless requested); -13- 15 (i) cooperate with the selling Holders to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold and not bearing any restrictive legends; and enable such Registrable Securities to be in such denominations and registered in such names as the selling Holders or the underwriters, if any, may reasonably request at least two business days prior to the closing of any sale of Registrable Securities; (j) upon the occurrence of any event or the discovery of any facts, each as contemplated by Section 3(e)(ii), Section 3(e)(iii), Section 3(e)(v), Section 3(e)(vi) and Section 3(e)(vii) hereof, as promptly as practicable after the occurrence of such an event, prepare a supplement or post-effective amendment to the Registration Statement or the related Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Securities, such Prospectus will not contain at the time of such delivery any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and notify the Holders to suspend use of the Prospectus as promptly as practicable after any such event or discovery, and each Holder agrees to suspend use of the Prospectus until the Company has amended or supplemented the Prospectus to correct such misstatement or omission, PROVIDED, HOWEVER, that if the Company suspends the use of the Prospectus for the circumstances described in Section 2.1(a)(ii) or Section 2.3(b) hereof, such suspension shall be limited to a number of days equal to the Material Transaction Tolling Period. At such time as such public disclosure is otherwise made or the Company determines that such disclosure is not necessary, in each case to correct any misstatement of a material fact or to include any omitted material fact, the Company agrees promptly to notify each Holder of such determination and to furnish each Holder such number of copies of the Prospectus as amended or supplemented, as such Holder may reasonably request; (k) a reasonable time prior to the filing of any Registration Statement, any Prospectus, any amendment to a Registration Statement or amendment or supplement to any Prospectus or any document which is to be incorporated by reference into a Registration Statement or any Prospectus after the initial filing of a Registration Statement, provide copies of such document to the Holders and make representatives of the Company as shall be reasonably requested by the Holders, available for discussion of such document (it being understood that , with respect to any such Registration Statement, Prospectus or amendment or supplement thereto, the Holders shall have the opportunity to comment on the disclosure relating to such Holders therein, and the Company shall not file such Registration Statement, Prospectus or amendment or supplement thereto without the consent of the Holders to such disclosure, which consent shall not be unreasonably withheld); (l) enter into agreements (including underwriting agreements) and take all other reasonable, customary and appropriate actions in order to expedite or facilitate the disposition of such Registrable Securities and in such connection whether or not an underwriting agreement is entered into and whether or not the registration is an underwritten registration: -14- 16 (i) make such representations and warranties to the Holders and the underwriters, if any, in form, substance and scope as are customarily made by issuers to underwriters in similar underwritten offerings as may be reasonably requested by them; (ii) obtain opinions of counsel to the Company and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the Underwriters' Representative, if any, and the Holders of the Registrable Securities being sold) addressed to each selling Holder and the underwriters, if any, covering the matters customarily covered in opinions requested in sales of securities or underwritten offerings and such other matters as may be reasonably requested by such Holders and Underwriters' Representative; (iii) obtain "cold comfort" letters and updates thereof from the Company's independent certified public accountants (and, if necessary, any other independent certified public accountants of any subsidiary of the Company or of any business acquired by the Company for which financial statements are, or are required to be, included in the Registration Statement) addressed to the underwriters, if any, and use reasonable efforts to have such letter addressed to the selling Holders (to the extent consistent with Statement on Auditing Standards No. 72 of the American Institute of Certified Public Accounts), such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters to underwriters in connection with similar underwritten offerings, and, in addition to the dates set forth below, shall be dated the effective date of any prospectus supplement to the Prospectus included in the applicable Registration Statement; (iv) enter into a securities sales agreement with the Holders and an agent of the Holders providing for, among other things, the appointment of such agent for the selling Holders for the purpose of soliciting purchases of Registrable Securities, which agreement shall be in form, substance and scope customary for similar offerings; (v) if an underwriting agreement is entered into, cause the same to set forth indemnification provisions and procedures substantially equivalent to the indemnification provisions and procedures set forth in Section 4 hereof with respect to the underwriters and all other parties to be indemnified pursuant to said Section or, at the request of any underwriters, in the form customarily provided to such underwriters in similar types of transactions; and (vi) deliver such documents and certificates as may be reasonably requested and as are customarily delivered in similar offerings to the holders of registrable securities being sold and the managing underwriters, if any. -15- 17 The above shall be done at each closing under any underwriting or similar agreement as and to the extent required thereunder. (m) make available for inspection by representatives of the Holders, any underwriters participating in any disposition pursuant to a Registration Statement, and any counsel or accountant retained by any of the foregoing (but not more than one counsel for all Holders and one counsel for all underwriters), all financial and other records, pertinent corporate documents and properties of the Company reasonably requested by any such Persons, and cause the respective officers, directors, employees, and any other agents of the Company to supply all information reasonably requested by any such representative, underwriter, special counsel or accountant in connection with the Shelf Registration Statement, and make such representatives of the Company available for discussion of such documents as shall be reasonably requested by the Holders or any underwriters so that they may conduct a reasonable investigation within the meaning of Section 11 of the 1933 Act; (n) cause all Registrable Securities to be listed on a national securities exchange; (o) otherwise comply with all applicable rules and regulations of the SEC and make available to its securityholders, as soon as reasonably practicable, an earnings statement covering at least 12 months which shall satisfy the provisions of Section 11(a) of the 1933 Act and Rule 158 thereunder; (p) in the event that any broker-dealer registered under the 1934 Act shall underwrite any Registrable Securities or participate as a member of an underwriting syndicate or selling group or "assist in the distribution" (within the meaning of the Rules of Fair Practice and the By-Laws of the NASD) or any successor thereto, as amended from time to time) thereof, whether as a Holder of such Registrable Securities, or as an underwriter, a placement or sales agent or a broker or dealer in respect thereof, or otherwise, assist such broker-dealer in complying with the requirements of such Rules and By-Laws, including by (A) if such Rules or By-Laws shall so require, engaging a "qualified independent underwriter" (as defined in Rule 2720 (or any successor thereto)) to participate in the preparation of the Registration Statement relating to such Registrable Securities and to exercise usual standards of due diligence in respect thereto, (B) indemnifying any such qualified independent underwriter to the extent of the indemnification of underwriters provided in Section 4 hereof (or to such other customary extent as may be requested by such underwriter), and (C) providing such information to such broker-dealer as may be required in order for such broker-dealer to comply with the requirements of the Rules of Fair Practice of the NASD; and (q) cooperate and assist in any filings required to be made with the NASD and in the performance of any due diligence investigation by any underwriter and its counsel (including any qualified independent underwriter that is required to be retained in accordance with the rules and regulations of the NASD). The Company may (as a condition to such Holder's participation in any registration) require each Holder to furnish to the Company such information regarding the Holder and the -16- 18 proposed distribution by such Holder of its Registrable Securities as the Company may from time to time reasonably request in writing. In the event that Holders dispose of Registrable Securities pursuant to an underwritten offering, the Company shall not effect any sale or distribution of, or file any registration statement with respect to, any securities (within the meaning of Section 2(1) of the 1933 Act) of the Company other than Registrable Securities for 90 days after completion of such underwritten offering or such shorter period as the Underwriters' Representative shall reasonably determine is necessary and the Holders of Registrable Securities not covered by such underwritten offering shall not publicly sell any Registrable Securities not so covered for 90 days after completion of such underwritten offering or such shorter period as the Underwriters' Representative shall reasonably determine is necessary. In the case of the registration of any underwritten primary equity offering initiated by the Company (other than any registration by the Company on (i) Form S-8, or a successor or substantially similar form, of (A) an employee stock option, stock purchase or compensation plan or of securities issued or issuable pursuant to any such plan or (B) a dividend reinvestment plan or (ii) Form S-4) or the registration of any rights offering by the Company, the Holders agree, if requested in writing by the managing underwriter or underwriters administering such offering, in the case of an underwritten offering, or if requested by the Company, in the case of a rights offering, not to effect any offer, sale or distribution of Registrable Securities (or any option or right to acquire Registrable Securities) during the period commencing on the 10th day prior to the effective date of the registration statement covering such underwritten primary equity offering and ending on the 90th day after the completion of such underwritten offering or on such earlier date as such managing underwriter shall reasonably determine is necessary. 4. INDEMNIFICATION; CONTRIBUTION. (a) The Company agrees to indemnify and hold harmless the Holders, each Person who participates as an underwriter (any such Person being an "Underwriter") and each Person, if any, who controls any Holder or Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, and the respective officers, directors, partners, employees, representatives and agents of any of the foregoing, as follows: (i) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement (or any amendment or supplement thereto) pursuant to which Registrable Securities were registered under the 1933 Act, including all documents incorporated therein by reference, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading, or arising out of any untrue statement or alleged untrue statement of a material fact contained in any Prospectus or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; -17- 19 (ii) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any government agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission; PROVIDED that (subject to Section 4(d) below) any such settlement is effected with the written consent of the Company; and (iii) against any and all expense whatsoever, as incurred (including the fees and disbursements of counsel chosen by any indemnified party), reasonably incurred in investigating, preparing or defending against any litigation, or any investigation or proceeding by any government agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under subparagraph (i) or (ii) above; PROVIDED, HOWEVER, that this indemnity agreement shall not apply to any loss, liability, claim, damage or expense to the extent arising out of any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Company by the Holder in its capacity as Holder or underwriter expressly for use in a Registration Statement (or any amendment thereto) or any Prospectus. (b) Each Holder severally, but not jointly, agrees to indemnify and hold harmless the Company, each underwriter and the other selling Holders, and each Person, if any, who controls the Company, any underwriter or any other selling Holder within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, and the respective officers, directors, partners, employees, representatives and agents of any of the foregoing, against any and all loss, liability, claim, damage and expense described in the indemnity contained in Section 4(a) hereof, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Registration Statement (or any amendment thereto) or any Prospectus included therein in reliance upon and in conformity with written information with respect to such Holder furnished to the Company by such Holder in its capacity as Holder expressly for use in the Registration Statement (or any amendment thereto) or such Prospectus; PROVIDED, HOWEVER, that the aggregate amount which any such Holder shall be required to pay pursuant to Section 4(b) and Section 4(e) shall in no case be greater than the amount of net proceeds received by such Holder from the sale of Registrable Securities pursuant to such Registration Statement. (c) Each indemnified party shall give notice as promptly as reasonably practicable to each indemnifying party of any action or proceeding commenced against it in respect of which indemnity may be sought hereunder, but failure so to notify an indemnifying party shall not relieve such indemnifying party from any liability hereunder to the extent it is not materially prejudiced as a result thereof and in any event shall not relieve it from any liability which it may have otherwise than on account of this indemnity agreement. If any such action shall be brought against an indemnified party, and it shall notify the indemnifying party thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it wishes, jointly with any other similarly notified indemnifying party, to assume the defense thereof with counsel -18- 20 satisfactory to the indemnified party. An indemnifying party may participate at its own expense in the defense of such action; PROVIDED, HOWEVER, that counsel to the indemnifying party shall not (except with the consent of the indemnified party) also be counsel to the indemnified party. In no event shall the indemnifying party or parties be liable for the fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. No indemnifying party shall, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever in respect of which indemnification or contribution could be sought under this Section 4 (whether or not the indemnified parties are actual or potential parties thereto), unless such settlement, compromise or consent (i) includes an unconditional release of each indemnified party from all liability arising out of such litigation, investigation, proceeding or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party. (d) If at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel, such indemnifying party agrees that it shall be liable for any settlement of the nature contemplated by Section 4(a)(ii) effected without its written consent if (i) such settlement is entered into more than 45 days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall have received notice of the terms of such settlement at least 30 days prior to such settlement being entered into and (iii) such indemnifying party shall not have reimbursed such indemnified party in accordance with such request prior to the date of such settlement. (e) If the indemnification provided for in this Section 4 is for any reason unavailable to or insufficient to hold harmless an indemnified party in respect of any losses, liabilities, claims, damages or expenses referred to therein, then each indemnifying party shall contribute to the aggregate amount of such losses, liabilities, claims, damages and expenses incurred by such indemnified party, as incurred, in such proportion as is appropriate to reflect the relative fault of the Company on the one hand and the Holders on the other hand in connection with the statements or omissions which resulted in such losses, liabilities, claims, damages or expenses, as well as any other relevant equitable considerations. The relative fault of the Company on the one hand and the Holders on the other hand shall be determined by reference to, among other things, whether any such untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company or the Holders and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Holders agree that it would not be just and equitable if contribution pursuant to this Section 4 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section 4. The aggregate amount of losses, liabilities, claims, damages and expenses incurred by an indemnified party and referred to above in this Section 4 shall be deemed to include any legal -19- 21 or other expenses reasonably incurred by such indemnified party in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue or alleged untrue statement or omission or alleged omission. Notwithstanding the provisions of this Section 4, no Holder shall be required to contribute any amount in excess of the amount by which the net proceeds received by such Holder for the Securities sold by it exceeds the amount of any damages which such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 4, each Person, if any, who controls a Holder within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as such Holder, and each director of the Company, and each Person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as the Company. 5. MISCELLANEOUS. 5.1 RULE 144. For so long as the Company is subject to the reporting requirements of Section 13 or 15 of the 1934 Act, the Company covenants that it will timely file the reports required to be filed by it under the 1933 Act and Section 13(a) or 15(d) of the 1934 Act and the rules and regulations adopted by the SEC thereunder. If the Company ceases to be so required to file such reports, the Company covenants that it will upon the request of any Holder (a) make publicly available such information as is necessary to permit sales pursuant to Rule 144 under the 1933 Act, and (b) take such further action that is reasonable in the circumstances, in each case, to the extent required from time to time to enable such Holder to sell its Registrable Securities without registration under the 1933 Act within the limitation of the exemptions provided by (i) Rule 144 under the 1933 Act, as such Rule may be amended from time to time, or (ii) any similar rules or regulations hereafter adopted by the SEC. Upon the request of any Holder, the Company will deliver to such Holder a written statement as to whether it has complied with such requirements. 5.2 AMENDMENTS AND WAIVERS. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given unless the Company has obtained the written consent of Holders of at least a majority of the outstanding Registrable Securities affected by such amendment, modification, supplement, waiver or departure. 5.3 NOTICES. All notices and other communications provided for or permitted hereunder shall be made in writing by hand delivery, registered first-class mail, telex, telecopier, or any courier guaranteeing overnight delivery (a) if to a Holder, at the most current address given -20- 22 by such Holder to the Company by means of a notice given in accordance with the provisions of this Section 5.3, which address initially is the address set forth in the Standby Agreement with respect to the Purchaser; and (b) if to the Company, initially at the Company's address set forth in the Standby Agreement, and thereafter at such other address of which notice is given in accordance with the provisions of this Section 5.3. All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; two business days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; when receipt is acknowledged, if telecopied; and on the next business day if timely delivered to an air courier guaranteeing overnight delivery. 5.4 SUCCESSOR AND ASSIGNS. This Agreement shall inure to the benefit of and be binding upon the successors, assigns and transferees of each of the parties, including, without limitation and without the need for an express assignment, subsequent Holders. If any transferee of any Holder shall acquire Registrable Securities, in any manner, whether by operation of law or otherwise, such Registrable Securities shall be held subject to all of the terms of this Agreement, and by taking and holding such Registrable Securities such Person shall be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement, including the restrictions on resale set forth in this Agreement, and such Person shall be entitled to receive the benefits hereof. Upon any such transfer of Registrable Securities, the transferring Holder shall be relieved of and fully discharged from all obligations hereunder, whether such obligations arose before or after such transfer. 5.5 SPECIFIC ENFORCEMENT. The parties hereto acknowledge that there would be no adequate remedy at law if the Company fails to perform any of its obligations hereunder and that the Purchasers and the Holders from time to time of the Registrable Securities may be irreparably harmed by any such failure, and accordingly agree that the Purchasers and such Holders, in addition to any other remedy to which they may be entitled at law or in equity, shall be entitled to compel specific performance of the respective obligations of the Company under this Agreement in accordance with the terms and conditions of this Agreement, in any court of the United States or any state thereof having jurisdiction. 5.6 COUNTERPARTS. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. 5.7 HEADINGS. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. 5.8 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS THEREOF. -21- 23 5.9 SEVERABILITY. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. 5.10 NO PERSONAL LIABILITY. Notwithstanding anything contained herein to the contrary, this Agreement is made and executed on behalf of the Company, a business trust organized under the laws of the State of Ohio, by its officer(s) on behalf of the Trustees thereof, and none of the Trustees or any additional or successor Trustee hereafter appointed, or any beneficiary, officer, employee or agent of the Company shall, except as otherwise may be required by law, have any liability in such Trustee's, beneficiary's, officer's, employee's or agent's personal or individual capacity, but instead, all parties shall look solely to the property and assets of the Company for satisfaction of claims of any nature arising under or in connection with this Agreement. -22- 24 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS By: /s/ Authorized Signer ____________________________ Name: Title: Confirmed and accepted as of the date first above written: GOTHAM PARTNERS, L.P. By: Section H Partners, L.P. By: Karenina Corp. By: /s/ Authorized Signer ____________________________ Name: Title: GOTHAM PARTNERS III, L.P. By: Section H Partners, L.P. By: Karenina Corp. By: /s/ Authorized Signer ____________________________ Name: Title: GOTHAM PARTNERS INTERNATIONAL, LTD. By: /s/ Authorized Signer ____________________________ Name: Title: -23- EX-12 4 EXHIBIT 12 1 EXHIBIT 12

FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS AND FIRST UNION MANAGEMENT, INC. STATEMENTS OF RATIOS OF COMBINED INCOME FROM OPERATIONS AND COMBINED NET INCOME TO FIXED CHARGES (IN THOUSANDS, EXCEPT RATIOS) Years Ended December 31, ----------------------------------------------------------------------- 1999 1998 1997 1996 1995 -------- -------- -------- -------- -------- Income (loss) before capital gain or loss, extraordinary loss, cumulative effect of accounting change and after loss allocated to minority interest $(29,130) $(91,465) $ 4,434 $ 1,681 $ 881 Add fixed charges, exclusive of construction interest capitalized 38,880 51,437 30,479 24,018 22,987 -------- -------- -------- -------- -------- Income (loss) from operations, as defined 9,750 (40,028) 34,913 25,699 23,868 Capital gains 28,334 10,346 1,468 -- 31,577 Reduction for unrealized loss on carrying value of assets identified for disposition -- -- -- -- (14,000) -------- -------- -------- -------- -------- Net income (loss), as defined $ 38,084 $(29,682) $ 36,381 $ 25,699 $ 41,445 ======== ======== ======== ======== ======== Fixed charges: Interest - Mortgage loans $ 28,264 $ 29,032 $ 15,437 $ 8,877 $ 7,670 - Senior notes 1,113 5,856 8,875 9,090 9,305 - Notes payable 4,232 3,757 -- -- -- - Bank loans and other 4,833 12,214 5,552 5,459 5,422 - Capitalized interest -- -- -- 121 169 Amortization of debt issue costs 39 150 215 196 184 Rents (1) 399 428 400 396 406 -------- -------- -------- -------- -------- Fixed charges, as defined $ 38,880 $ 51,437 $ 30,479 $ 24,139 $ 23,156 ======== ======== ======== ======== ======== Preferred dividend accrued $ 2,833 $ 2,999 $ 4,831 $ 845 $ -- ======== ======== ======== ======== ======== Ratio of income (loss) from operations, as defined, to fixed charges .25 -- 1.15 1.06 1.03 ======== ======== ======== ======== ======== Ratio of net income (loss), as defined, to fixed charges .98 -- 1.19 1.06 1.79 ======== ======== ======== ======== ======== Ratio of net income (loss) as defined, to fixed charges and preferred dividend .91 -- 1.03 1.03 1.79 ======== ======== ======== ======== ======== ______________________ (1) The interest portion of rentals is assumed to be one-third of all ground rental and net lease payments.

EX-13 5 EXHIBIT 13 1 EXHIBIT 13 ---------- FINANCIAL HIGHLIGHTS Years ended December 31, (In thousands, except per share data and footnote)

1999 1998 --------- --------- Revenues $ 120,774 $ 148,062 Loss before capital gains, extraordinary loss, and loss from discontinued operations (22,294) (63,769) Net loss before preferred dividend (6,304) (83,518) Net loss applicable to common shares of beneficial interest (9,137) (86,517) Funds from (used in) operations before preferred dividend 10,726 (10,785) Funds from (used in) operations after preferred dividend 7,894 (13,784) Dividends declared for common shares of beneficial interest 13,166 3,478 Per share Loss applicable to shares of beneficial interest before capital gains, extraordinary loss, and loss from discontinued operations $ (.65) $ (2.17) Net loss applicable to common shares of beneficial interest, basic and diluted (.24) (2.81) Dividends declared per common share of beneficial interest .31 .11

MARKET PRICE AND DIVIDEND RECORD DIVIDENDS HIGH LOW DECLARED ------------------------------------------- 1999 QUARTERS ENDED December 31 $ 5 1/16 $ 4 3/4 $ .155 September 30 5 3/8 4 5/8 .155 June 30 5 1/16 4 March 31 5 15/16 3 15/16 ---------- $ .31 ========== 1998 QUARTERS ENDED December 31 $ 6 1/8 $ 3 7/16 $ September 30 9 9/16 5 3/16 June 30 11 7/8 8 3/4 March 31 16 7/8 11 .11 ---------- $ .11 ========== The Trust's shares are traded on the New York Stock Exchange (Ticker Symbol: FUR). As of December 31, 1999, there were 3,000 recordholders of the Trust's shares of beneficial interest. The Trust estimates the total number of beneficial owners at approximately 9,000. 1 2

SELECTED FINANCIAL DATA For the years ended December 31, (In thousands, except per share data and footnotes) 1995 1996 1997 1998 1999 ------------------------------------------------------------------- OPERATING RESULTS Revenues(1) $ 79,205 $ 81,867 $ 110,539 $ 148,062 $ 120,774 Income (loss) before unrealized loss on carrying value of assets identified for disposition, capital gains, extraordinary loss, cumulative effect of accounting change and loss from discontinued operations(1),(2),(3),(4) 881 1,681 7,278 (63,769) (22,294) Unrealized loss on carrying value of assets identified for disposition (14,000) Capital gains, net 31,577 1,468 10,346 28,334 Income (loss) before extraordinary loss, cumulative effect of accounting change and loss from discontinued operations(1),(2),(3),(4) 18,458 1,681 8,746 (53,423) 6,040 Extraordinary loss from early extinguishment of debt(5) (910) (286) (226) (2,399) (5,508) Cumulative effect of change in accounting method(6) (4,325) Loss from discontinued operations(1),(3) (2,844) (27,696) (6,836) Net income (loss) before preferred dividend 13,223 1,395 5,676 (83,518) (6,304) Net income (loss) applicable to shares of beneficial interest 13,223 550 845 (86,517) (9,137) Dividends declared for shares of beneficial interest 7,542 7,684 11,651 3,478 13,166 Per share of beneficial interest Income (loss) before capital gains, extraordinary loss, cumulative effect of accounting change and loss from discontinued operations(1),(2),(3),(4) $ .05 $ .05 $ .10 $ (2.17) $ (.65) Income (loss) before extraordinary loss, cumulative effect of accounting change and loss from discontinued operations(1),(2),(3),(4) 1.02 .05 .16 (1.83) .08 Extraordinary loss from early extinguishment of debt(5) (.05) (.02) (.01) (.08) (.14) Cumulative effect of change in accounting method(6) Loss from discontinued operations(1),(3) (.24) (.12) (.90) (.18) Net income (loss) applicable to shares of beneficial interest, basic and diluted .73 .03 .03 (2.81) (.24) Dividends declared per share of beneficial interest .41 .44 .44 .11 .31 FINANCIAL POSITION AT YEAR END Total assets $ 376,144 $ 413,054 $ 734,984 $ 742,623 $ 461,452 Long-term obligations(7) 258,454 254,868 458,637 553,576 256,717 Total equity 77,500 124,957 235,310 150,696 169,710 OTHER DATA Net cash provided by (used for) Operations $ 12,989 $ 11,085 $ 15,940 $ 5,919 $ 9,409 Investing (28,345) (47,002) (112,233) (52,429) 112,089 Financing 15,783 35,466 110,124 72,781 109,128

2 3 This Selected Financial Data should be read in conjunction with the Combined Financial Statements and Notes thereto. (1) In September 1997, First Union acquired the interests of its joint venture partners in eight shopping malls and 50% of another mall for $88 million in cash and the assumption of $203 million of mortgage debt. (2) The results of Impark have been classified as discontinued operations for 1997, 1998 and 1999 as Impark will be spun off to the shareholders of the Trust in 2000. In 1998, Impark recognized a $15 million reduction of goodwill. (3) In 1998, loss before capital gains, extraordinary loss, cumulative effect of accounting change and loss from discontinued operations included expenses of $17.6 million related to the proxy contest and the resulting change in the composition of the Trust's Board of Trustees:

Litigation and proxy expenses $ 4.8 million Other professional fees to avoid change in composition of Board 1.5 million Severance expenses for employee change in control agreements and employment contract termination 3.7 million Expenses related to termination of First Union's former chairman, president and chief executive officer 3.4 million Vesting of restricted stock upon change in composition of Board 4.2 million -------------- $ 17.6 million ==============

In 1995, income before capital gains, extraordinary loss, cumulative effect of accounting change and loss from discontinued operations included $1.6 million of litigation and proxy expenses. (4) In 1998, the Trust recognized $36 million in losses on the carrying value of properties identified for disposition. In 1999, the Trust recognized $9.8 million in losses on the carrying value of assets identified for disposition. (5) In 1999, the Trust repaid $46 million in mortgage debt resulting in a prepayment penalty of $5.5 million. In 1998, the Trust repaid approximately $87.5 million of its 8 7/8% Senior Notes resulting in $1.6 million in unamortized issue costs and solicitation fees being expensed. Also, in the fourth quarter of 1998, the Trust renegotiated its bank agreement and $90 million note payable resulting in $.8 million of deferred costs being expensed. In 1997 and 1996, the Trust renegotiated its bank credit agreements, resulting in a $226,000 and $286,000 charge, respectively, related to the write-off of unamortized costs. In November 1995, the Trust repaid approximately $36 million of mortgage debt resulting in a $910,000 charge for the write-off of unamortized costs and prepayment premiums. (6) In December 1995, the Trust changed its accounting method to directly expense internal leasing costs and recorded a $4.3 million noncash charge for the cumulative effect of the accounting change as of the beginning of 1995. (7) Included in long-term obligations are senior notes and mortgage loans. Bank loans are classified as long-term for 1995 through 1997. 3 4 COMBINED BALANCE SHEETS As of December 31, (In thousands)

1999 1998 --------------------------- ASSETS INVESTMENTS IN REAL ESTATE Land $ 53,028 $ 123,439 Buildings and improvements 271,223 674,791 --------- --------- 324,251 798,230 Less - Accumulated depreciation (75,161) (165,285) --------- --------- Total investments in real estate 249,090 632,945 INVESTMENT IN JOINT VENTURE 1,786 1,722 MORTGAGE LOANS AND NOTES RECEIVABLE, including current portion of $64 and $58, respectively 5,426 5,508 OTHER ASSETS Cash and cash equivalents- unrestricted 45,005 28,649 - restricted 12,836 16,526 Accounts receivable and prepayments, net of allowances of $496 and $876, respectively 10,386 14,929 Investments 104,013 5 Inventory 3,395 1,827 Deferred charges and other, net 1,244 6,864 Unamortized debt issue costs, net 4,479 7,608 Other 385 280 Net assets of discontinued operations 23,407 25,760 --------- --------- Total assets $ 461,452 $ 742,623 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Mortgage loans, including current portion of $1,817 and $4,308, respectively $ 195,051 $ 345,042 Notes payable 49,128 94,996 Senior notes 12,538 12,538 Bank loans 101,000 Accounts payable and accrued liabilities 22,936 25,826 Deferred obligations 10,579 10,602 Deferred capital gains and other deferred income 1,510 1,923 --------- --------- Total liabilities 291,742 591,927 --------- --------- SHAREHOLDERS' EQUITY Preferred shares of beneficial interest, $25 liquidation preference, 2,300,000 shares authorized, 1,349,000 shares outstanding in 1999 and 1998 31,737 31,737 Shares of beneficial interest, $1 par, unlimited authorization, outstanding 42,472 31,416 Additional paid-in capital 218,831 190,679 Undistributed loss from operations (123,322) (115,968) Undistributed capital gains 14,949 Deferred compensation (8) Accumulated other comprehensive income Foreign currency translation adjustment (2,117) --------- --------- Total shareholders' equity 169,710 150,696 --------- --------- Total liabilities and shareholders' equity $ 461,452 $ 742,623 ========= ========= The accompanying notes are an integral part of these statements.

4 5 COMBINED STATEMENTS OF OPERATIONS For the years ended December 31, (In thousands, except per share data)

1999 1998 1997 --------------------------------------- REVENUES Rents $ 116,482 $ 144,128 $ 100,383 Interest- Mortgage loans 463 1,211 2,907 - Short-term investments 2,649 1,337 1,525 - Investments 302 494 Equity in income from joint venture 64 148 488 Management fees 332 353 2,808 Other income 784 583 1,934 --------- --------- --------- 120,774 148,062 110,539 --------- --------- --------- EXPENSES Property operating 44,894 54,626 37,380 Real estate taxes 9,937 12,453 9,948 Depreciation and amortization 25,331 27,603 18,787 Interest- Mortgage loans 28,264 29,032 15,437 - Notes payable 4,232 3,757 - Senior notes 1,113 5,856 8,875 - Bank loans and other 4,833 9,552 3,436 General and administrative 14,664 28,104 9,398 Litigation and proxy 4,848 Unrealized loss on carrying value of assets identified for disposition and impaired assets 9,800 36,000 --------- --------- --------- 143,068 211,831 103,261 --------- --------- --------- INCOME (LOSS) BEFORE CAPITAL GAIN, EXTRAORDINARY LOSS, AND LOSS FROM DISCONTINUED OPERATIONS (22,294) (63,769) 7,278 Capital gains, net 28,334 10,346 1,468 Extraordinary loss from early extinguishment of debt (5,508) (2,399) (226) Loss from discontinued operations (6,836) (27,696) (2,844) --------- --------- --------- NET INCOME (LOSS) BEFORE PREFERRED DIVIDEND (6,304) (83,518) 5,676 Preferred dividend (2,833) (2,999) (4,831) --------- --------- --------- NET INCOME (LOSS) APPLICABLE TO SHARES OF BENEFICIAL INTEREST $ (9,137) $ (86,517) $ 845 ========= ========= ========= PER SHARE DATA Income (loss) applicable to shares of beneficial interest before capital gain, extraordinary loss and loss from discontinued operations $ (.65) $ (2.17) $ .10 --------- --------- --------- Income (loss) before extraordinary loss and loss from discontinued operations .08 (1.83) .16 Extraordinary loss from early extinguishment of debt (.14) (.08) (.01) Loss from discontinued operations (.18) (.90) (.12) --------- --------- --------- NET INCOME (LOSS) APPLICABLE TO SHARES OF BENEFICIAL INTEREST, BASIC AND DILUTED $ (.24) $ (2.81) $ .03 ========= ========= ========= ADJUSTED SHARES OF BENEFICIAL INTEREST, BASIC 38,827 30,772 24,537 ADJUSTED SHARES OF BENEFICIAL INTEREST, DILUTED 38,836 31,015 25,415 COMBINED STATEMENTS OF COMPREHENSIVE RESULTS For the years ended December 31, (In thousands) Net income (loss) $ (9,137) $ (86,517) $ 845 Other comprehensive income Available for sale securities 66 (66) Foreign currency translation adjustment 2,117 (1,305) (812) --------- --------- --------- Comprehensive loss $ (7,020) $ (87,756) $ (33) ========= ========= =========

The accompanying notes are an integral part of these statements. 5 6 COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY (In thousands, except footnotes)

Preferred Shares of Shares of Additional Beneficial Beneficial Paid-In Interest Interest Capital - ---------------------------------------------------------------------------------------------------------------------------------- BALANCE DECEMBER 31, 1996 $ 54,109 $ 17,622 $ 56,672 Net income before preferred dividend Dividends paid or accrued on shares of beneficial interest ($.44/share) Dividends accrued on preferred shares ($2.10/share) Sale of 3,910,000 shares of beneficial interest, net 3,910 42,211 Sale of 6,325,000 shares of beneficial interest, net 6,325 68,139 Shares sold under long-term incentive ownership plan and share option agreements 96 611 Restricted shares issued 226 2,934 Deferred compensation related to restricted shares Foreign currency translation adjustment Available for sale securities -------- -------- -------- BALANCE DECEMBER 31, 1997 54,109 28,179 170,567 - ---------------------------------------------------------------------------------------------------------------------------------- Net loss before preferred dividend Dividends paid on shares of beneficial interest ($.11/share) Dividends paid or accrued on preferred shares ($2.10/share) Conversion of preferred shares (22,372) 3,144 19,228 Shares sold under long-term incentive ownership plan and share option agreements 373 2,623 Restricted shares issued 343 4,632 Restricted shares forfeited (453) (5,147) Shares purchased (170) (1,660) Issuance of 500,000 stock warrants 436 Deferred compensation related to restricted shares Vesting of restricted shares Foreign currency translation adjustment Available for sale securities -------- -------- -------- BALANCE DECEMBER 31, 1998 31,737 31,416 190,679 - ---------------------------------------------------------------------------------------------------------------------------------- Net loss before preferred dividend Dividends paid or accrued on shares of beneficial interest ($.31/share) Dividends paid or accrued on preferred shares ($2.10/share) Sale of 12,549,445 shares of beneficial interest 12,549 33,927 Shares purchased (1,506) (6,485) Compensation on variable stock options 666 Restricted shares issued 18 62 Restricted shares canceled (5) (18) Deferred compensation related to restricted shares Foreign currency translation adjustment -------- -------- -------- BALANCE DECEMBER 31, 1999 $ 31,737 $ 42,472 $218,831 ======== ======== ========

The accompanying notes are an integral part of these statements. (1) Includes the balance of cumulative undistributed net loss of First Union Management, Inc. of $6,579,000, $5,446,000, $36,077,000 and $46,936,000 as of December 31, 1996, 1997, 1998 and 1999, respectively. (2) Cumulative distributions in excess of the Trust's net income from inception are $11,330,000. 6 7

Restated Undistributed Foreign Income (Loss) Available Currency From Undistributed Deferred for Sale Translation Operations(1),(2) Capital Gains Compensation Securities Adjustment - ----------------------------------------------------------------------------------------------- $ (15,167) $ 14,949 $ (3,229) 5,676 (11,651) (4,831) (3,160) 746 $ (812) $ (66) - --------- --------- --------- --------- --------- (25,973) 14,949 (5,643) (66) (812) - ----------------------------------------------------------------------------------------------- (83,518) (3,478) (2,999) (4,975) 5,600 312 4,706 (1,305) 66 - --------- --------- ------- -------- ------- (115,968) 14,949 - - (2,117) - ----------------------------------------------------------------------------------------------- (6,304) (13,166) (1,050) (1,783) (80) 23 49 2,117 - --------- --------- --------- --------- --------- $(123,322) $ - $ (8) $ - $ - ========= ========= ========= ========= =========

7 8 COMBINED STATEMENTS OF CHANGES IN CASH For the years ended December 31, (In thousands)

1999 1998 1997 --------------------------------------------- CASH PROVIDED BY (USED FOR) OPERATIONS Net income (loss) before preferred dividend and loss from discontinued operations $ 532 $ (55,822) $ 8,520 Adjustments to reconcile net income (loss) before preferred dividend and loss from discontinued operations to net cash provided by operations Depreciation and amortization 25,331 27,603 18,787 Extraordinary loss from early extinguishment of debt 5,508 2,399 226 Capital gains, net (28,334) (10,346) (1,468) Loss on carrying value of assets identified for disposition and impaired assets 9,800 36,000 Vesting of restricted shares 4,184 Increase in deferred charges and other, net (64) (1,316) (4,998) Increase (decrease) in deferred income (413) 401 1,505 Increase in deferred interest on mortgage investments (6) (122) Decrease in deferred obligations (23) (20) (18) Net changes in other assets and liabilities (2,928) 2,842 (6,492) --------- -------- -------- Net cash provided by operations 9,409 5,919 15,940 --------- -------- -------- CASH PROVIDED BY (USED FOR) INVESTING Repayment of mortgage investment and note receivable 25,045 16,200 Principal received from mortgage investments 82 139 216 Proceeds from sales of properties 227,508 6,507 18,374 Purchase of investments (104,013) (1,771) (12,746) Sale of investments 15,141 Investments in properties (63,022) (834) Acquisition of joint venture interests, net of cash acquired (72,900) Deposit for property acquisitions (170) (2,315) Investment in Impark, net of cash acquired (11,195) (36,574) Investments in capital and tenant improvements (11,488) (23,103) (21,654) --------- -------- -------- Net cash provided by (used for) investing 112,089 (52,429) (112,233) --------- -------- -------- CASH PROVIDED BY (USED FOR) FINANCING Increase (decrease) in bank loans (101,000) 55,900 19,300 Increase in notes payable 49,000 90,000 Increase in mortgage loans 66,689 30,000 2,737 Repayment of mortgage loans- Normal payments (3,463) (3,951) (2,765) - Balloon payments (49,548) (468) (13,835) Mortgage repayment penalties (5,846) Repayment of note payable (90,000) Repayment of senior notes (87,462) Purchase of First Union shares (7,989) (1,830) Sale and employee option exercises of First Union shares 46,476 2,996 121,291 Sale of hedge agreement 825 Debt issue costs paid (4,031) (3,320) (1,261) Dividends paid to shares of beneficial interest (6,583) (6,577) (10,473) Dividends paid to preferred shares of beneficial interest (2,833) (3,332) (4,870) --------- -------- -------- Net cash provided by (used for) financing (109,128) 72,781 110,124 --------- -------- -------- Increase in cash and cash equivalents from continuing operations 12,370 26,271 13,831 Cash and cash equivalents at beginning of year 45,175 16,864 2,951 --------- -------- -------- Cash and cash equivalents at end of year 57,545 43,135 16,782 Change in cash from discontinued operations 296 2,040 82 --------- -------- -------- Cash and cash equivalents at end of year, including discontinued operations $ 57,841 $ 45,175 $ 16,864 ========= ========= =========

The accompanying notes are an integral part of these statements. 8 9 NOTES TO COMBINED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES First Union Real Estate Investments ("Trust") and First Union Management, Inc. ("Company") are in the real estate and parking and transit ticket equipment manufacturing industries with properties and operations primarily in the United States and Canada. The accounting policies of the Trust and Company conform to generally accepted accounting principles and give recognition, as appropriate, to common practices within the real estate, parking and manufacturing industries. Under a trust agreement, the shares of the Company are held for the benefit of the shareholders of the Trust. Accordingly, the financial statements of the Company and Trust have been combined. Additionally, as the Company owns Imperial Parking Limited ("Impark"),the financial statements of Impark are consolidated with those of the Company. The Trust announced in January 2000 a planned distribution to its shareholders of the parking business. The distribution is expected to be completed in the first half of 2000. The financial information for 1999,1998 and 1997 classifies the parking business as "discontinued operations." The preparation of the financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses during the reporting periods. Actual results could differ from these estimates. The Trust's properties were leased to the Company through February 28, 1999. Thereafter, the Trust became self-managed. At December 31, 1999 and 1998, buildings and improvements included $1.2 million of equipment and $8.1 million of equipment and appliances, respectively. Equipment and appliances are depreciated over useful lives of five to ten years. Tenant leases generally provide for billings of certain operating costs and retail tenant leases generally provide for percentage rentals, in addition to fixed minimum rentals. The Trust and Company accrue the recovery of operating costs based on actual costs incurred and accrue percentage rentals based on current estimates of each retail tenant's sales. In July 1998, the Trust adopted the Financial Accounting Standards Board's Emerging Issues Task Force Bulletin 98-9 (EITF-98-9), "Accounting for Contingent Rent in Interim Financial Periods." EITF-98-9 requires that contingent rental income, such as percentage rent which is dependent on sales of retail tenants, be recognized in the period that a tenant exceeds its specified sales breakpoint. Consequently, the Trust accrues the majority of percentage rent income in the fourth quarter of each year in accordance with EITF-98-9. For the years ended December 31, 1999, 1998 and 1997, the accrued recovery of operating costs and percentage rent income approximated $30.0 million, $36.2 million and $21.9 million, respectively. Deferred revenue is derived primarily from revenue received in advance of its due date. 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 alterations are depreciated over the life of the lease of the tenant. The Trust annually reviews its portfolio of properties for any impairment as required by Statement of Financial Accounting Standards (SFAS) 121, "Accounting for Long-Lived Assets and Long-Lived Assets to be Disposed of." 9 10 The Trust's buildings are depreciated as follows: Life Buildings (in years) (in thousands) ------------------------------ 40 $ 168,548 30 98,563 25 3,952 10 160 --------- $ 271,223 ========= The Trust's useful lives for the calculation of depreciation are as follows: Life (in years) --------------------------------- Shopping malls 40 Office buildings 40 Parking garages 25 - 40 Parking facilities 10 The Trust accounts for its investment in a joint venture which it does not control using the equity method of accounting. This investment, which represents a 50% non-controlling ownership interest in a shopping mall, was recorded initially at the Trust's cost and subsequently adjusted for the Trust's equity in income and cash distributions. At December 31, 1999 and 1998, $1.1 million and $12.6 million of cash was restricted, respectively, based on terms of a mortgage. Additionally, $1.7 million and $3.9 million of cash as of December 31, 1999 and 1998, respectively, was classified as restricted because it secures benefits under change of control agreements with employees of the Trust and Company. The restricted cash can also be used for reimbursement of legal and other expenses incurred for claims against Trustees serving prior to the change in the majority of the Board that occurred in June 1998. The Trust also has $10.0 million of cash on deposit to collateralize Impark's bank loan and is classified as restricted in the Combined Balance Sheets at December 31, 1999. Investments as of December 31, 1999, consisted of U.S. Treasury Bills. The U.S. Treasury Bills were classified as held-to-maturity securities and were recorded at cost plus accrued interest. Of the $104.0 million of U.S. Treasury Bills, $5.0 million is held on deposit as collateral for Impark's bank loan. The Trust has calculated earnings per share for 1999, 1998 and 1997 in accordance with SFAS 128, "Earnings Per Share." SFAS 128 requires that common share equivalents be excluded from the weighted average shares outstanding for the calculation of basic earnings per share. The reconciliation of shares outstanding for the basic and fully diluted earnings per share calculation is as follows (in thousands): 1999 1998 1997 ---------------------------- Basic weighted average shares 38,827 30,772 24,537 Stock options, treasury method 243 571 Restricted shares, treasury method 9 307 ------ ------ ------ Diluted weighted average shares 38,836 31,015 25,415 ====== ====== ====== The preferred shares and warrants to purchase shares of beneficial interest are anti-dilutive and are not included in the weighted average shares outstanding for the diluted earnings per share. Financial instruments held by the Trust and Company include cash and cash equivalents, accounts receivable, mortgage loans receivable, accounts payable, revolving credit agreements, long-term debt and interest rate caps. The Trust and Company do not hold or issue financial instruments or derivative financial instruments for trading purposes. 10 11 During 1998 and subsequently amended in 1999, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." The Statement requires companies to recognize all derivatives on the balance sheet as assets or liabilities, measured at fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivatives and whether they qualify for hedge accounting. This Statement is effective for fiscal years beginning after June 15, 2000. The Trust believes that the effect of SFAS 133 on its financial statements will be immaterial. Certain reclassifications have been made to prior year balances so that they are comparable to 1999. 2. DISCONTINUED OPERATIONS In January 2000, the Trust announced plans to distribute to its common shareholders shares of a restructured Impark, currently a subsidiary of the Company. Prior to the spin-off, Ventek International, Inc., a subsidiary of Impark, will be sold to the Company. The 1999 loss on disposal includes an estimate for losses from Impark's operations through March 31, 2000, the cumulative foreign currency translation at December 31, 1999, and costs associated with the spin-off. After the spin-off, Impark will be a publicly owned company. Common shareholders of the Trust will receive one share of Impark for every 20 common shares of beneficial interest of the Trust that they own. The Trust's Combined Financial Statements and Notes to Combined Financial Statements report Impark as a discontinued operation. DISCONTINUED OPERATIONS (AMOUNTS IN THOUSANDS) 1999 1998 1997 ------------------------------- Net operating income $ 8,380 $ 7,423 $ 5,170 Less- Interest expense 1,888 2,662 2,116 - Depreciation and amortization 5,277 5,786 4,105 - General and administrative 4,022 9,473 1,793 - Goodwill impairment 15,000 - Foreign currency (gain) loss (1,060) 2,198 --------- -------- --------- Loss from operations (1,747) (27,696) (2,844) Loss on disposal (5,091) --------- -------- --------- Total discontinued operations $ (6,838) $(27,696) $ (2,844) ========= ======== ========= NET ASSETS OF DISCONTINUED OPERATIONS (AMOUNTS IN THOUSANDS)

1999 1998 ----------------------- ASSETS Real estate, net of accumulated depreciation $10,961 $ 8,557 Equipment, net of accumulated depreciation 5,414 6,032 Note receivable 2,991 Accounts receivable and prepayments 3,990 6,880 Inventory 865 971 Goodwill, net of accumulated amortization 42,690 45,379 Management contracts, net of accumulated amortization 901 1,852 Deferred charges 214 150 LIABILITIES Bank loans 22,501 24,821 Accounts payable and accrued liabilities 19,148 17,880 Deferred income 2,970 1,360 ------- ------- Net assets of discontinued operations excluding cash 23,407 25,760 Cash 2,414 2,118 ------- ------- $25,821 $27,878 ======= =======

11 12 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES OF DISCONTINUED OPERATIONS The real estate assets of $11.0 million consist of land, buildings and construction in progress at December 31, 1999 that will be transferred to Impark when the spin-off from the Trust occurs. The buildings are depreciated using a 40-year life. Parking leasehold improvements are depreciated over five years. Routine maintenance and repairs, including replacements, are charged to expense, while replacements which improve or extend the lives of existing properties are capitalized. Goodwill represents the excess of cost over the value assigned to the net assets from the purchase of Impark. Goodwill is amortized on a straight-line basis over 20 years. Accumulated amortization at December 31, 1999 and 1998, was $4.8 million and $2.3 million, respectively. Impark recorded a U.S. $15 million reduction of goodwill in December 1998, in accordance with SFAS 121. Lease and management agreements are recorded at cost and represent Impark's investment in parking lot agreements acquired from other parking lot management companies. The underlying value of this asset is calculated by discounting future cash flows of each agreement over its length of term. Management and lease agreements terminated before the life of the agreements are expensed. Amortization is provided on a straight-line basis over their useful lives of approximately three years as of the acquisition in April 1997. Accumulated amortization at December 31, 1999 and 1998 was $4.9 million and $3.6 million, respectively. Inventory consists of parking equipment parts and supplies and is recorded at the lower of cost determined on a first-in, first-out basis, or replacement cost. The assets and liabilities of the Canadian operations are translated into U.S. dollars at the exchange rates in effect at the balance sheet date. Income statement accounts are translated at the weighted average exchange rates for the year. The gains or losses resulting from these translations are recorded in a separate component of shareholders' equity. Gains or losses resulting from realized foreign currency and intercompany transactions are included in net income. BANK DEBT As of December 31, 1999, Impark has $22.5 million outstanding under a secured credit agreement. The credit agreement consists of revolving and term commitments of $4.5 million and $21.1 million, respectively. The credit agreement matures in April 2000. The weighted average interest rate for the credit agreement was 6.9% for 1999 and 7% for 1998. As the bank loans are at market interest rates, the fair value is the carrying amount of the loans. The Trust paid a fee to the bank facility lenders and provided $15.0 million in cash to secure a portion of the balance outstanding under the bank facility during 1999. The revolving credit facility bears interest at the lender's prime rate plus 75 basis points and the term facility bears interest at the Canadian Bankers Acceptance rate plus 175 basis points. Additionally, upon maturity of this credit facility, Impark will pay to the lenders a fee of 55 basis points retroactive to the inception date of the bank credit facility. As part of the spin-off of Impark to the Trust's shareholders, the Trust will repay Impark's bank credit facilities. MINORITY INTEREST IN IMPARK The Company in the third and fourth quarter of 1999 purchased the common stock of Impark owned by the employees of Impark for approximately $1.0 million. As a result of these transactions, the Company owns 100% of the common stock of Impark and the employees of Impark own $.4 million or 4% preferred stock of Impark. Additionally, the Company purchased $.5 million in preferred stock in Impark from two terminated employees during 1999. 12 13 SALE OF SUBSIDIARIES OF IMPARK Inner-Tec Security Consultants Ltd., a security business, was sold in June 1999 to a former executive officer for a $.5 million note and cash of $.6 million. The note is for two years and bears interest at 12% per annum for the first year and 16% per annum for the second year. The note receivable is current at December 31, 1999. Robbins Parking Services, Ltd. was sold in the second quarter of 1999 to the former president of Impark for a $2.1 million ten-year note bearing interest at 8% per annum. The Trust also sold a building to the former president of Impark for a $.3 million, ten-year mortgage note bearing interest at 8% per annum for the first five years and 9.25% per annum for the second five years. Imperial Parking Asian Ltd. was sold in September 1999 for $.6 million to an unrelated third party. SEVERANCE During 1999, Impark reversed a severance provision of $1.8 million, while recording an additional severance expense of $.9 million, resulting in a reduction of severance expense in 1999 of $.9 million. The reversal of the 1998 provision for severance expense was the result of settling all claims with Impark's former president below the 1998 accrued amount. The 1999 severance provision represents termination expense which is expected to be paid through 2005 for final termination agreements entered into as of December 31, 1999. Severance Accrual (amounts in thousands) 1999 1998 ----------------------- Beginning balance $ 2,352 $ Expense, net (873) 2,352 Payments (354) -------- -------- Balance at end of year $ 1,125 $ 2,352 ======== ======== 3. FINANCIAL INSTRUMENTS The Trust owns two interest rate protection agreements ("caps") which protect the Trust from the impact of rising interest rates on two floating rate mortgage loans. The first interest rate cap in the notional amount of $16 million expires in July 2002 and limits interest rate increases above 7% for one month LIBOR. The net book value of this interest cap is $133,000 at December 31, 1999.The second interest rate cap is for the notional amount of $21.1 million and protects the Trust from increases in interest rates above 9.65%. The net book value of this interest rate cap is $106,000 at December 31, 1999. 4. COMPREHENSIVE INCOME Comprehensive income includes changes in shareholders' equity, such as foreign currency translation adjustments and reserves for the valuation of securities held for sale, which are shown separately and have no effect on the Trust's net income or shareholders' equity. 5. WARRANTS TO PURCHASE SHARES OF BENEFICIAL INTEREST The Trust in November 1998 issued 500,000 warrants which allow a third party to purchase 500,000 shares of beneficial interest at $10 per share. The warrants expire in November 2008. The Trust issued the warrants to the third party as part of the consideration for various services provided to the Trust and recorded $.4 million in expense as a measurement of this consideration in 1998. The fair value of the consideration was determined using the Black-Scholes model using the following factors - 10-year term, 4% dividend yield, 4% risk free interest rate and 32% for volatility. 13 14 6. COMBINED STATEMENTS OF CHANGES IN CASH The Trust and Company consider all highly liquid short-term investments with original maturities of three months or less to be cash equivalents. The Trust and Company paid interest of $39.8 million, $51.4 million and $29.9 million in 1999, 1998 and 1997, respectively. 7. LOSS ON CARRYING VALUE OF ASSETS IDENTIFIED FOR DISPOSITION AND IMPAIRED ASSET Management reviews the net realizable value of the Trust's portfolio periodically to determine whether an allowance for possible losses is necessary. The carrying value of the Trust's investments in real estate is evaluated on an individual property basis in accordance with SFAS 121. In June 1999, the Trust recorded $9.0 million in losses on the carrying value of six shopping malls because the Trust agreed to sell these malls at a sales price which was below net book value. These six malls were sold in December 1999. In December 1998, the Trust recorded $36.0 million in losses on the carrying value of three shopping centers, two office properties and a parking facility which were identified for disposition. The Trust determined that these assets, which were actively being marketed for sale, were impaired based on the bids received for them as compared to their net book value. The bids received for these assets best represent the cash flow to be realized in accordance with SFAS 121. These assets were sold in 1999. In December 1999, the Trust, in accordance with SFAS 121, recorded $.8 million in losses on the carrying value of an asset that it has identified for sale. In January 1997, the Trust sold a shopping center for $9.0 million in cash. The sale resulted in a capital loss of $4.0 million which was provided for as part of a $14.0 million noncash, unrealized loss on the carrying value of certain assets that was recorded in December 1995. The amount of assets identified for sale, the reserve for loss and the losses deducted from the reserve are summarized for the years ended December 31 in the following table (amounts in thousands):

Restated 1999 1998 1997 ---------------------------------------------- Net book value of assets identified for sale $ 83,837 $ 5,163 $ 27,451 Additions 204,712 79,034 808 Depreciation (360) (387) Sales of assets (282,171) (22,709) --------- --------- --------- Net book value of assets identified for sale at year end $ 6,378 $ 83,837 $ 5,163 ========= ========= ========= Reserve for loss $ 39,630 $ 3,630 $ 7,605 Additions to reserve 9,800 36,000 (3,975) Losses realized on sale of assets (48,406) Reversal of realized loss (224) --------- --------- --------- Reserve for loss at year end $ 800 $ 39,630 $ 3,630 ========= ========= =========

Property net operating income, which is rents less operating expenses for assets identified for sale, are summarized for the years ended December 31 in the following table (amounts in thousands): 1999 1998 1997 -------------------------------------- Revenues $ 472 $15,217 $17,145 Less-Operating expenses 57 7,756 8,456 ------- ------- ------- Property net operating income $ 415 $ 7,461 $ 8,689 ======= ======= ======= 14 15 8. CAPITAL GAINS AND LOSSES The Trust sold a shopping center in February 1999 for $21.6 million, resulting in a capital gain of $.4 million. In May 1999, the Trust sold eight apartment complexes for $86 million, resulting in a capital gain of $8.7 million. Additionally, in May and June 1999 the Trust sold five shopping malls and a strip shopping center for $59.4 million, resulting in capital gains of $19 million. The Trust sold two office properties, a parking lot, and nine shopping malls in 1999 for $215.2 million, resulting in a capital gain of $.2 million. In May 1998, the Trust sold its investment in the land beneath the Huntington Building in Cleveland, OH for $6.1 million, resulting in a capital gain of $1.7 million. Additionally, an $18.8 million mortgage investment secured by the Huntington Building was repaid in 1998, resulting in the recognition of a $7.7 million capital gain which was deferred when the building was sold in 1982 since the Trust received the mortgage note as consideration. In June 1998, the Trust sold a forward exchange agreement, resulting in a gain of $.8 million. The forward exchange contract was purchased to protect the Trust from foreign currency fluctuations resulting from notes issued in conjunction with the acquisition of Impark. In December 1998, the Trust sold a land parcel in Monroe, LA, resulting in a gain of $.1 million. In November 1997, the Trust sold an apartment complex in Dayton, OH for $.7 million in cash,a $2.6 million, 8.75% second mortgage, secured by the property, and the assumption by the purchaser of a $7.6 million existing mortgage loan. The capital gain recognized was $2.7 million. In December 1997, the Trust sold an office complex in Oklahoma City, OK for $4.7 million in cash, resulting in a capital loss of $1.2 million. 9. EXTRAORDINARY LOSS FROM EARLY EXTINGUISHMENT OF DEBT In 1999, the Trust repaid $45.9 million in mortgage debt prior to maturity resulting in a prepayment penalty of $5.5 million. The mortgage debt was repaid because it was cross-collateralized with the mortgages on six shopping malls which were sold in December 1999. In 1998, the Trust repaid approximately $87.5 million of its 8-7/8% senior notes resulting in $1.6 million of unamortized issue costs and solicitation fees being expensed. Additionally, the Trust renegotiated its bank credit agreement and the terms of the $90 million note payable in 1998 resulting in $.8 million of deferred costs related to the bank credit agreement and note payable being expensed. In 1997, the Trust renegotiated its bank credit agreements resulting in $.2 million of deferred costs relating to its prior bank credit agreements being expensed. 10. INVESTMENTS IN MORTGAGE LOANS AND NOTES RECEIVABLE As of December 31, the Trust had the following investments in mortgage loans and notes receivable (amounts in thousands):

Current Rate on Investment 1999 1998 -------------------------------------- Second mortgage loan secured by an apartment complex in Dayton, OH, maturing in 2002 8.75% $2,560 $2,581 Note receivable secured by management contract on an apartment complex in Atlanta, GA, maturing in 2008 10% 1,666 1,727 Note receivable secured by Temple Mall Company, maturing in 2023 6% 1,200 1,200 ------ ------ $5,426 $5,508 ====== ======

The market value of mortgage investments is approximately $4.9 million as of December 31, 1999 based on current market conditions and interest rates. The mortgage loan secured by the apartment complex in Dayton, OH was repaid in March 2000 for $2.5 million. 15 16 11. BANK LOANS As of December 31, 1998, the Trust had $101 million outstanding under a fully secured $110 million credit agreement at a weighted average interest rate of 8.37%. The bank loans were repaid and the credit facility was terminated in 1999. 12. MORTGAGE LOANS PAYABLE AND DEFERRED OBLIGATION As of December 31, 1999, the Trust had outstanding $195.1 million of mortgage loans due in installments extending to the year 2018. Interest rates on fixed rate mortgages range from 7.5% to 15% with $71.1 million of mortgage loans bearing interest based on LIBOR. Variable rate mortgage loans of $34.0 million were outstanding at December 31, 1998 at a weighted average interest rate of 7.32%. The weighted average interest rate of the variable rate mortgages is 8.96% at December 31, 1999. Principal payments due during the five years following December 31, 1999 are $1.8 million, $35.9 million, $83.5 million, $2.0 million and $31.1 million, respectively. A $38.2 million mortgage at 12.25% provides for the lender to participate in the cash flow of the secured property over predefined levels. A $29.6 million mortgage loan at 15% is a second mortgage loan that matures in 2000. The second mortgage loan requires that the interest is paid quarterly at a 7% pay rate with 8% deferred. This second mortgage note also requires that the first $.6 million of cash flow remaining after paying the debt service on the first and second mortgage loans be deposited into an escrow account on an annual basis. Cash flow above the $.6 million threshold is to be used to repay the deferred interest on the second mortgage loan. The lender of the second mortgage loan was granted an option exercisable in April 2000 to purchase the shopping mall securing the first and second mortgages for $2.0 million in excess of the mortgage loan balances. The Trust has a put option exercisable in April 2000 to require the lender to purchase the mall if the lender fails to exercise its option. The fair value of mortgage loans payable is $200.5 million at December 31, 1999 based on current market conditions and interest rates. The Trust also has outstanding a $10.6 million deferred obligation at an interest rate of 14.88%, which was repaid in January 2000. The fair value of the deferred obligation is approximately $13.6 million at December 31, 1999. 13. SENIOR NOTES The Trust has approximately $12.5 million of 8-7/8% Senior Notes outstanding at December 31, 1999. The fair value of the Senior Notes is approximately $12.3 million based on current market quotations. 14. PREFERRED SHARES OF BENEFICIAL INTEREST In October 1996, the Trust issued $57.5 million of Series A cumulative convertible redeemable preferred shares of beneficial interest ("Series A Preferred Shares"). The 2,300,000 Series A Preferred Shares were issued at a par value of $25 per share and are each convertible into 3.31 common shares of beneficial interest. The distributions on the Series A Preferred Shares are cumulative and equal to the greater of $2.10 per share (equivalent to 8.4% of the liquidation preference per annum) or the cash distributions on the common shares of beneficial interest into which the Series A Preferred Shares are convertible (determined on each of the quarterly distribution payment dates for the Series A Preferred Shares). The Series A Preferred Shares are not redeemable prior to October 29, 2001, and at no time will they be redeemable for cash. On and after October 29, 2001, the Series A Preferred Shares are redeemable at the option of the Trust at the conversion rate of one Series A Preferred Share for 3.31 common shares of beneficial interest. The Trust may exercise its option only if for 20 trading days within any period of 30 consecutive trading days, the closing price of the common shares of beneficial interest on the New York Stock Exchange equals or exceeds the conversion price of $7.5625 per share of beneficial interest. 16 17 In February 1998, 951,000 Series A Preferred Shares were converted to 3,144,000 common shares of beneficial interest. 15. NOTES PAYABLE The Trust has a $49.1 note payable loan bearing interest at 7.25% per annum and maturing in March 2000. The note payable is secured by a $99.0 million U.S. Treasury Bill. The Trust as of December 31, 1998 had notes payable of $90.0 million and $4.9 million outstanding. The $90.0 million note payable was repaid during the first six months of 1999. The $4.9 million note was payable to the trustee of an escrow account which secures the change in control agreements entered into by the Trust and Company with their employees. The note was payable upon demand by the trustee. The $4.9 million liability for the note payable was reversed by the Trust in 1999 because the Trust believes that there is sufficient liquidity to meet any remaining severance payments and legal fees associated with the change in the majority of the Trust's Board of Trustees. 16. SHARE OPTIONS The Trust has the following share option plans for key personnel and Trustees. 1981 STOCK OPTION PLAN This plan provided that option prices be at the fair market value of the shares at the date of grant and that option rights granted expire 10 years after the date granted. Adopted in 1981, the plan originally reserved 624,000 shares for the granting of incentive and nonstatutory share options. Subsequently, the shareholders approved amendments to the plan reserving an additional 200,000 shares, for a total of 824,000 shares, for the granting of options and extending the expiration date to December 31, 1996. The amendments did not affect previously issued options. In June 1998, a change in the majority of the Trust's Board of Trustees resulted in all share options not previously vested to become fully vested as of that date. The activity of the plan is summarized for the years ended December 31 in the following table:

1999 Weighted 1998 Weighted 1997 Weighted Shares Average Shares Average Shares Average ----------------------- ------------------------ ----------------------- Exercised 186,155 $ 8.51 39,809 $ 7.64 Canceled 82,550 $ 10.61 317,281 8.22 13,590 13.14 Expired 7,280 17.07 16,120 17.43 22,880 17.55

As of December 31, 1999, the following options were outstanding under the 1981 plan:

Options Outstanding Options Exercisable ------------------------------------------------------------------------ --------------------------------- Weighted Year Average Weighted Weighted Options Number Range of Remaining Years Average Number Average Granted Outstanding Exercise Prices of Options Exercise Price Exercisable Exercise Price - ----------------------------------------------------------------------------------------------------------------------------------- 1996 22,500 $ 7.375 6.20 $ 7.375 22,500 $ 7.375

The weighted average exercise price of the 112,330 options outstanding on January 1, 1999 was $10.386 per share. LONG-TERM INCENTIVE OWNERSHIP PLAN This plan, adopted in 1994 and amended in 1999, reserved 1,629,785 shares for the granting of incentive and nonstatutory share options and restricted shares. In accordance with the original plan, 9% of the shares of beneficial interest resulting from the conversion of preferred shares in February 1998 and the January 1997 and June 1997 shares of beneficial interest offerings were reserved and added to the plan for grant. In May 1999, the plan was amended with shareholder approval and 1,357,037 shares of beneficial interest were reserved and added to the plan. The share 17 18 options expire eight to ten years after being granted. The price of the options is the fair market value of the shares at the date of grant with the exception of the option grants in November 1998 and May 1999. The stock options granted in 1998 were granted at exercise prices exceeding the market price per share. The option grants in May 1999 were at the equity price of the rights offering. Additionally, the options granted in 1998 and 1999 have a cost of capital feature whereby the exercise price of the options will increase by 10%, compounded annually and prorated monthly, beginning in May 2000 and in each November thereafter, less the amount of per share dividends or other distributions to shareholders. Because the 1998 and 1999 option grants are deemed to be variable, compensation expense will be recorded when the market price of the shares of beneficial interest exceeds the option price for these shares. As of December 31, 1999, the option price of the 1998 grants did not exceed the market price of shares of beneficial interest, consequently no compensation expense was recorded for 1999; the option price of the 1999 grants was less than the market price of shares of beneficial interest and compensation expense of approximately $.7 million was recorded in 1999. In June 1998, a change in the majority of the Trust's Board of Trustees occurred resulting in all stock options vesting that had been granted prior to that date. Since the inception of this plan and prior to the June 1998 change in the composition of the Board of Trustees, restricted shares were issued to key employees. The holders of restricted shares received dividends and had voting rights but could not sell or transfer the shares until the restrictions lapsed. In June 1998, a change in the majority of the Trust's Board of Trustees occurred resulting in all restrictions being removed from the restricted shares that had been previously granted and a $4.2 million expense was recorded for the remaining deferred compensation which had not been expensed as of that date. Deferred compensation of $5 million in 1998 and $3.2 million in 1997 was recorded. Amortization of the deferred compensation of $.3 million and $.7 million was recognized in 1998 and 1997, respectively. The activity of this plan is summarized for the years ended December 31 in the following table:

1999 Weighted 1998 Weighted 1997 Weighted Shares Average Shares Average Shares Average ------------------------------------------------------------------------------------------------ Share options granted 627,471 $ 3.69 1,800,000 $ 7.50 327,000 $ 14.19 Share options canceled 69,840 11.32 501,468 10.83 7,102 7.38 Share options exercised - 168,382 7.10 52,754 7.31 Restricted shares granted 17,500 343,964 226,867 Restricted shares canceled 5,000 606,852 3,521 Shares purchased by employees - 18,499 9,005 Additional shares reserved 1,357,037 282,941 921,150 Available share options and restricted shares 1,057,391 270,485 1,041,687

As of December 31, 1999, this plan had the following options outstanding:

Options Outstanding Options Exercisable ---------------------------------------------------------------------- -------------------------------- Weighted Year Average Weighted Weighted Options Number Range of Remaining Years Average Number Average Granted Outstanding Exercise Prices of Options Exercise Price Exercisable Exercise Price - ---------------------------------------------------------------------------------------------------------------------- 1996 2,334 $ 7.375 4.20 $ 7.375 2,334 $ 7.375 1997 20,000 14.125-14.25 5.30 14.1875 20,000 14.1875 1998 1,800,000 6.19-8.19 8.83 7.19 450,000 7.19 1999 627,471 3.69 9.50 3.69 156,868 3.69 --------- ------------- ------- ------------ 2,449,805 $ 6.36 629,202 $ 6.76 ========= ============= ======= ============

The weighted average exercise price of the 1,892,174 options outstanding as of January 1, 1999 was $7.71 per share. 18 19 The Trust accounts for stock option awards in accordance with APB 25 and has adopted the disclosure-only provisions of SFAS 123, "Accounting for Stock-Based Compensation." Consequently, compensation cost has not been recognized for the share option plans except for the options granted in May 1999 which have an exercise price that is less than the year end per share market price. If compensation expense for the Trust's two share option plans had been recorded based on the fair value at the grant date for awards in 1999, 1998 and 1997, consistent with SFAS 123, the Trust's net income would be adjusted as follows (amounts in thousands, except per share data):

Restated 1999 1998 1997 ---------------------------------------------- Net income (loss) applicable to shares of beneficial interest $ (9,137) $ (86,517) $ 845 Effect of stock options as calculated (1,481) (557) (569) ---------- ---------- ----- Net income (loss) as adjusted $ (10,618) $ (87,074) $ 276 ========== ========== ===== Per share Basic and diluted: Net income (loss) $ (.24) $ (2.81) $ .02 Effect of stock options as calculated (.04) (.02) (.02) ---------- ---------- ----- Net income (loss), as adjusted $ (.28) $ (2.83) $ - ========== ========== =====

The fair value of each option grant is estimated on the date of the grant using the Black- Scholes option pricing model, with the following weighted average assumptions used for grants in 1999, 1998 and 1997. 1999 1998 1997 ------------------------------ Risk-free interest rate 5% 5% 5.7% Expected option life 8 yrs. 10 yrs. 4 yrs. Expected volatility 20% 32% 23% Expected dividend yield 3% 4% 3.5% TRUSTEE SHARE OPTION PLAN In 1999, the shareholders approved a share option plan for members of the Board of Trustees. This plan provides compensation in the form of common shares of beneficial interest and options to acquire common shares for Trustees who are not employees of First Union and who are not affiliated with Apollo Real Estate Advisors or Gotham Partners. A total of 500,000 shares of beneficial interest are available under this plan. The eligible Trustees serving on the Board on the day following the 1999 annual meeting were granted the lesser of 2,500 shares or the number of shares having a market price of $12,500 as of the annual meeting date. Seven Trustees each received 2,500 shares; two Trustees later resigned in 1999 and forfeited their shares. The shares vest and are non-forfeitable on the day prior to the 2000 annual meeting as long as the Trustee is still a member of the Board. The Trustees receive dividends and have the right to vote the shares. Deferred compensation of $.1 million was recorded and $48,000 was recognized as amortization expense in 1999. Each eligible Trustee who purchases a minimum of $5,000 of shares between annual meeting dates will receive options, commencing in the year 2000, to purchase four times the number of shares that he has purchased. Shares purchased in excess of $25,000 between annual meeting dates will not be taken into account for option grants. The option prices will be the greater of fair market value on the date of grant or $6.50 for half of the options, and the greater of fair market value or $8.50 for the other half of the options. The option prices will be increased by 10% per annum beginning May 2000 and decreased by dividend distributions made after November 1998. The options vest and become exercisable one year after being granted. At December 31, 1999, a total of 12,500 shares were outstanding under this plan and options were not yet required to be granted for shares that the Trustees purchased. 19 20 17. SHAREHOLDER RIGHTS PLAN In March 1990, the Board of Trustees declared a dividend consisting of one right to purchase one share of beneficial interest of the Trust with respect to each share of beneficial interest. The rights may be exercised only if a person or group acquires 15% or more of the outstanding shares of beneficial interest, makes a tender offer for at least 15% of the outstanding shares of beneficial interest or is declared to be an "adverse person." The Board of Trustees amended the plan in 1999 for specific shareholders to acquire shares of beneficial interest exceeding the 15% threshold. The shareholder rights plan will expire on March 30, 2000 and the plan will terminate. 18. FEDERAL INCOME TAXES The Trust has made no provision for current or deferred Federal and state income taxes on the basis that it qualifies under the Internal Revenue Code (the "Code") as a real estate investment trust ("REIT") and has distributed all of its taxable income to shareholders. Qualification as a REIT involves the application of highly technical and complex provisions of the Code, for which there are only limited judicial or administrative interpretations. The complexity of these provisions is greater in the case of a stapled REIT such as the Trust. The Trust's ability to qualify as a REIT is dependent upon its continued exemption from the anti-stapling rules of the Code, which, if they were to apply, would prevent the Trust from qualifying as a REIT. Qualification as a REIT also involves the determination of various factual matters and circumstances. The failure of the Trust to qualify as a REIT would have a material adverse effect on the Trust's ability to make dividends to its shareholders and to pay amounts due on its indebtedness. Disqualification of REIT status during any of the preceding five calendar years would cause a REIT to incur corporate tax with respect to a year that is still open to adjustment by the Internal Revenue Service. In addition, unless entitled to relief under certain statutory provisions, a REIT also would be disqualified from reelecting REIT status for the four taxable years following the year during which qualification is lost. In order to continue to meet certain REIT qualification income tests of the Code for the year 2000, the Impark parking businesses must be disposed of or other sources of qualified income obtained. The disposition of Impark is currently planned by distributing the stock of the parking business to the shareholders. If the disposal of the parking business is not accomplished or another source of qualified income obtained in time to allow the REIT income tests for the year 2000 to be satisfied, then the continued REIT classification of the Trust for 2000 will be dependent on the Trust being able to demonstrate it is using ordinary business care and prudence in an effort to dispose of this property, and, if it can so demonstrate, it will be subject to certain excise taxes for non-qualifying income. The Trust and Company treat certain items of income and expense differently in determining net income reported for financial and tax purposes. Such items resulted in a net decrease in income for tax reporting purposes of $1.8 million in 1999 and a net increase in income for tax reporting purposes of $72.0 million in 1998 and $8.0 million for 1997. As of December 31, 1999, net investments in real estate after accumulated depreciation for tax reporting purposes was approximately $282.6 million as compared to $263.3 million for financial reporting purposes. 20 21 The 1999 quarterly allocation of cash dividends per common share of beneficial interest for individual shareholders' income tax purposes was as follows: 20% Rate Capital Ordinary Total Dates Paid Gains Income Paid ------------------------------------------------------- October 29, 1999 $ .155 $ - $ .155 January 28, 2000 .155 - .155 ------- ------- ------- $ .310 $ - $ .310 ======= ======= ======= The 1999 quarterly allocation of cash dividends per preferred share of beneficial interest for individual shareholders' income tax purposes was as follows: 20% Rate Capital Ordinary Total Dates Paid Gains Income Paid ------------------------------------------------------- February 1, 1999 $ .525 $ - $ .525 April 30, 1999 .525 - .525 July 31, 1999 .525 - .525 October 29, 1999 .525 - .525 January 28, 2000 .525 - .525 ------- ------- ------- $ 2.625 $ - $ 2.625 ======= ======= ======= 19. LEGAL CONTINGENCY The Trust has pursued legal action against the State of California associated with the 1986 flood of Sutter Buttes Center, formerly Peach Tree Center. In September 1991, the court ruled in favor of the Trust on the liability portion of this inverse condemnation suit, which the State of California appealed. However, in the third quarter of 1999, the 1991 ruling in favor of the Trust was reversed by the State of California appeals court. Accordingly, the Trust expensed $1.2 million in deferred legal fees which the earlier court ruling in favor of the Trust had allowed for recovery. 20. SUBSEQUENT EVENT The Trust in January 2000 repaid its $10.6 million deferred obligation resulting in a prepayment penalty of $3.1 million. 21. BUSINESS SEGMENTS The Trust and Company's business segments include ownership of shopping centers, apartment complexes, office buildings, parking facilities, mortgage investments and parking and transit ticket equipment manufacturing (Ventek). Corporate rent and operating expense consist primarily of ground lease income from a property leased to a third party. Rent, property operating expense and real estate taxes, interest expense, depreciation, capital improvements and identifiable assets for real estate assets have been identified for each of the business segments for the last three years. The apartment portfolio was sold in May 1999 and during 1999, the Trust sold 16 shopping centers, two office facilities and a parking lot. Impark and the Trust's Canadian parking facilities are shown as discontinued operations for 1999, 1998 and 1997 because they will be spun off to the Trust's shareholders in 2000. Property net operating income is property rent and sales revenue less property operating expense, cost of goods sold and real estate taxes. Corporate interest expense consists of the Trust's non-recourse notes payable, senior notes, and bank loan interest expense. Corporate depreciation and amortization consist primarily of the amortization of deferred issue costs on non-recourse debt and the leasehold improvements for its corporate office. Corporate assets consist primarily of cash and cash equivalents, leasehold improvements for the corporate office and deferred issue costs for non-recourse debt and senior notes. All intercompany transactions between segments have been eliminated. (See table of business segments on the next page.) 21 22

21. BUSINESS SEGMENTS CONTINUED 1999 1998 1997 --------------------------------------------- RENTS AND SALES Shopping Centers $ 79,412 $ 97,584 $ 58,284 Apartments 6,079 17,056 17,835 Office Buildings 12,715 13,275 13,989 Parking Facilities 10,506 9,931 3,585 Ventek 6,643 5,170 5,534 Corporate 1,127 1,112 1,156 --------- --------- --------- $ 116,482 $ 144,128 $ 100,383 LESS - OPERATING EXPENSES AND COSTS OF GOODS SOLD Shopping Centers $ 26,475 $ 32,433 $ 17,182 Apartments 2,349 6,182 6,729 Office Buildings 5,745 6,069 6,753 Parking Facilities 808 2,022 716 Ventek 8,670 7,008 5,127 Corporate 847 912 873 --------- --------- --------- $ 44,894 $ 54,626 $ 37,380 LESS - REAL ESTATE TAXES Shopping Centers $ 6,608 $ 8,918 $ 6,857 Apartments 339 975 1,382 Office Buildings 1,126 992 1,085 Parking Facilities 1,864 1,568 624 --------- --------- --------- $ 9,937 $ 12,453 $ 9,948 PROPERTY NET OPERATING INCOME (LOSS) Shopping Centers $ 46,329 $ 56,233 $ 34,245 Apartments 3,391 9,899 9,724 Office Buildings 5,844 6,214 6,151 Parking Facilities 7,834 6,341 2,245 Ventek (2,027) (1,838) 407 Corporate 280 200 283 --------- --------- --------- $ 61,651 $ 77,049 $ 53,055 --------- --------- --------- LESS - DEPRECIATION AND AMORTIZATION Shopping Centers $ 12,675 $ 15,880 $ 10,414 Apartments 1,011 2,751 2,952 Office Buildings 5,071 4,282 3,963 Parking Facilities 1,812 1,561 247 Ventek 83 46 34 Corporate 4,679 3,083 1,177 --------- --------- --------- $ 25,331 $ 27,603 $ 18,787 LESS - INTEREST EXPENSE Shopping Centers $ 22,649 $ 23,832 $ 11,224 Apartments 1,006 2,819 3,406 Office Buildings 1,377 - 15 Parking Facilities 3,231 2,381 784 Ventek 8 23 16 Corporate 10,171 19,142 12,303 --------- --------- --------- $ 38,442 $ 48,197 $ 27,748

22 23

1999 1998 1997 --------------------------------------------- MORTGAGE INVESTMENT INCOME $ 463 $ 1,211 $ 2,907 CORPORATE INCOME (EXPENSE) Short-term investment income $ 2,649 $ 1,337 $ 1,525 Other income 1,180 1,386 5,724 General and administrative (14,664) (28,104) (9,398) Litigation and proxy costs - (4,848) - Loss on carrying value of real estate and impaired assets (9,800) (36,000) - Loss from discontinued operations (6,836) (27,696) (2,844) --------- --------- --------- INCOME (LOSS) BEFORE CAPITAL GAIN AND EXTRAORDINARY LOSS $ (29,130) $ (91,465) $ 4,434 ========= ========= ========= CAPITAL EXPENDITURES Shopping Centers $ 6,497 $ 12,585 $ 9,381 Apartments 262 2,081 1,497 Office Buildings 3,337 8,045 9,741 Parking Facilities 1,392 392 1,035 --------- --------- --------- $ 11,488 $ 23,103 $ 21,654 ========= ========= ========= IDENTIFIABLE ASSETS Shopping Centers $ 154,202 $ 471,996 $ 498,238 Apartments - 79,011 79,386 Office Buildings 40,782 45,404 45,412 Parking Facilities 69,065 72,434 7,988 Mortgages 5,426 5,508 30,686 Ventek 5,247 4,476 5,206 Corporate 160,909 35,916 29,723 Net Assets of Discontinued Operations 25,821 27,878 38,345 --------- --------- --------- Total Assets $ 461,452 $ 742,623 $ 734,984 ========= ========= =========

22. MINIMUM RENTS The future minimum lease payments that are scheduled to be received under noncancellable operating leases are as follows (amounts in thousands): 2000 $ 30,442 2001 27,438 2002 25,793 2003 23,793 2004 20,617 Thereafter 62,318 --------- $ 190,401 ========= 23 24 23. RELATED PARTY TRANSACTIONS The Company has engaged a law firm, that has a partner who is a Trustee, to advise it on strategic matters regarding Impark. As of December 31, 1999, approximately $.3 million has been paid to this firm. The Company leases four of its parking facilities to a third party which is partially owned by an affiliate of a Trust shareholder, Apollo Real Estate Investment Fund II, L.P. and Apollo Real Estate Advisors. In 1999, the Trust received approximately $4 million in rent from this third party. In connection with a $90.0 million note payable, the Trust paid interest and fees of $1.2 million to Gotham Partners, L.P. and Gotham Partners III, L.P. ("Gotham"). Additionally, the Trust paid $1.8 million to Gotham for a stand-by commitment fee in connection with the May 1999 share rights offering which raised $46.5 million in net proceeds. Gotham owned 13.75% of the shares of beneficial interest of the Trust as of December 31, 1999. The Trust in 1999 engaged a company to provide mortgage brokerage services. A member of the immediate family of a Trustee is a principal of that company and the Trustee is also a principal of Gotham. In 1999, fees of $.6 million were paid to this company. 24. SEVERANCE ACCRUAL During 1999 and 1998, the Trust recorded $2.2 million and $3.7 million, respectively, in severance expense. The 1999 severance expense of $2.2 million is a result of staff reductions made in 1999 and for employees who have been notified that their employment with the Trust will be terminated in the first half of 2000 due to the closing of the Cleveland, OH headquarters. The 1998 severance expense of $3.7 million was recorded for change in control agreements and compensation arrangements for continuation of employment. The Trust recognizes continuation of employment expense over the period that employees are required to remain in employment of the Trust. The severance accrual for the years ended December 31, 1999 and 1998 was as follows (amounts in thousands): 1999 1998 ---------------------- Beginning balance $ 2,742 Expense 2,219 $ 3,742 Payments (3,730) (1,000) -------- -------- Balance at end of year $ 1,231 $ 2,742 ======== ======== 25. CONTINGENCIES The Trust, in exchange for a fee from Impark, has provided performance guarantees for the manufacturing and installation of transit ticket vending equipment. The guarantees of $5.3 million and $6.2 million expire in February 2001 and 2002, respectively. As of December 31, 1999, no amounts have been drawn against these guarantees. 24 25 26. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following is an unaudited condensed summary of the combined results of operations by quarter for the years ended December 31, 1999 and 1998. In the opinion of the Trust and Company, all adjustments (consisting of normal recurring accruals) necessary to present fairly such interim combined results in conformity with generally accepted accounting principles have been included. Impark and the Trust's Canadian real estate have been classified as discontinued operations for 1999 and 1998. The first three quarters of 1999 have been restated to reflect the adoption of the use of a 20- year life for the amortization of Impark's goodwill in October 1999, retroactive to January 1, 1999. Previously, the amortization life was 40 years.

Quarters Ended ------------------------------------------------------------------- Restated Restated Restated March 31 June 30 September 30 December 31 ------------------------------------------------------------------- (In thousands, except per share data and footnotes) 1999 Revenues $ 34,694 $ 30,891 $ 25,863 $ 29,326 ---------- --------- --------- --------- Income (loss) before preferred dividend, extraordinary loss from early extinguishment of debt and loss from discontinued operations (3,099) 15,726 (1,401) (5,186) Extraordinary loss from early extinguishment of debt (5,508) Income (loss) from discontinued operations (1,793) 184 (154) (5,073) ---------- --------- --------- --------- Net income (loss) before preferred dividend (4,892) 15,910 (1,555) (15,767) ---------- --------- --------- --------- Net loss applicable to shares of beneficial interest $ (5,600) $ 15,202(1),(2) $ (2,263) $ (16,476)(3) ========== ========= ========= ========= Comprehensive net income (loss) $ (5,461) $ 15,194 $ (2,233) $ (14,520) ========== ========= ========= ========= Per share Income (loss) applicable to shares of beneficial interest before extraordinary loss and loss from discontinued operations $ (.12) $ .40 $ (.05) $ (.14) Extraordinary loss from early extinguishment of debt (.13) Loss from discontinued operations $ (.06) $ - $ - $ (.12) ---------- --------- --------- --------- Net income (loss) applicable to shares of beneficial interest, basic and diluted $ (.18) $ .40 $ (.05) $ (.39) ========== ========= ========= ========== As previously reported: Net income (loss) previously disclosed $ (5,371) $ 15,430 $ (2,033) Change in amortization expense (229) (228) (230) ---------- --------- --------- Net income (loss) as restated $ (5,600) $ 15,202 $ (2,263) ========== ========= ========== Net income (loss) per share as previously disclosed, basic and diluted $ (.17) $ .41 $ (.05) Net loss per share as restated, basic and diluted (.18) .40 (.05)

(1) Includes capital gains of $8.7 million for the sale of eight apartment complexes and $19.4 million for the sale of seven shopping malls. (2) Includes a $9 million loss on the carrying value of assets held for sale. (3) Includes an accrual of $5.1 million for professional fees, the operating loss for the discontinued operations for the first quarter of 2000 and the recognition of foreign currency losses from the discontinued operations. Also includes a $5.5 million penalty from the prepayment of a mortgage loan and $1.8 million of asset write-downs of Ventek. 25 26 26. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) CONTINUED

Quarters Ended -------------------------------------------------------------------- March 31 June 30 September 30 December 31 -------------------------------------------------------------------- (In thousands, except per share data and footnotes) 1998 Revenues $ 35,551 $ 36,260 $ 35,385 $ 40,866 -------- -------- -------- -------- Loss before preferred dividend, extraordinary loss from early extinguishment of debt and loss from discontinued operations (1,699) (7,192) (5,519) (39,013) Extraordinary loss from early extinguishment of debt (1,633) (766) Loss from discontinued operations (1,880) (3,884) (3,079) (18,853) -------- -------- -------- -------- Net loss before preferred dividend (3,579) (11,076) (10,231) (58,632) -------- -------- -------- -------- Net loss applicable to shares of beneficial interest $ (4,454)(1) $(11,784)(2) $(10,939)(3) $(59,340)(4) ======== ======== ======== ======== Comprehensive net loss $ (4,450) $(12,073) $(11,276) $(59,957) ======== ======== ======== ======== Per share Loss applicable to shares of beneficial interest before extraordinary loss and loss from discontinued operations $ (.09) $ (.25) $ (.20) $ (1.13) Extraordinary loss from early extinguishment of debt (.05) (.02) Loss from discontinued operations (.06) (.13) (.10) (.60) -------- -------- -------- -------- Net loss applicable to shares of beneficial interest, basic and diluted $ (.15) $ (.38) $ (.35) $ (1.75) ======== ======== ======== ======== (1) Included $.9 million loss from Ventek and $.9 million in proxy and litigation expenses. (2) Included $3.4 million expense for the termination of the former chairman, president and chief executive officer, $3.9 million in proxy and litigation expenses, $4.7 million expense for the vesting of restricted shares, $2.2 million loss of a property acquisition deposit due to the Trust terminating the deal, $1.5 million in professional fees to avoid a change in the composition of the Trust's Board, $1.0 million in bank loan waiver fees, a $.4 million loss for the termination of a systems project and $1.5 million in foreign currency translation loss. (3) Included $1.7 million severance accrual, $.8 million in expense for terminations of former employees, $1.6 million in legal fees for possible corporate and financial transactions of the Trust, $1.1 million in foreign currency translation loss for marking an intercompany receivable to the spot rate, the reduction in the accrual of percentage rent of $1.5 million due to the adoption of EITF 98-9 and a $1.6 million extraordinary loss from the repayment of $87.5 million of senior notes prior to their maturity. (4) Included $1.1 million in expense for various services provided to the Trust by a third party and warrants issued in connection therewith, $.8 million in legal fees for a rights offering and potential acquisitions and sales, $.5 million in professional fees resulting from an unsuccessful effort to refinance the Trust's bridge and bank loans, $.8 million extraordinary loss resulting from amendments to the Trust's bank credit facility and $90 million note payable, $4.4 million severance accrual offset by $1.5 million in additional percentage rent accrued due to the prospective adoption of EITF 98-9. Also included a $51 million loss on carrying value of assets identified for disposition and impaired.

26 27 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO THE SECURITYHOLDERS AND TRUSTEES OF FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS: We have audited the accompanying consolidated balance sheets of First Union Real Estate Equity and Mortgage Investments (an unincorporated Ohio business trust, also known as First Union Real Estate Investments) and First Union Management, Inc. (a Delaware corporation) and its subsidiaries as of December 31, 1999 and 1998, and the related combined statements of operations, comprehensive income, shareholders' equity and changes in cash for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of First Union Management, Inc.'s Parking Business (also known as FUMI Parking Business), comprised primarily of Imperial Parking Limited and Impark Services Ltd., for the year ended December 31, 1999, which statements reflect total assets and total revenues of approximately 12 percent and approximately 39 percent of the related consolidated totals. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for those entities, is based solely on the report of the other auditors. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of other auditors for 1999, the financial statements referred to above present fairly, in all material respects, the combined financial position of First Union Real Estate Equity and Mortgage Investments and First Union Management, Inc. and its subsidiaries as of December 31, 1999 and 1998, and the results of their operations and their changes in cash for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. Cleveland, Ohio, March 1, 2000. Arthur Andersen LLP 27 28 MANAGEMENT 'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS FINANCIAL CONDITION During 1999, the Trust sold 27 properties, obtained non-recourse mortgage loans on three properties, and sold shares under a stock rights offering to raise capital which was used primarily to repay debt and generate cash. In summary, the 27 properties were sold for $404.7 million. Proceeds of $213.2 million were used to repay mortgage debt related to the properties or the mortgage loans were transferred with the properties as part of the consideration. The net proceeds of $172.2 million after transaction costs, prorations and mortgage debt were used to partially repay a note payable for $49.8 million, partially repay bank debt of $86 million, and the remaining $36.4 million was held as cash. The proceeds from the property sales and use of the proceeds are shown by property in the following table.

(amounts in millions) - ---------------------------------------------------------------------------------------------- NET PROCEEDS MORTGAGE MONTH (AFTER COSTS DEBT REPAID SOLD IN GROSS AND OR PROPERTY 1999 PROCEEDS PRORATIONS) TRANSFERRED - ---------------------------------------------------------------------------------------------- WOODLAND COMMONS FEBRUARY $ 21.6 $ 20.8 $ 11.5 SHOPPING CENTER BECK BUILDING (OFFICE) MARCH 2.2 1.8 SUTTER BUTTES (OFFICE) APRIL 3.8 3.6 NORTHWEST MALLS MAY 37.4 36.1 Valley Valley North Mall 205 Plaza 205 APARTMENT PORTFOLIO MAY 86.0 84.2 37.5 Somerset Lakes Steeplechase Briarwood Hunters Creek Beech Lake Woodfield Gardens Windgate Place Walden Village MAGIC MILE MAY 2.0 1.9 PARKING LOT TWO-MALL PACKAGE JUNE 22.1 21.7 Crossroads, Ft. Dodge Kandi FINGERLAKES MALL JUNE 2.3 2.2 MOUNTAINEER MALL JULY 11.0 10.2 3.6 FAIRGROUNDS SQUARE JULY 24.8 24.0 SOUTHWESTERN MALLS DECEMBER 191.5 178.9 160.6 Alexandria Brazos Killeen Mesilla Valley Shawnee Villa Linda ------ ------ ------ SUBTOTALS 404.7 385.4 213.2 ADJUSTMENTS TO AGREE TO STATEMENT OF CHANGES IN CASH Mortgage prepayment penalties 5.8 Mortgage debt transferred to purchasers (163.7) (163.7) -------- -------- -------- $ 404.7 $ 227.5 $ 49.5 ======== ======== ========

(amounts in millions) - ----------------------------------------------------------------------------------------- Net Use of Net Proceeds Proceeds --------------------------------- (after Repaid Repaid mortgage Note Bank Available Property debt) Payable Loan Cash - ----------------------------------------------------------------------------------------- WOODLAND COMMONS $ 9.3 $ 9.3 SHOPPING CENTER BECK BUILDING (OFFICE) 1.8 1.8 SUTTER BUTTES (OFFICE) 3.6 3.6 NORTHWEST MALLS 36.1 2.7 $33.4 Valley Valley North Mall 205 Plaza 205 APARTMENT PORTFOLIO 46.7 15.7 31.0 Somerset Lakes Steeplechase Briarwood Hunters Creek Beech Lake Woodfield Gardens Windgate Place Walden Village MAGIC MILE 1.9 1.9 PARKING LOT TWO-MALL PACKAGE 21.7 0.1 21.6 Crossroads, Ft. Dodge Kandi FINGERLAKES MALL 2.2 2.2 MOUNTAINEER MALL 6.6 6.6 FAIRGROUNDS SQUARE 24.0 5.9 $18.1 SOUTHWESTERN MALLS 18.3 18.3 Alexandria Brazos Killeen Mesilla Valley Shawnee Villa Linda ------ ------ ------ ----- SUBTOTALS 172.2 49.8 86.0 36.4 ADJUSTMENTS TO AGREE TO STATEMENT OF CHANGES IN CASH Mortgage prepayment penalties Mortgage debt transferred to purchasers -------- -------- -------- -------- $ 172.2 $ 49.8 $ 86.0 $ 36.4 ======== ======== ======== ========

28 29 Mortgage loans were obtained on three properties for a total of $66.7 million and the net proceeds of $62.9 million were held as cash.

(amounts in millions) - ------------------------------------------------------------------------------------------------------------------------------- NET PROCEEDS MONTH OF LOAN (AFTER COSTS AND PROPERTY LOAN IN 1999 AMOUNT INTEREST RATE MATURITY PRORATIONS) - ------------------------------------------------------------------------------------------------------------------------------- 55 Public Square August $ 21.1 LIBOR + 325 2002 $ 18.8 (Office and Garage) basis points North Valley Tech Center (Office) August 16.0 LIBOR + 295 2002 14.7 basis points Crossroads Center, St. Cloud October 29.6 15% 2000 29.4 Second mortgage loan; lender has option to purchase the mall, and the Trust has a right to put the mall to the lender, in April 2000 for $2.0 million plus the first and second mortgages. ------ ------- $ 66.7 $ 62.9 ====== =======

In May 1999, the Trust distributed approximately 12.5 million rights to its shareholders to purchase shares of beneficial interest of the Trust at $4.00 per share, raising approximately $46.5 million, net of offering costs. The Trust used the net proceeds of the rights offering to repay $37.5 million of its note payable and $9 million of its bank loan. Unrestricted and restricted cash and cash equivalents of $57.8 million at December 31, 1999 represented an increase of $12.7 million compared to the end of 1998. The major items contributing to this increase were as follows:

(amounts in millions) - ------------------------------------------------------------------------------------------------------ CASH WAS GENERATED FROM Net proceeds of property sales, after debt transferred to purchasers $ 227.5 Net proceeds of mortgage loans 62.9 Stock rights offering 46.5 Operations 9.4 Proceeds from note payable (used to purchase a $99 million U.S. Treasury bill) 49.0 -------- $ 395.3 -------- CASH WAS USED TO Repay note payable $ 90.0 Repay bank loan 101.0 Repay mortgage loans 49.5 Mortgage prepayment penalties 5.8 Repurchase the Trust's common shares 8.0 Fund tenant and building improvements 11.5 Pay preferred and common dividends 9.4 Provide collateral on Imperial Parking's credit agreement 5.0 Purchase a U.S. Treasury bill 99.0 Other, net 3.4 -------- $ 382.6 -------- Increase in unrestricted and restricted cash and cash equivalents $ 12.7 ========

The Trust purchased a $99 million Treasury bill in December 1999 using $50 million of cash on hand and borrowing $49 million with the U.S. Treasury bill as collateral. The $49 million is classified as a note payable in the December 31, 1999 Combined Balance Sheet. Additionally, in September 1999, the Trust purchased a $5 million U.S. Treasury bill. The $5 million U.S. Treasury bill is pledged as collateral for Impark's bank borrowings. Both Treasury bills are classified as held to maturity. 29 30 LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operations was $9.4 million in 1999 compared to $5.9 million in 1998. The increase is primarily attributed to a reduction in the loss before capital gains, extraordinary loss and loss from discontinued operations when comparing 1999 to 1998. As shown in a table above, the Trust sold 27 properties for $404.7 million and received net proceeds of $172.2 million after costs of the transactions, prorations and repayment or transfer of the mortgage debt. Net proceeds of $46.5 million were generated from the May 1999 stock rights offering. Additionally, the Trust received net proceeds of $62.9 million from three mortgage loans obtained in 1999, also shown in a table above. During 1999, the Trust invested $11.5 million in capital and tenant improvements. The investment was made primarily for tenant improvements to continue to tenant the former retail center in Denver, CO, which has been converted into an office technology center, and to build an anchor tenant store in Abilene, TX. The Trust repaid approximately $101 million of bank loans by using approximately $86 million from proceeds of property sales, $9 million from the sale of shares of beneficial interest from the rights offering and $6 million from funds generated from operations. In 1999, the Trust used $49.8 million of cash from property sales, $37.5 million from the rights offering and $2.7 million from operating cash to repay its $90 million note payable. The $90 million note payable originated in August 1998 when the Trust repaid $87.5 million of its 8-7/8% senior notes pursuant to a tender offer that the Trust initiated in July 1998. The Trust during the third quarter of 1999 repurchased 1.5 million shares of beneficial interest for $7.8 million. The Trust did not pay a dividend to common shareholders of beneficial interest in the first nine months of 1999, but did declare a $0.155 per share dividend to common shareholders and disbursed the $6.6 million in October 1999. Additionally, the Trust declared a $0.155 per share dividend to common shareholders in December 1999 payable in January 2000. In January 2000, the Trust repaid a $10.6 million deferred obligation plus a prepayment fee of $3.1 million. In the first quarter of 2000, the Trust announced that it intended to spin off Imperial Parking Corporation to the holders of the Trust's common shares. As part of the spin-off, the Trust will repay Imperial Parking's bank credit facility of approximately $22 million, contribute $7 million of cash and its 14 Canadian parking properties, and fund up to $6 million of cash for a parking development which will be leased to and operated by Imperial Parking. The Trust will also provide a secured line of credit for $8 million to Imperial Parking. Trust shareholders will receive one share of Imperial Parking Corporation common stock for every 20 First Union common shares of beneficial interest held as of March 20, 2000, expected to be distributed on March 27, subject to the SEC declaring the registration statement effective. Imperial Parking has applied to have its common stock listed on the American Stock Exchange under the symbol "IPK." RESULTS OF OPERATIONS -1999 VERSUS 1998 Net loss applicable to common shares before discontinued operations for 1999 was $2.3 million as compared to a net loss before discontinued operations of $58.8 million for 1998. Net loss before discontinued operations for 1999 included $28.3 million of capital gains compared to $10.3 million in 1998. Capital gains for 1999 included $8.7 million from the sale of eight apartment complexes, $19.4 million from the sale of six shopping malls and one shopping center and $.2 million from the sale of six shopping malls in December 1999. In 1998, capital gains included the sale of land in Cleveland, OH for $1.7 million, recognition of a $7.7 million capital gain which had been deferred from a sale in 1982 when the Trust received a mortgage note as part of the sale consideration which was repaid in May 1998, and $.8 million from the sale of a forward exchange agreement. 30 31 Net loss before discontinued operations for 1999 included a $9 million impairment loss which was recorded because the Trust entered into a contract in July 1999 to sell six shopping malls at a sales price that was less than net book value at June 30, 1999. The six malls were sold in December 1999. An additional $.8 million impairment loss was recorded in December 1999 for an asset expected to be sold within the next 12 to 18 months. Net loss before discontinued operations for 1998 included a $36 million impairment loss for impaired assets and assets held for sale. Net loss before discontinued operations for 1998 included a $2.2 million loss for a forfeited deposit for a property acquisition which was terminated, a $4.2 million expense due to lifting of restrictions on restricted shares which vested upon the change in the majority of the Board of Trustees in June 1998, a $3.4 million payment to the Trust's former chairman, president and chief executive officer, $3.7 million of severance expense, $4.8 million in proxy and litigation expenses, and $1.5 million in professional fees incurred to avoid a change in the composition of the Board of Trustees. The loss from discontinued operations for 1999 included a $1.7 million loss from Impark, the recognition of $1.8 million of unrealized currency losses from Impark because it is being reclassified as a discontinued operation and $3.3 million for the estimated net loss of Impark prior to the proposed spin-off in the first quarter of 2000 and estimated professional fees to accomplish the spin-off. Mortgage loan investment income declined when comparing 1999 to 1998. The decline in interest income was caused by the repayment of two mortgage investments in 1998. Short-term investment income increased during 1999 as compared to 1998. The increase is primarily from investing the net proceeds from the $62.9 million mortgage loans obtained in the third and fourth quarters of 1999 and approximately $18 million from the sale of a mall in Reading, PA, which was sold in July 1999. Property net operating income, which is defined as rent less operating expenses and real estate taxes, for 1999 decreased by $15.4 million when compared to the previous year. The decrease was primarily due to the sale of 27 properties in 1999 resulting in decreased property net operating income of $18.2 million. Property net operating income for properties in the portfolio in 1999 and 1998 increased by $2.2 million. The increase was attributed to the increased occupancy at the North Valley Tech Center and Westgate Town Center and increased results from parking properties due to a new contract with third-party operators. Additionally, four parking garages acquired during 1998 produced an additional $1 million in property net operating income on a non-comparable basis. Ventek, the Company's equipment manufacturing subsidiary, had a decrease in net operating income of $.2 million in 1999 compared to 1998. This was due primarily to the write-off of accounts receivable and inventory of $2 million for a contract canceled in the fourth quarter of 1999, which was partially offset by approximately $1.8 million of costs incurred in 1998 to increase production capabilities for anticipated equipment contract sales which did not occur. Notes payable interest expense increased while senior note interest decreased when comparing 1999 to 1998 because the Trust, in August 1998, repaid $87.5 million of 8-7/8% senior notes with a $90 million note payable. As noted previously, the $90 million note payable was repaid during the first seven months of 1999. The average note payable balance in 1998 was $90 million as compared to $53.1 in 1999. The average rate on the note was 9.875% per annum in 1998 and 13.5% per annum in 1999. Bank loan interest expense decreased when comparing 1999 to 1998. The decrease was primarily due to repayment of the Trust's bank facility in the second quarter of 1999 from property sales proceeds and a portion of the rights offering proceeds. Additionally, in June 1998 the Trust recorded $.6 million of bank covenant waiver fees as interest expense. 31 32 General and administrative expenses declined $13.4 million when comparing 1999 to 1998. The decline is primarily the result of expenses recorded in 1998 that did not recur in 1999. These expenses included: - $3.4 million payment to the Trust's former chairman, president and chief executive officer due to his termination. - $4.2 million for the vesting of restricted shares upon the change in the majority of the Board of Trustees. - $2.2 million for a forfeited deposit for a property acquisition which was terminated. General and administrative expenses also declined due to reduced salary expense of $1.9 million when comparing 1999 to 1998 primarily as the result of staff reductions. The Trust in 1999 recorded $2.3 million of severance expense as compared to $3.7 million in 1998. Additionally, legal expense declined by $1.3 million when comparing 1999 to 1998 primarily as the result of completing the repayment of bank loans and the $90 million note payable in mid-1999. These decreases were offset by a $.7 million expense to record compensation expense for variable stock options in 1999. Depreciation and amortization expense for 1999 declined by $2.3 million when compared to 1998. The properties sold in 1999 resulted in reduced depreciation expense of $5.3 million when compared to 1998. This decrease is partially offset by increased depreciation expense of $1.3 million from improvements made primarily to the North Valley Tech Center and Westgate Town Center, $.2 million of amortization from mortgage loan costs for mortgages obtained in 1999, and $1.5 million in expense from the write-off of the unamortized computer system and home office equipment since the Trust outsourced its in-house accounting and property management functions effective January 1, 2000. YEAR 2000 During 1999 the Trust and Impark completed the process of reviewing potential system and operation problems for the year 2000. This process involved identifying and remediating data recognition problems in computer systems, software and other operating equipment, working with third parties to address year 2000 issues as they pertain to the Trust and Impark, and developing contingency plans to address potential risks in the event of year 2000 failures. To date, the Trust and Impark have successfully managed this transition. Although considered unlikely, unanticipated problems in the Trust and Impark's core business process, including problems associated with non-compliant third parties and disruptions to the economy in general, could still occur despite efforts to date to remediate affected systems and develop contingency plans. The Trust and Impark will continue to monitor all business processes, including interaction with the Trust and Impark's customers, vendors and other third parties, throughout 2000 to address any issues and ensure all processes continue to function properly. QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK INTEREST RATE RISK The Trust and Impark have entered into certain financing arrangements that require interest payments based on variable interest rates. As such, the combined financial statements are subject to changes in the market rate of interest. To reduce the exposure to changes in the market rate of interest, the Trust has interest rate caps for a portion of its floating rate financing arrangements. The Trust does not enter into rate guarantee contracts for trading purposes. 32 33 The table below provides information about the Trust and Impark's financial instruments that are sensitive to changes in interest rates. Weighted average variable rates are based on the rates in effect at December 31, 1999. No assumptions have been made about future interest rates. The Canadian dollar denominated obligation is presented in U.S. dollar equivalents, which is the Trust's reporting currency.

AS OF DECEMBER 31, 1999 (AMOUNTS IN MILLIONS) -------------------------------------------------------------------------------------------------------- EXPECTED MATURITY DATES --------------------------------------------------------------------------- 2000 2001 2002 2003 2004 THEREAFTER TOTAL FAIR VALUE -------------------------------------------------------------------------------------------------------- BANK LOANS AT VARIABLE RATES Impark ($US) $ 22.5 $ 22.5 $ 22.5 Weighted average interest rate 6.9% MORTGAGE LOANS Fixed rate $ 1.8 $ 1.9 $ 46.4 $ 2.0 $ 31.1 $ 40.8 $ 124.0 $ 129.4 Average interest rate 10.7% 10.7% 10.7% 12.8% 11.5% 11.5% Variable rate (based on LIBOR) $ 34.0 $ 37.1 $ 71.1 $ 71.1 Weighted average interest rate 8.2% 9.6% SENIOR NOTES Fixed rate $ 12.5 $ 12.5 $ 12.3 Interest rate 8.875%

INTEREST RATE DERIVATIVES The Trust owns two interest rate caps that protect it from increases in LIBOR. The interest rate caps have notional amounts of $16 million and $21.1 million covering the variable rate loans maturing in 2002. The net book value of these interest rate caps is $.2 million as of December 31, 1999. EXCHANGE RATE RISK Impark operates internationally and enters into transactions denominated mainly in Canadian currency. As a result, the Trust and Company are subject to the variability that arises from exchange rate movements. The Trust and Company do not hedge risks in foreign currency exchange rate movements and do not intend to do so in the foreseeable future. The only Canadian denominated debt obligation that is sensitive to foreign currency exchange rates is the Impark bank loan. The table above presents the principal amount, weighted average interest rate and maturity date for this bank loan. The weighted average variable rate is based on the rate in effect at December 31, 1999. RESULTS OF OPERATIONS - 1998 VERSUS 1997 Net loss applicable to shares of beneficial interest before discontinued operations for 1998 was $58.8 million as compared to net income before discontinued operations of $3.7 million for 1997. The net loss for 1998 included a $2.2 million loss on a property acquisition deposit that was approved prior to the change in the majority of the Board of Trustees in June 1998, and which was offset by $200,000 later in 1998 by assigning the contract to a third party, a $3.4 million payment to the Trust's former chairman and chief executive officer, a $4.2 million expense due to lifting of restrictions on restricted shares which followed the change in the majority of the Trust's Board of Trustees, $1.5 million in other professional fees to avoid a change in the composition of the Trust's Board, $4.8 million in proxy and litigation expenses and a $36 million noncash charge to recognize 33 34 the loss on the carrying value of assets held for sale and impaired assets. Additionally, the Trust incurred $3.7 million in accrued severance expenses for change in control agreements and for employee terminations and $2.6 million in legal fees. In February 1998, 951,000 preferred shares of beneficial interest were converted into common shares of beneficial interest resulting in a decreased preferred dividend when comparing 1998 to 1997. Net loss before discontinued operations for 1998 included $10.3 million of capital gains. The Trust sold its land beneath a building in Cleveland, OH, resulting in a capital gain of $1.7 million. An additional capital gain of $7.7 million was recognized when a mortgage investment was repaid. This capital gain had been deferred from a property sale in 1982 since the Trust received the mortgage note as purchase consideration. The Trust also realized a capital gain from the sale of a forward exchange contract of $.8 million in the second quarter of 1998. In December 1998, the Trust sold a land parcel in Monroe, LA, resulting in a $.1 million capital gain. Additionally, the net loss for 1998 before discontinued operations included $1.6 million of unamortized senior note issue costs and professional fees which were expensed in the third quarter of 1998 when the Trust repaid approximately $87.5 million of the senior notes prior to their maturity and $.8 million of deferred costs which were expensed when the Trust renegotiated its bank agreement and a $90 million note payable. The loss from discontinued operations includes the loss from operations of Impark of $28.1 million, the net income from the Trust's Canadian parking facilities of $.5 million and accrual for Canadian taxes of $.1 million. Impark's net loss in 1998 included a $15 million U.S. reduction of goodwill, a $2.4 million severance accrual, and approximately $2.5 million of expansion costs into U.S. markets. Mortgage loan interest income declined by $1.7 million, when comparing 1998 to 1997. The decline in interest income when comparing 1998 to 1997 was caused by the repayment of a mortgage investment secured by a shopping mall in Fairmont, WV in January 1998 and the repayment of a mortgage investment secured by an office building in Cleveland, OH in May 1998. The Trust had approximately $11.5 million invested in U.S. Treasury bills and approximately $2.1 million invested in the stock of another REIT for the first five months of 1998. The U.S. Treasury bills were purchased in April 1997 to secure the Trust's obligation under an agreement with the former owners of Impark to collateralize the $10.5 million in non-voting stock and accrued interest which the former owners of Impark received when the Trust's affiliated management company purchased voting control of Impark in April 1997. The REIT stock was acquired in the third and fourth quarters of 1997 as a long-term investment. After the Trust purchased the non-voting common stock of Impark in June 1998, it sold the U.S. Treasury bills. The Trust also sold its holdings in the REIT stock as a result of its change in investment strategy. In September 1996, the Trust invested in a joint venture that owned eight shopping malls and 50% of another mall. The Trust, in September 1997, purchased the interests of its joint venture partners. Consequently, the Trust's investment income and management fees for the Trust's affiliated management company declined when comparing 1998 to 1997. Property net operating income for 1998 increased $23.9 million from 1997 on a non-comparable basis. The acquisition of the former joint venture properties in September 1997 and five parking facilities in the first three months of 1998 produced $21.8 million and $3.7 million, respectively, of increased property net operating income when comparing 1998 to the same period of 1997. These increases were offset by the decrease in property net operating income of $1.5 million resulting from the sale of an office building and an apartment complex in the last four months of 1997 and a $2.3 million decrease in property net operating income from the Company's equipment subsidiary primarily due to increased expenses of $1.8 million for anticipated sales which did not occur. Property net operating income increased by $2.2 million for the comparable portfolio when comparing 1998 to 1997. The increase was attributable to the continued lease-up of the North Valley Tech Center and increased rental rates in the apartment portfolio. 34 35 Mortgage interest expense increased when comparing 1998 to that of 1997 primarily due to the $203 million in mortgage debt assumed in September 1997 in conjunction with the purchase of the remaining interest in the Trust's joint venture and a $30 million mortgage obtained in May 1998. Bank loan interest expense increased when comparing 1998 to the prior year due to increased borrowing, exclusive of the bank debt assumed in the April 1997 acquisition of Impark. The average balance for 1998 outstanding was $90 million. The average balance outstanding for 1997 was approximately $19 million. The bank loans increased when comparing 1998 to 1997 primarily due to borrowings to fund the parking garage acquisitions and a development site, partially fund the Trust's purchase of its partners' interest in the joint venture and to fund tenant and capital improvements during 1998 and 1997. Additionally, the bank covenant waiver fees of $.6 million for the second quarter covenant waivers were recorded as bank loan interest expense in 1998. Offsetting the increase in the bank credit facilities were the proceeds from property sales during the last four months of 1997 and in May 1998, the repayment of mortgage investments in the first and third quarters of 1998 and a $30 million mortgage obtained in May 1998. Depreciation and amortization expense for 1998 increased over 1997 primarily due to the depreciation from the eight shopping malls acquired in September 1997 when the Trust acquired its joint venture partners' interest in the malls and the depreciation from the four parking facilities which were acquired in the first quarter of 1998. General and administrative expenses increased when comparing 1998 to 1997 primarily related to several charges as a result of the proxy contest and the change in the majority of the Board of Trustees. The charges in the second quarter of 1998 included $4.8 million in proxy and litigation expenses, $3.4 million resulting from the termination of the former chairman, president and chief executive officer, $4.2 million for the vesting of restricted shares which occurred upon the change in the majority of the Board of Trustees, and $1.5 million in additional professional fees to avoid a change in the composition of the Trust's Board. Additionally, in the third and fourth quarters of 1998, the Trust accrued $3.9 million of severance expense for employee termination, change in control and continuation of employment agreements. During the last six months of 1998, the Trust incurred approximately $2.6 million in legal fees for negotiation of the $90 million note payable and credit facilities, potential sales of properties and corporate acquisitions, and corporate due diligence and preparation of a rights offering. In November 1998, the Trust issued 500,000 ten-year warrants to purchase 500,000 shares of beneficial interest at $10 per share to Enterprise Asset Management Inc. The Trust also paid Enterprise $750,000 for consulting services during the summer of 1998 when the Trust was evaluating its retail portfolio and marketing the properties for sale. The Trust recognized a total expense of $1.1 million for the fee paid to Enterprise and the fair value of the warrants based on the Black-Scholes model. The Trust expensed $.5 million in fees for an unsuccessful effort to refinance its current debt in December 1998. The Trust also recorded a $2.2 million expense when it did not close on the purchase of a parking facility because the Board of Trustees believed that the contract, which was approved prior to the change in the majority of the Board in June 1998, was on disadvantageous terms. The Trust partially offset this loss by assigning the contract to a third party for $200,000. 35 EX-23.A 6 EXHIBIT 23(A) 1 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included and incorporated by reference in this Form 10-K, into the registrant's previously filed Registration Statements on Form S-3 (Registration Nos. 2-88719, 33-2818, 33-11524, 33-19812, 33-26758, 33-33279, 33-38754, 33-45355, 33-57756, 333-953 and 333-63547). Cleveland, Ohio, Arthur Andersen LLP March 30, 2000. EX-23.B 7 EXHIBIT 23(B) 1 Exhibit 23.1 INDEPENDENT AUDITORS' CONSENT The Board of Directors First Union Management, Inc. We consent to the incorporation by reference in the registration statements Nos. 2-88719, 33-2818, 33-11524, 33-19812, 33-26758, 33-38754, 33-45355, 33-57756, 333-953 and 333-63547 on Form S-3 of First Union Real Estate Equity and Mortgage Investments of our report dated February 4, 2000, with respect to the combined balance sheet of FUMI Parking Business as of December 31, 1999, and the related combined statements of operations, owner's deficiency and cash flows for the year ended December 31, 1999, which report appears in the December 31, 1999 annual report on Form 10-K of First Union Real Estate Equity and Mortgage Investments. (SIGNED) KPMG LLP Chartered Accountants Vancouver, Canada March 29, 2000 EX-24 8 EXHIBIT 24 1 EXHIBIT 24 FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS ------------------------------------------------------- ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999 ------------------------------------ Power of Attorney of Officers and Trustees ------------------------------------------ The undersigned, an Officer or Trustee or both an Officer and Trustee of First Union Real Estate Equity and Mortgage Investments, an Ohio business trust (the "Trust") which anticipates filing with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, an Annual Report on Form 10-K for the year ended December 31, 1999 (hereinafter called the "Form 10-K"), does hereby constitute and appoint Daniel P. Friedman with full power of substitution and resubstitution, as attorney to sign for him and in his name the Form 10-K and any and all amendments and exhibits thereto, and any and all other documents to be filed with the Securities and Exchange Commission pertaining to the Form 10-K, with full power and authority to do and perform any and all acts and things whatsoever required or necessary to be done in the premises, as fully to all intents and purposes as he could do if personally present, hereby ratifying and approving the acts of said attorneys and any of them and any such substitute. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 28 day of March, 2000. /s/ William A. Ackman - ------------------------ /s/ Daniel J. Altobello - ------------------------ /s/ David P. Berkowitz - ------------------------ /s/ Daniel P. Friedman - ------------------------ /s/ Stephen J. Garchik - ------------------------ /s/ David S. Klafter - ------------------------ /s/ William Scully - ------------------------ /s/ Stephen S. Snider - ------------------------ /s/ Mary Ann Tighe - ------------------------ /s/ James A. Williams - ------------------------ 2 EXHIBIT 24 ---------- FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS ------------------------------------------------------- ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999 ------------------------------------ Power of Attorney of Officers and Trustees ------------------------------------------ The undersigned, an Officer or Trustee or both an Officer and Trustee of First Union Real Estate Equity and Mortgage Investments, an Ohio business trust (the "Trust") which anticipates filing with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K for the year ended December 31, 1999 (hereinafter called the "Form 10-K"), does hereby constitute and appoint Daniel P. Friedman with full power of substitution and resubstitution, as attorneys or attorney to sign for him and in his name the Form 10-K and any and all amendments and exhibits thereto, and any and all other documents to be filed with the Securities and Exchange Commission pertaining to the Form 10-K, with full power and authority to do and perform any and all acts and things whatsoever required or necessary to be done in the premises, as fully to all intents and purposes as he could do if personally present, hereby ratifying and approving the acts of said attorneys and any of them and any such substitute. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this ___ day of _____, 2000. ____________________ EX-27.A 9 EXHIBIT 27(A)

<ARTICLE> 5 <CIK> 0000037008 <NAME> FIRST UNION REAL ESTATE EQUITY AND MORTAGE INVESTMENTS <PERIOD-TYPE> 12-MOS <FISCAL-YEAR-END> DEC-31-1999 <PERIOD-START> JAN-01-1999 <PERIOD-END> DEC-31-1999 <CASH> 57,841,000 <SECURITIES> 0 <RECEIVABLES> 10,386,000 <ALLOWANCES> 0 <INVENTORY> 3,395,000 <CURRENT-ASSETS> 176,635,000 <PP&E> 324,251,000 <DEPRECIATION> (75,161,000) <TOTAL-ASSETS> 461,452,000 <CURRENT-LIABILITIES> 22,936,000 <BONDS> 256,717,000 <PREFERRED-MANDATORY> 0 <PREFERRED> 31,737,000 <COMMON> 42,472,000 <OTHER-SE> 95,501,000 <TOTAL-LIABILITY-AND-EQUITY> 461,452,000 <SALES> 0 <TOTAL-REVENUES> 120,774,000 <CGS> 0 <TOTAL-COSTS> 54,831,000 <OTHER-EXPENSES> 49,795,000 <LOSS-PROVISION> 0 <INTEREST-EXPENSE> 38,422,000 <INCOME-PRETAX> 0 <INCOME-TAX> 0 <INCOME-CONTINUING> (22,294,000) <DISCONTINUED> (6,836,000) <EXTRAORDINARY> (5,508,000) <CHANGES> 0 <NET-INCOME> (9,137,000) <EPS-BASIC> (.24) <EPS-DILUTED> (.24)

EX-27.B 10 EXHIBIT 27(B)

<ARTICLE> 5 <CIK> 0000037008 <NAME> FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS <PERIOD-TYPE> 12-MOS <FISCAL-YEAR-END> DEC-31-1998 <PERIOD-START> JAN-01-1998 <PERIOD-END> DEC-31-1998 <CASH> 45,175,000 <SECURITIES> 0 <RECEIVABLES> 14,929,000 <ALLOWANCES> 0 <INVENTORY> 1,827,000 <CURRENT-ASSETS> 61,931,000 <PP&E> 798,230,000 <DEPRECIATION> (165,285,000) <TOTAL-ASSETS> 742,623,000 <CURRENT-LIABILITIES> 25,826,000 <BONDS> 553,576,000 <PREFERRED-MANDATORY> 0 <PREFERRED> 31,737,000 <COMMON> 31,416,000 <OTHER-SE> 87,543,000 <TOTAL-LIABILITY-AND-EQUITY> 742,623,000 <SALES> 0 <TOTAL-REVENUES> 148,062,000 <CGS> 0 <TOTAL-COSTS> 67,079,000 <OTHER-EXPENSES> 96,555,000 <LOSS-PROVISION> 0 <INTEREST-EXPENSE> 48,197,000 <INCOME-PRETAX> 0 <INCOME-TAX> 0 <INCOME-CONTINUING> (63,769,000) <DISCONTINUED> (27,696,000) <EXTRAORDINARY> (2,399,000) <CHANGES> 0 <NET-INCOME> (86,517,000) <EPS-BASIC> (2.81) <EPS-DILUTED> (2.81)

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EX-3.B

   1
                                                                  Exhibit (3)(b)


                         FIRST UNION REAL ESTATE EQUITY

                            AND MORTGAGE INVESTMENTS




                              AMENDED AND RESTATED
                              DECLARATION OF TRUST

                     (AS AMENDED THROUGH NOVEMBER 16, 1999)



   2


                                TABLE OF CONTENTS
                                -----------------




                                                                                                
ARTICLE I
         NAME OF TRUST - TITLE TO TRUST PROPERTY......................................................1
         Section 1.1.      Name of the Trust..........................................................1
         Section 1.2.      Title to Trust property....................................................1
         Section 1.3.      Purposes of Trust..........................................................2

ARTICLE II
         POWERS AND AUTHORITY OF TRUSTEES.............................................................2
         Section 2.1.      General....................................................................2
         Section 2.2.      Power to Acquire, Hold and Dispose of Real and Personal property...........3
         Section 2.3.      Power to Acquire, Hold and Dispose of Securities...........................3
         Section 2.4.      Name in Which Title Held...................................................3
         Section 2.5.      Power to Borrow, Mortgage and Pledge.......................................3
         Section 2.6.      Power to Lend and Invest...................................................3
         Section 2.7.      Power to Pay Taxes.........................................................4
         Section 2.8.      Power to Transfer Trust to Corporation.....................................4
         Section 2.9.      Power as to Securities.....................................................4
         Section 2.10.     Power to Delegate..........................................................5
         Section 2.11.     General Power to Enforce and Collect Securities............................5
         Section 2.12.     Power to Incur Expenses, Appoint and Employ Officers and Agents............5
         Section 2.13.     Power to Endorse and Guarantee.............................................6
         Section 2.14.     Power as to Bank Deposits..................................................6
         Section 2.15.     Power to Determine Capital and Income......................................6
         Section 2.16.     Power to Value Trust Property and Keep Books...............................6
         Section 2.17.     Power to Solicit Proxies etc...............................................6

ARTICLE III
         LIMITATIONS OF LIABILITY OF BENEFICIARIES, TRUSTEES AND OTHERS...............................7
         Section 3.1.      No Personal Liability of Beneficiaries.....................................7
         Section 3.2.      Trustee's Liability Other Than to the Trust or Beneficiary.................7
         Section 3.3.      Trustee's Liability to Trust and Beneficiaries -
                           Indemnification and Expense - Bond and Security............................7
         Section 3.4.      No Implied Covenants or Obligations to be Read Into
                           this Instrument; Trustees' Right to Rely on Investment
                           Advisers and Counsel and Accountants.......................................9

ARTICLE IV
         SHARES OF BENEFICIAL INTEREST................................................................9
         Section 4.1.      Shares $1 Par Value; Non-Assessable and Not Limited in Number..............9
         Section 4.2.      Shares Certificates.......................................................10
         Section 4.3.      Issue of Shares...........................................................10




   3




                                                                                            
         Section 4.4.      Trustees Right to Own Shares...........................................11
         Section 4.5.      Indemnification of Underwriters........................................11
         Section 4.6.      Change of Number of Issued Shares of Beneficial Interest...............11

ARTICLE V
         RECORD AND TRANSFER OF SHARES............................................................12
         Section 5.1.      Register of Shares - Record Owners.....................................12
         Section 5.2.      Transfer Agents and Registrars.........................................12
         Section 5.3.      Deposit of Certificates with Transfer Agents...........................12
         Section 5.4.      Transfer on Records of Trust...........................................12
         Section 5.5.      Transfer by Operation of Law...........................................13
         Section 5.6.      Joint Owners of Shares.................................................13
         Section 5.7.      Duty of Trustees in Share Transfers....................................13
         Section 5.8.      Lost Certificates......................................................13
         Section 5.9.      Regulations on Transfer................................................14

ARTICLE VI
         CHARACTERISTICS OF SHARES................................................................14
         Section 6.1.      Trustees in Complete Control...........................................14
         Section 6.2.      Trust Not Affected by Death of Beneficiary.............................14
         Section 6.3.      Shares Held by Trust...................................................14

ARTICLE VII
         MEETINGS OF BENEFICIARIES................................................................15
         Section 7.1.      Annual and Special Meetings Call.......................................15
         Section 7.2.      Notice of Meetings.....................................................15
         Section 7.3.      Beneficiaries Cannot Bind Trustees.....................................15
         Section 7.4.      Closing Transfer Books - Record Date...................................15
         Section 7.5.      Voting.................................................................16
         Section 7.6.      Report at Annual Meeting...............................................16
         Section 7.7.      Inspection of Records..................................................16

ARTICLE VIII
         TRUSTEES.................................................................................16
         Section 8.1.      Number of Trustees.....................................................16
         Section 8.2.      Election of Trustees; Terms of Office..................................17
         Section 8.3.      Resignation and Removal................................................17
         Section 8.4.      Filling Vacancy........................................................18
         Section 8.5.      Trust Continues........................................................18
         Section 8.6.      Trustees' Meetings and Action..........................................18
         Section 8.7.      Trustees' Compensation.................................................18
         Section 8.8.      By-Laws of Trust.......................................................19
         Section 8.9.      Executive Committee....................................................19
         Section 8.10.     Trustee's Other Business Activities....................................19




   4





                                                                                                
ARTICLE IX
         DISTRIBUTIONS TO BENEFICIARIES.............................................................19
         Section 9.1.      Trustees May Make Distributions..........................................19
         Section 9.2.      Retained Amounts.........................................................20
         Section 9.3.      Information to Beneficiaries.............................................20

ARTICLE X
         AMENDMENT OF TRUST.........................................................................20
         Section 10.1.     Amendment................................................................20

ARTICLE XI
         MISCELLANEOUS..............................................................................21
         Section 11.1.     Failure to Qualify as Real Estate Investment Trust.......................21
         Section 11.2.     Laws of Ohio Govern......................................................21
         Section 11.3.     Counterparts.............................................................21
         Section 11.4.     Certifications...........................................................21
         Section 11.5.     Recording................................................................21
         Section 11.6.     Annual Financial Statements..............................................22
         Section 11.7.     Information on Share Ownership...........................................22
         Section 11.8.     Fiscal Year..............................................................22
         Section 11.9.     Notices..................................................................23
         Section 11.10.    Contingent Powers of Beneficiaries.......................................23
         Section 11.11.    Investment Policy........................................................23
         Section 11.12.    Notices on Distributions.................................................25
         Section 11.13.    Transactions with Interested Parties.....................................25
         Section 11.14.    Advisers.................................................................26
         Section 11.15.    Limitation on Expenses...................................................26
         Section 11.16.    Appraisals...............................................................26
         Section 11.17.    Prohibited Investments...................................................26
         Section 11.18.    Prohibited Activities....................................................26
         Section 11.19.    No Power to Disqualify Trust as a Real Estate Investment Trust...........27
         Section 11.20.    Purpose of Article and Section Headings..................................27
         Section 11.21.    Controlling Effect of Article XI.........................................27
         Section 11.22.    Trustees' Power to Incur Indebtedness and Other Obligations
                           - Limitations Thereon....................................................27
         Section 11.23.    Trustees' Power to Invest in New Buildings and Partnerships,
                           Joint Ventures and Unimproved Land for New Buildings.....................28
         Section 11.24.    Trustees' Power to Invest in Real Estate Mortgages and
                           in Certain Evidences of Indebtedness.....................................29
         Section 11.25.    Options Respecting Trust Securities......................................29
         Section 11.26.    Authority of Trustees to Authorize Additional Restrictions...............30
         Section 11.27.    Authority of Trustees to Authorize Certain Investment,
                           Financing and Other Activities...........................................30


   5






                                                                                               
ARTICLE XII
         DURATION OF THE TRUST......................................................................30
         Section 12.1.     Term of Trust............................................................30
         Section 12.2.     Sale of All Trust Property...............................................31
         Section 12.3.     Liquidation..............................................................31




   6



FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
AMENDED AND RESTATED DECLARATION OF TRUST
(As amended through November 16, 1999)
- --------------------------------------------------------------------------------

BY THIS AMENDED AND RESTATED DECLARATION OF TRUST, effective November 16, 1999,
amending the Amended Declaration of Trust made August 1, 1961, and thereafter
amended from time to time through July 25, 1986 (said Amended and Restated
Declaration of Trust, as heretofore and hereby amended, being referred to herein
as "this Declaration") by such persons as may from time to time be Trustees:

The Trustees of First Union Real Estate Equity and Mortgage Investments hereby
agree and declare that they will hold all property of every type and description
which they have acquired or may hereafter acquire as such Trustees, together
with the proceeds thereof and the rents an other income therefrom, IN TRUST, on
the terms and conditions set forth in this Declaration, for the benefit of the
holders from time to time of the certificates representing the shares of
beneficial interest in the Trust property issued by the Trust.

Where the context permits, "Beneficiaries" shall mean the record holders from
time to time of shares of beneficial interest in the Trust property, "Trustees"
or "Trust" shall mean William A. Ackman, Daniel J. Altobello, David P.
Berkowitz, Daniel P. Friedman, Stephen J. Garchik, David S. Klafter, William A.
Scully, Daniel Shuchman, Steven S. Snider, Mary Ann Tighe and James A. Williams,
and any successor or additional trustees who shall be appointed and duly
qualify, so long as they shall continue as such duly qualified trustees, and
said terms shall refer to such persons in their capacity as trustees and not in
their individual capacities and shall not include the officers, agents,
representatives or Beneficiaries of the Trust, and "Trust Property" shall mean
the property from time to time subject to this Declaration.

ARTICLE I
NAME OF TRUST - TITLE TO TRUST PROPERTY
- ---------------------------------------

SECTION 1.1. NAME OF THE TRUST.

The name of this Trust shall be: "First Union Real Estate Equity and Mortgage
Investments" and, so far as may be practicable, the business of the Trust shall
be conducted in that name, the trade name "First Union", or such other trade
name as the Trustees may adopt in order to satisfy governmental regulation. The
Trustees may make and execute deeds, mortgages, leases, contracts, and other
instruments, acquire, mortgage, lease, convey and transfer real or personal
property, and sue and be sued under any of the aforesaid names.

SECTION 1.2. TITLE TO TRUST PROPERTY.

Legal title to all Trust property shall be vested in the Trustees, and held by
and transferred to the Trustees, except as provided in Section 2.4 or elsewhere
herein.


   7


SECTION 1.3. PURPOSES OF TRUST.

Notwithstanding anything to the contrary contained in this Declaration of Trust,
the purposes of the Trust hereby created shall be to purchase, acquire, hold,
improve, lease, sell or mortgage or otherwise encumber real property or real and
personal property or interests in real or personal property, to receive the
income, interest, rents and profits thereof, and to reinvest them or distribute
them, in accordance with the provisions of this Declaration of Trust, to the
holders of beneficial interests in the Trust.

ARTICLE II
POWERS AND AUTHORITY OF TRUSTEES
- --------------------------------

SECTION 2.1. GENERAL.

The Trustees shall have, without prior or further authorization, absolute and
exclusive power, control and authority over the Trust property held by them at
any time hereunder, over the management and disposition thereof, and over the
management and conduct of the business of the Trust to the same extent as if the
Trustees were the sole owners of such property and business in their own right,
free from any power of control on the part of the Beneficiaries, subject only to
the limitations herein expressly stated. No person (the word "person" whenever
used in this Declaration, except where the context otherwise requires, shall be
deemed to mean any individual, individuals, association, trust, partnership,
corporation, or other entity) shall in any event be bound to see to the
application of any money or property paid to or delivered to the Trustees or
their authorized representative. No investment or reinvestment of the Trust
property hereunder shall be deemed improper because of its speculative
character, whether or not the same be producing income or be of the kind
commonly regarded by law as proper investments for trust funds, or because a
greater proportion of the Trust property is invested therein that is usual for
trustees.

The Trustees shall have all powers necessary, convenient or appropriate to
effectuate the purposes of the Trust and may take any action which they may deem
necessary or desirable to that end, although such matters or things are not
herein specifically mentioned. Any determination of the purposes of the Trust
made by the Trustees in good faith shall be conclusive. In construing the
provisions of this Declaration, the presumption shall be in favor of the grant
of owners to the Trustees.

Without restricting or limiting the generality of the foregoing, such powers of
the Trustees shall include the powers enumerated below in this Declaration;
provided however, that the powers granted in this Declaration are subject to and
limited by the provisions of Article XI hereof.

SECTION 2.2. POWER TO ACQUIRE, HOLD AND DISPOSE OF REAL AND PERSONAL PROPERTY.

The Trustees shall have power for such consideration and on such terms and
conditions as they may deem proper, through the issuance of shares of beneficial
interest in the Trust property or through

                                       2
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the issuance of notes, debentures, bonds, or other obligations of the Trust, for
cash, or otherwise, to purchase or acquire, to hold, manage, improve, lease
(including building leases, part of the consideration for which is the building
on or adding to the premises by the lessee) for any term, whether or not
extending beyond the possible termination of the Trust, to rent, convey, sell,
option, exchange, mortgage (with or without power of sale), release, partition,
or otherwise deal in personal property or in real estate of any type and
description, including fee, leasehold, mortgage, ground rent and any other type
of interest therein, and/or buildings and structures and tangible personal
property of any type and description situated thereon or elsewhere, to adjust
boundaries and grant or obtain easements or options with or without
consideration, and to erect, construct, alter, repair, demolish or otherwise
physically affect any buildings or structures of any type or description.

SECTION 2.3. POWER TO ACQUIRE, HOLD AND DISPOSE OF SECURITIES.

The Trustees shall have power, for such consideration and on such terms and
conditions as they may deem proper, through the issuance of shares of beneficial
interest in the Trust property, through the issuance of notes, debentures,
bonds, or other obligations or securities of the Trust, for cash, or otherwise
to acquire, and to hold, sell, exchange, pledge, collect and pay, stocks, bonds,
notes, certificates of indebtedness, debentures, mortgages (first or otherwise),
bank acceptances, drafts, certificates of interest, securities, obligations, and
in general any property or rights (legal or equitable) owned, held, created, or
issued by or representing an interest in any corporation, business trust
(including the business trust created by these presents), trust, partnership, or
other organization whether domestic or foreign, any individual, the United
States of America or any of the several states or territories or any political
subdivisions or agencies thereof, or foreign governments or political
subdivisions thereof.

SECTION 2.4. NAME IN WHICH TITLE HELD.

The Trustees shall have power to cause legal title to (or evidences of title to)
any property of this Trust to be held in the name of the Trust, of one or more
of the Trustees or of any other person, on such terms, in such manner, and with
such powers as the Trustees hereunder may determine and without disclosure that
the Trustees are interested therein).

SECTION 2.5. POWER TO BORROW, MORTGAGE AND PLEDGE.

The Trustees shall have power to borrow money for the purposes of this Trust, to
give notes, debentures, bonds, and other negotiable or nonnegotiable instruments
of this Trust therefor, to enter into other obligations on behalf of the Trust,
and to mortgage and pledge the real and personal property of this Trust or any
part thereof to secure any of the foregoing.

SECTION 2.6. POWER TO LEND AND INVEST.

The Trustees shall have power to lend money (other than to Beneficiaries,
officers, employees, or Trustees of the Trust) and to invest and reinvest any
funds of the Trust as they shall deem wise; and

                                       3
   9


to create a reserve fund or reserve funds for such purposes as the Trustees deem
advisable and invest or reinvest the same in such manner as they may deem best.

SECTION 2.7. POWER TO PAY TAXES.

The Trustees shall have power to pay all taxes or assessments, of whatever kind
or nature, imposed upon or against the Trustees individually or collectively in
connection with the Trust property, or upon or against the Trust property or any
part thereof; and for any of the foregoing purposes to make such returns and do
all such other acts and things as may be deemed by the Trustees as necessary or
desirable.

SECTION 2.8. POWER TO TRANSFER TRUST TO CORPORATION.

The Trustees, with the approval of the holders of a majority of the shares then
outstanding, shall have power to cause to be organized or assist in organizing
under the laws of any jurisdiction a corporation or corporations or any other
trust, association, or other organization to take over the Trust property or any
part or parts thereof or to carry on any business in which this Trust shall
directly or indirectly have any interest, and to sell, convey, and transfer the
Trust property or any part or parts thereof to any such corporation, trust,
association, or organization in exchange for the shares or securities thereof or
otherwise, and to lend money to, subscribe for the shares or securities of, and
enter into any contracts with any such corporation, trust, association or
organization, or any corporation, trust, partnership, association, or
organization in which this Trust holds or is about to acquire shares or any
other interest.

Provided, however, that no transfer of substantially all of the Trust property
shall be made to any corporation, trust, association, or other organization if
the Federal Income Tax benefits equivalent to those available under Sections 856
to 858 of the Internal Revenue Code to "real estate investment trust" which
receive and distribute the income from such property would not be available to
such transferee.

SECTION 2.9. POWER AS TO SECURITIES.

The Trustees shall have power to exercise all the rights, powers, and privileges
appertaining to the ownership of all or any securities forming part of the Trust
property to the same extent that an individual might, and, without limiting the
generality of the foregoing, to vote, or give any consent, request, or notice,
or waive any notice, either in person or by proxy or power of attorney, with or
without power of substitution, to one or more persons, which proxies and powers
of attorney may be for meetings or action generally or for any particular
meetings or action, and may include the exercise of discretionary powers.

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SECTION 2.10. POWER TO DELEGATE.

Except as otherwise provided herein, the Trustees shall have power to delegate
from time to time to such one or more of their number, or to such other person
or persons as the Trustees may deem appropriate, the doing of such things and
the execution of such deeds or other instruments either in the names of all the
Trustees or as the Trust's agents, officers, employees, attorneys or
representatives, as the Trustees may from time to time deem expedient.

SECTION 2.11. GENERAL POWER TO ENFORCE AND COLLECT SECURITIES.

The Trustees shall have power to collect, sue for, receive and receipt for all
sums of money coming due to this Trust, to consent to the extension of the time
for payment of, to waive defaults in respect of, or to consent to the renewal of
any bonds or other securities or obligations, and to engage or intervene in,
prosecute, defend, compound, compromise, abandon or adjust, by arbitration or
otherwise, any actions, suits, proceedings, disputes, claims, demands, or things
relating to the Trust property; to be parties to reorganizations and to transfer
to and deposit with any corporation, committee, voting trustees, or other
persons, any stocks, shares, or bonds, or other securities or obligations of any
corporation, trust, association, or other organization, the securities of which
form a part of the Trust property, for the purposes of any reorganization of any
such corporation, trust, association, or other organization, or otherwise to
participate in any arrangement for enforcing or protecting the interests of the
Trustees as the owners or holders of such stocks, shares, bonds, or other
securities or obligations and to pay any assessment levied in connection with
such reorganization or arrangements; and to give time with or without security
for the payment or delivery of any debts or property and to execute and enter
into releases, agreements, and other instruments; and to pay or satisfy any
debts or claims upon evidence that the Trustees think sufficient.

SECTION 2.12. POWER TO INCUR EXPENSES, APPOINT AND EMPLOY OFFICERS AND AGENTS.

The Trustees shall have power to incur and pay from the Trust property, or
reimburse other for payments made in connection with, any charges or expenses
which, in the opinion of the Trustees, are necessary or incidental to, or proper
for the organizing or financing of the Trust or for the carrying out of any of
the purposes of the Trust without regard to whether such charges or expenses are
for services rendered before or after the execution of this Declaration and
without regard to any interest of any Trustee in such payment; to employ such
clerical assistance as they deem necessary to the transaction of the business of
the Trust; to appoint, engage, or employ officers and other persons, firms or
corporations, including consultants, accountants, technical, financial, real
estate or investment advisers or managers, attorneys, real estate agents or
brokers, corporate fiduciaries, depositories, transfer agents for the transfer
of shares in the Trust, registrars, underwriters, investment bankers, or others
for the sale of shares or securities of, or financing of, the Trust; and to fix
their titles, duties, periods of employment and compensation. The same persons
may be employed in multiple capacities and may receive compensation from the
Trust in as many capacities as they may be engaged or employed by the Trust, and
the Trustees, or any of them, may be the persons, or be interested in the
persons, so employed.

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SECTION 2.13. POWER TO ENDORSE AND GUARANTEE.

The Trustees shall have power to endorse or guarantee the payment of any notes
or other obligations of any person; to make contracts of guaranty or suretyship,
or enter into other obligations therefor; and to mortgage and pledge the real
and personal property of the Trust or any part thereof to secure any or all of
such obligations provided that no such endorsement, guaranty, or suretyship
shall relate to the individual obligation of any officer, employee or Trustee of
the Trust.

SECTION 2.14. POWER AS TO BANK DEPOSITS.

The Trustees shall have power to deposit any moneys or securities included in
the Trust property with any one or more banks, trust companies, or other banking
institutions deemed by the Trustees to be responsible, without regard to whether
such accounts will earn interest, such moneys or securities to be subject to
withdrawal on notice or upon demand and in such manner as the Trustees may
determine, and the Trustees shall have no responsibility for any loss which may
occur by reason of the failure of the person with whom the moneys or securities
have been deposited properly to account for the moneys or securities so
deposited.

SECTION 2.15. POWER TO DETERMINE CAPITAL AND INCOME.

The Trustees shall have power to determine conclusively whether any monies,
securities, or other properties of the Trust are for the purposes of the Trust
to be considered as capital or income and in what manner any expenses or
disbursements are to be borne as between capital and income whether or not in
the absence of the provision such moneys, securities, or other properties would
be regarded as capital or as income and whether or not in the absence of this
provision such expense or disbursement would ordinarily be charged to capital or
to income.

SECTION 2.16. POWER TO VALUE TRUST PROPERTY AND KEEP BOOKS.

The Trustees shall have power from time to time to determine conclusively the
value of, and to revalue, any of the real estate, securities, or other
properties of this Trust and any services, securities, property or other
consideration hereafter to be acquired by this Trust in accordance with such
appraisals or other information as they deem satisfactory, and in accordance
with methods of valuation consistently applied; and to keep the books of the
Trust and render reports to the Beneficiaries of the Trust on the basis of the
figures so adopted.

SECTION 2.17. POWER TO SOLICIT PROXIES ETC.

The Trustees shall have power to solicit proxies of the Beneficiaries, to adopt
and use a seal, and to determine the fiscal year of the Trust and the method or
form in which its accounts shall be kept and to change from time to time the
fiscal year or method or form of accounts.


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ARTICLE III
LIMITATIONS OF LIABILITY OF BENEFICIARIES, TRUSTEES AND OTHERS
- --------------------------------------------------------------

SECTION 3.1. NO PERSONAL LIABILITY OF BENEFICIARIES.

No Beneficiary of this Trust shall be held to any personal liability whatsoever,
in tort, contract or otherwise, in connection with Trust property or the affairs
of this Trust, nor shall any Beneficiary be liable to assessment in connection
therewith. The Trustees shall have no power to bind the Beneficiaries
personally, and all persons shall look solely to the Trust property for
satisfaction of claims of any nature arising in connection with Trust property
or the affairs of this Trust, whether rounded upon any debt, demand, judgment,
decree or obligation of any nature whatsoever against or incurred by the Trust,
or by the Trustees, or by any officer, employee, or agent thereof.

The Trustees shall maintain such insurance against possible liability on the
part of the Trust and on the part of the Beneficiaries and any officers or
Trustees of the Trust in the course of trust business as the Trustees in their
sole discretion deem to be appropriate to protect the Trust property, the
Beneficiaries and the officer or Trustees of the trust.

In every written order, contract, bond, note, mortgage, instrument or obligation
given or executed by the Trustees or with their authority, the Trustees shall
cause to be inserted a provision that the Beneficiaries shall not be personally
liable and that the other party shall look solely to the property of the Trust
for the payment of any claim thereunder. The omission, however, of such
provision from any such document or instrument shall not affect the validity
thereof or render the Beneficiaries personally liable thereon, nor shall the
Trustees or any officer, employee or agent of the Trust be liable for such
omission, nor shall such omission in any way affect any right of the Trustees or
Beneficiaries to indemnification from the Trust property.

SECTION 3.2. TRUSTEE'S LIABILITY OTHER THAN TO THE TRUST OR BENEFICIARY.

No Trustee, officer, employee or agent of this Trust shall be held to any
personal liability whatsoever, in tort, contract or otherwise, to others than
the Trust or the Beneficiaries in connection with Trust property or the affairs
of this Trust; and all such persons shall look solely to the Trust property for
satisfaction of claims of any nature arising in connection with Trust property
or the affairs of this Trust. If the Trustees, as Trustees, are made parties to
any suit or proceedings to enforce any such obligation or liability, they shall
not on account thereof be held to any personal liability.

SECTION 3.3. TRUSTEE'S LIABILITY TO TRUST AND BENEFICIARIES - INDEMNIFICATION
AND EXPENSE - BOND AND SECURITY.

No Trustee, officer, employee or agent of this Trust shall be personally liable
for any act or omission of any other Trustee (including without limitation the
failure to compel in any way any former or acting or future Trustee to redress
any breach of trust), officer, employee or agent. Except for such

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of his own acts as constitute bad faith, willful misfeasance, or willful
disregard of his duties, and except as otherwise prohibited by law, each
Trustee, officer, employee or agent of the Trust shall be indemnified and held
harmless from and against, and reimbursed for any and all loss, cost, liability,
obligation and amounts paid in settlement incurred in connection with any
threatened, pending or completed action, suit, arbitration or proceeding whether
civil, criminal, administrative or investigative (including, without limitation,
any action brought by or in the right of the Trust), arising out of or in
connection with Trust property or the affairs of the Trust or which he may
suffer because he is or was or consented to become a Trustee, officer, employee
or agent of the Trust or is or was serving at the request of the Trust as a
trustee, director, officer, employee or agent of another corporation or
enterprise.

The rights accruing to any person under these provisions shall not exclude any
other right to which he may be lawfully entitled, nor shall anything contained
herein restrict the right of this Trust to indemnify or reimburse such Trustee,
officer, employee or agent in any proper case even though not specifically
provided for herein, nor shall anything contained herein restrict such rights of
a Trustee to contribution as may be available under applicable law. The Trustees
may make advance payments in connection with indemnification under this section
provided that the indemnified Trustee, officer, employee or agent of the Trust
shall have given a written undertaking to repay such amount in the event that it
is ultimately determined that he is not entitled to such indemnification for
such amounts under applicable law, this Declaration of Trust, any agreement
entered into pursuant to this Section 3.3 or otherwise.

In order to carry out the intent and purposes of this section, and to assure the
Trust's performance of its obligations hereunder, the Trust shall have the power
to enter into agreements with Trustees, officers, employees or agents designated
by the Trustees, without specific approval thereof by the shareholders of this
Trust. The terms of any such agreements need not be identical to the terms of
any other such agreement and any such agreement which had been entered into may
subsequently be amended or changed by mutual agreement of the parties thereto,
without specific approval thereof by the shareholders of the Trust.

The Trust shall have the power to dedicate the assets of the Trust to establish
arrangements for funding its indemnification obligations under this section,
including but not limited to depositing assets in trust funds, obtaining bank
letters of credit in favor of indemnified persons or entities, establishing
specific reserve accounts and otherwise funding special self-insurance
arrangements for these purposes.

No Trustee shall be obligated to give any bond or surety or other security for
the performance of any of his duties.


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SECTION 3.4. NO IMPLIED COVENANTS OR OBLIGATIONS TO BE READ INTO THIS
INSTRUMENT; TRUSTEES' RIGHT TO RELY ON INVESTMENT ADVISERS AND COUNSEL AND
ACCOUNTANTS.

GENERAL RIGHT TO RELY.

Without in any respect relieving the Trustees of this Trust from liability for
bad faith, willful misfeasance, negligence, or willful disregard of their
duties, it is expressly agreed that

(1) The duties and obligations of the Trustees shall be determined solely by the
express provisions of this instrument and the Trustees shall not be liable
except for the performance of such duties and obligations as are specifically
set forth in this instrument and no implied duties or obligations shall be read
into this instrument, and

(2) The Trustees are authorized to rely conclusively, as to the truth of the
statements and the correctness of the opinions and facts expressed therein, upon
any opinion or statements furnished to the trustees by the Trust's investment
advisers. The Trustees of this trust shall not incur any personal liability
whatsoever for their reliance on such opinions and statements and/or any action
or lack of action based on such opinions or statements.

(3) The Trustees may consult with counsel and independent public accountants
selected by the Trustees and the opinion of such counsel or independent public
accountants shall be full and complete authorization and protection in respect
of any action taken or suffered by the Trustees in accordance with or based on
the opinion of such counsel or independent public accountants.

(4) The Trustees shall incur no personal liability whatsoever in acting upon any
demand, notice, request, opinion, consent, waiver, certificate, document,
statement of facts or instrument believed by them to be genuine or to have been
signed or presented by the proper persons or properly or duly made.

ARTICLE IV
SHARES OF BENEFICIAL INTEREST
- -----------------------------

SECTION 4.1. SHARES $1 PAR VALUE; NON-ASSESSABLE AND NOT LIMITED IN NUMBER.

Beneficial interest in the Trust property shall be divided into and represented
by shares issued to Beneficiaries hereunder which shares shall be of $1 par
value. All such shares shall be non-assessable and non-redeemable and shall be
of the same class with equal voting, distribution, liquidation and other rights.
There shall be no limit on the number of shares which the Trust is authorized to
issue. The Trustees shall initially issue 1,060,000 shares for such
consideration, not less than par value, and on such terms as may be determined
by the persons designated in this Declaration as original Trustees. Certificates
for the initial shares shall be in the form provided in the By-Laws and shall be
signed on behalf of the Trust by the facsimile signature of the two original
Trustees and shall be countersigned by the Transfer Agent and Registrar. The
Transfer Agent for

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the shares shall be The Union Commerce Bank, of Cleveland, Ohio, and the
Registrar shall be The Cleveland Trust Company, Cleveland, Ohio, or such other
persons as may be appointed by the Trustees.

SECTION 4.2. SHARES CERTIFICATES.

Every Beneficiary shall be entitled to receive a transferable certificate, in
such form as the Trustees shall from time to time approve, specifying the number
of shares of beneficial interest in the Trust property held by him. The
certificates in the form so approved shall be treated as negotiable, and title
thereto and to the shares represented thereby shall be transferred by delivery
thereof endorsed either in blank or to a specified person by the person
appearing by the certificate to be the owner of the shares represented thereby
or by delivery of the certificate and of a separate document containing either a
written assignment of the certificate or a power of attorney to sell, assign or
transfer the certificate or the shares represented thereby, which separate
document is signed by the person appearing by the certificate to be the owner of
the shares represented thereby, and which assignment or power of attorney is
either in blank or to a specified person. Unless otherwise determined by the
Trustees, such certificates shall be signed, manually or by facsimile, by one or
more of the Trustees or officers of this Trust designated for that purpose from
time to time by the Trustees by instrument in writing filed with the transfer
agent and registrar, if any, and shall be countersigned by a transfer agent, and
registered by a registrar, if any. mere shall be filed with each transfer agent
and registrar, if any, a certified copy of the form of certificate so approved
by the Trustees, and such form shall continue to be used unless and until the
Trustees approve some other form. In case any one or more officers or Trustees
of this Trust who shall have signed certificates shall cease to be such Trustees
or officers before the certificates so signed shall have been actually issued,
such certificates may nevertheless be issued with the same effect as though the
persons who signed such certificates had not ceased to be such officers or
Trustees of this Trust. The Trustees may in their discretion authorize
certificates to be signed or authenticated by the facsimile signature of the
Trustees or officers who are authorized to sign such certificates; provided that
any certificate signed or authenticated by the facsimile signature of an officer
or Trustee shall not be valid unless countersigned by a transfer agent and
registered by a registrar, if any.

SECTION 4.3. ISSUE OF SHARES.

The Trustees in their discretion may from time to time without vote of the
Beneficiaries issue shares of this Trust, in addition to the then issued and
outstanding shares and shares, if any, held in the treasury, to such party or
parties and for such property or consideration, at such time or times, and on
such terms as the Trustees may deem best, and may in such manner acquire other
assets (real, personal, or mixed) and businesses, and no prior offering thereof
to any Beneficiaries need be made.


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SECTION 4.4. TRUSTEES RIGHT TO OWN SHARES.

A Trustee may acquire, hold or dispose of shares in the Trust for his individual
account or the account of another and may exercise all rights of a Beneficiary
to the same extent as though he were not Trustee.

SECTION 4.5. INDEMNIFICATION OF UNDERWRITERS.

Without in any way limiting the generality of the other applicable provisions of
this Declaration, it is expressly understood that the Trustees shall have power
in connection with the sale of shares or securities of the Trust, to indemnify
and save harmless, or to obtain insurance to indemnify and save harmless, any
underwriter, dealer or other participant in the purchase or distribution of
securities of the Trust (including persons in whom a Trustee or officer has an
interest), in respect of such matters, in such amounts and for such periods of
time as the Trustees shall, in their sole discretion, determine to be necessary
or desirable.

SECTION 4.6. CHANGE OF NUMBER OF ISSUED SHARES OF BENEFICIAL INTEREST.

(a) The Trustees are hereby empowered, from time to time and without action of
the Beneficiaries, to change the then issued shares of beneficial interest ("Old
Shares") into a lesser number (a "Reverse Split") of shares of beneficial
interest ("New Shares"). In connection therewith, in lieu of a fractional New
Share, each holder of an Old Share who otherwise would be entitled to receive a
fractional New Share will be entitled to receive cash in an amount equal to the
market value of each Old Share that would have been converted into a fraction of
a New Share but for this sentence, upon surrender of the certificate for such
Old Share. For this purpose, the market value of each Old Share shall be the
unweighted average of the closing price of a common share of beneficial interest
for each of the ten business days ending on the date immediately preceding the
date on which the Reverse Split becomes effective. The Trustees are hereby
empowered to adopt rules and regulations concerning the surrender of
certificates with respect to Old Shares, issuance of certificates with respect
to the New Shares and payment for fractional shares resulting from any Reverse
Split that the Trustees may, from time to time, authorize.

(b) The Trustees are hereby empowered, from time to time and without action of
the Beneficiaries, to change the Old Shares into a greater number (a "Forward
Split") of shares of beneficial interest ("Forward New Shares"). In connection
therewith, the Trustees are hereby empowered to adopt rules and regulations
concerning the surrender of certificates with respect to Old Shares, issuance of
certificates with respect to the Forward New Shares and payment for fractional
shares resulting from any Forward Split that the Trustees may, from time to
time, authorize.

(c) In connection with the implementation of a specific Reverse Split or Forward
Split, the Trustees may, but shall not be required to, change the par value per
Share.


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ARTICLE V
RECORD AND TRANSFER OF SHARES
- -----------------------------

SECTION 5.1. REGISTER OF SHARES - RECORD OWNERS.

A register shall be kept by or on behalf of the Trustees, under the direction of
the Trustees, which shall contain the names and addresses of the Beneficiaries
and the number of shares held by them respectively and the numbers of the
certificates representing the same and a record of all transfers thereof. Only
Beneficiaries whose certificates are so recorded shall be entitled to vote or to
receive dividends or otherwise to exercise or enjoy the rights of Beneficiaries.
No Beneficiary shall be entitled to receive payment of any dividend, nor to have
notice given to him as herein provided, until he has given his address to a
transfer agent or such other officer or agent of the Trustees as shall keep the
said register for entry thereon. The persons in whose names the shares are
registered pursuant to this Section 5.1 shall be deemed the absolute owners
thereof, and, until a transfer is effected on the books of the Trust, the
Trustees shall not be affected by any notice, actual or constructive, of any
transfer and the Trustees may treat the persons in whose names shares stand of
record as the absolute owners thereof for all purposes.

SECTION 5.2. TRANSFER AGENTS AND REGISTRARS.

The Trustees shall have power to employ in any city a transfer agent or transfer
agents, and if they so determine a registrar or registrars. The transfer agent
or transfer agents may keep the register of the Trust and record therein the
original issues and transfers, if any, of the said shares and countersign
certificates of shares issued to the persons entitled to the same.

SECTION 5.3. DEPOSIT OF CERTIFICATES WITH TRANSFER AGENTS.

Signed certificates for shares in blank may be deposited with any transfer agent
of this Trust, to be used by the transfer agent in accordance with authority
conferred upon it as occasion may require, and in so doing the signers of such
certificates shall not be responsible for any loss resulting therefrom.

SECTION 5.4. TRANSFER ON RECORDS OF TRUST.

Shares shall be transferable on the records of the Trust (other than by
operation of law) only by the record holder thereof or by his agent hereunto
duly authorized in writing, upon delivery to the Trustees or a transfer agent of
this Trust of the certificate or certificates therefor, properly endorsed or
accompanied by duly executed instrument or instruments of transfer, together
with such evidence of the genuineness of each such endorsement, execution and
authorization and of other matters as may reasonably be required. Upon such
delivery the transfer shall be recorded on the register of the Trust and a new
certificate for the shares so transferred shall be issued to the transferee, and
in case of a transfer of only a part of the shares represented by any
certificate a new certificate for the residue thereof shall be issued to the
transferor. But until such record is made, the Beneficiary of record

                                       12

   18



shall be deemed to be the holder of such shares for all purposes hereof, and
neither the Trustees nor any transfer agent or registrar nor any officer or
agent of this Trust shall be affected by any notice of the proposed transfer.

SECTION 5.5. TRANSFER BY OPERATION OF LAW.

Any person becoming entitled to any shares in consequence of the death,
bankruptcy or insolvency of any Beneficiary, or otherwise by operation of law,
shall be recorded as the holder of the said shares and receive a new certificate
for the same upon production of the proper evidence thereof and delivery of the
existing certificate to the Trustees or a transfer agent of this Trust. But
until such record is made, the Beneficiary of record shall be deemed to be the
holder of such shares for all purposes hereof and neither the Trustees nor any
transfer agent or registrar nor any officer or agent of this Trust shall be
affected by any notice of such death, bankruptcy, or insolvency.

SECTION 5.6. JOINT OWNERS OF SHARES.

The Trustees may treat two or more persons holding any share as joint tenants of
the entire interest therein unless their ownership is expressly otherwise
recorded on the register of the Trust, but no entry shall be made in the
register or in any certificate that any person is in any other manner entitled
to any future, limited or contingent interest in any share; provided, however,
that any person recorded as a holder of any share may, subject to the provisions
hereinafter contained, be described in the register or in any certificate as a
fiduciary of any kind and any customary words may be added to the description of
the holder to identify the nature of such fiduciary relationship.

SECTION 5.7. DUTY OF TRUSTEES IN SHARE TRANSFERS.

The Trustees shall not, nor shall the Beneficiaries, or any officer, transfer
agent or other agent of this Trust or of the Trustees, be bound to see the
execution of any trust, express, implied or constructive, or of any charge,
pledge, or equity to which any of the shares in the Trust or any interests
therein are subject, or to ascertain or inquire whether any sale or transfer of
any such shares or interest therein by any Beneficiary or his personal
representatives is authorized by such trust, charge, pledge, or equity, or to
recognize any person as having any interest therein except for the person
recorded as such Beneficiary. The receipt of the person in whose name any share
is recorded, or, if such share is recorded in the name of more than one person,
the receipt of any such persons shall be a sufficient discharge for all
dividends and other money and for all shares, bonds, obligations and other
property payable, issuable, or deliverable in respect of such shares and from
all liability to see to the application thereof.

SECTION 5.8. LOST CERTIFICATES.

In case of the loss, mutilation or destruction of any certificate for shares
hereunder, the Trustees may issue or cause to be issued a new certificate on
such terms as they may see fit.


                                       13

   19

SECTION 5.9. REGULATIONS ON TRANSFER.

The Trustees may from time to time adopt such regulations as they see fit
relating to issue, transfer, recording and registry of shares and the effects
thereof, the issuance or prohibition of fractional shares, the use of scrip in
place of fractional shares and the Trustees, by provision in the By-Laws may
restrict or regulate issuance or transfer of shares in such manner as they, with
advice of counsel, shall deem advisable to prevent disqualification of the Trust
for taxation as a real estate investment trust under the Internal Revenue Code
and the regulations (proposed or in effect) thereunder; provided that the
Trustees shall not amend or waive Article VI, Section 6 of the By-Laws of the
Trust unless either (i) action is taken to so amend or waive by at least 70% of
the Trustees then in office or (ii) action is taken by a majority but less then
70% of such Trustees and such action is approved by the holders of at least 70%
of the outstanding shares.

ARTICLE VI
CHARACTERISTICS OF SHARES
- -------------------------

SECTION 6.1. TRUSTEES IN COMPLETE CONTROL.

The ownership of the Trust property of every description and the right to
conduct the affairs of the Trust are vested exclusively in the Trustees, and the
Beneficiaries shall have no legal title to the Trust property, their interest
being equitable only and limited to the beneficial interest conferred by their
shares issued hereunder, and they shall have no right to call for any partition
or division of any property, profits, rights, or interests of the Trust.

SECTION 6.2. TRUST NOT AFFECTED BY DEATH OF BENEFICIARY.

The death of a Beneficiary during the continuance of this Trust shall not
terminate the Trust nor give his or her legal representative a right to an
accounting or to take any action in the courts or otherwise against other
Beneficiaries or the Trustees or the property held hereunder, but shall simply
entitle the legal representatives of the deceased Beneficiary to demand and
receive a new certificate representing shares of beneficial interest in the
Trust in place of the certificate held by the deceased Beneficiary, and upon the
acceptance of which such legal representatives shall succeed to all the rights
of the deceased Beneficiary under the Trust.

SECTION 6.3. SHARES HELD BY TRUST.

Shares issued hereunder and purchased or otherwise acquired by the Trustees for
the account of the Trust shall be canceled.


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ARTICLE VII
MEETINGS OF BENEFICIARIES
- -------------------------

SECTION 7.1. ANNUAL AND SPECIAL MEETINGS CALL.

Annual meetings of the Beneficiaries shall be held at 2:00 P.M. Eastern Standard
Time on the second Tuesday of the fourth month following the end of each fiscal
year at such place as the Trustees may from time to time decide. Special
meetings of the Beneficiaries may be called at any time and place when ordered
by a majority of the Trustees, or upon the written request of the holders of
one-quarter of the outstanding shares, specifying the purpose or purposes for
which such meeting is called. If for any reason the annual meeting of the
Beneficiaries as herein provided for shall be omitted, a special meeting of the
Beneficiaries may subsequently be held in lieu thereof and the business of the
annual meeting may be transacted thereat.

SECTION 7.2. NOTICE OF MEETINGS.

Notice of all annual and special meetings of the Beneficiaries shall be given by
a Trustee or other officer by mail to each Beneficiary at his address as
recorded in the register of the Trust, mailed at least ten days before the
meeting. No business shall be transacted at any special meeting of Beneficiaries
unless notice of such business has been given in the call for the meeting. Any
adjourned meeting may be held as adjourned without further notice. The holders
of shares entitling them to exercise a majority of the voting power of the Trust
present in person or by proxy shall constitute a quorum for any annual or
special meeting of Beneficiaries.

SECTION 7.3. BENEFICIARIES CANNOT BIND TRUSTEES.

Except as provided in Articles VIII, X, and XI, no action taken by the
Beneficiaries at any meeting shall in any way bind the Trustees.

SECTION 7.4. CLOSING TRANSFER BOOKS - RECORD DATE.

For the purpose of determining the Beneficiaries who are entitled to receive
notice of, or to vote at, a meeting of Beneficiaries, or to receive payment of
any dividend or distribution, or to receive or exercise rights of purchase of or
subscription for, or exchange or conversion of, shares or other securities, the
Trustees may from time to time close the transfer books for such period not
exceeding twenty days as the Trustees may determine; or, without closing the
transfer books, the Trustees may fix a record date, which shall not be earlier
than the date on which the record date is fixed and shall not be more than sixty
days preceding the date of the meeting of the Beneficiaries or the date fixed
for the payment of any dividend or distribution, or the date for the receipt or
exercise of rights, as the case may be, as the record date for determination of
the Beneficiaries who are entitled to such notice or to vote at such meeting or
to receive payment of such dividend or distribution or to receive or exercise
such rights, and any Beneficiary who was a Beneficiary at the time so fixed
shall be entitled to such notice or to vote at such meeting or any adjournment
thereof, or to receive such

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dividend or distribution or to receive or exercise such rights even though he
has since that date disposed of his shares, and no Beneficiary becoming such
after such date shall be entitled to such notice, vote, dividend, distribution
or rights.

SECTION 7.5. VOTING.

At any meeting of the Beneficiaries, any holder of shares entitled to vote
thereat may vote in person or by proxy. Only Beneficiaries of record shall be
entitled to vote. When any share is held jointly by several persons, any one of
them may vote at any meeting in person or by proxy in respect of such share, but
if more than one of them shall be present at such meeting in person or by proxy,
and such joint owners or their proxies so present disagree as to any vote to be
cast, no vote shall be received in respect of such share. If any such holder of
a share is a minor and subject to guardianship or is subject to the legal
control of any other person as regards the charge or management of such share,
he may vote by his guardian or such other person appointed or having such
control, and such vote may be given in person or by proxy.

SECTION 7.6. REPORT AT ANNUAL MEETING.

At each annual meeting of the Beneficiaries the Trustees shall make a report
upon the affairs of the Trust and upon its business and operations, together
with a statement of its financial standing as shown by the books of account of
the Trust.

SECTION 7.7. INSPECTION OF RECORDS.

Beneficiaries shall have the right, at reasonable times during business hours
and for proper purposes to inspect the records and books of account of the Trust
and the records of the meetings of the Beneficiaries and Trustees.

ARTICLE VIII
TRUSTEES
- --------

SECTION 8.1. NUMBER OF TRUSTEES.

The number of Trustees shall be not less than three nor more than fifteen, as
from time to time determined at annual or special meetings of the Beneficiaries
by affirmative vote of the holders of a majority of the shares represented and
entitled to vote at such meetings. Trustees shall be divided into three classes,
to be known as Class I, Class II and Class III. The classes shall be nearly
equal in size as possible. In case of any increase or decrease in the number of
Trustees, the additional or remaining Trustees, as the case may be, shall be
distributed among several classes as nearly equally as possible. A decrease in
the number of Trustees shall not shorten the term of any Trustee then in office.


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A Trustee may be any individual (who is a citizen of the United States and not a
minor) or a corporation. Whenever there shall be a vacancy, until such a vacancy
is filled, the continuing or surviving Trustee or Trustees then in office shall
have all the powers granted to the Trustees and discharge all the duties imposed
upon the Trustees by this Declaration. A majority of the Trustees shall not be
affiliated with an adviser of the Trust or any organization affiliated with an
adviser of the Trust. The term "majority of the Trustees" whenever used herein
shall include one Trustee if only one Trustee is at the time in office
regardless of the fixed number of trusteeships.

SECTION 8.2. ELECTION OF TRUSTEES; TERMS OF OFFICE

The term of office for each Trustee shall be three years and the members of one
class of Trustees shall be elected annually to serve for such term; except that,
initially or whenever necessary, a Trustee may be elected for a shorter term in
order to provide for a proper rotation of Trustees. A Trustee shall hold office
until the Annual Meeting of Shareholders coinciding with the termination of the
term of the class of Trustees to which he was elected and until his successor
shall be elected and qualified or until his earlier resignation, removal from
office or death.

At any meeting of the Beneficiaries at which Trustees are to be elected, only
persons nominated as candidates by Beneficiaries entitled to vote at such
meeting shall be eligible for election as Trustees. me election as Trustee of a
person who, at the time of his election, fails to meet the qualifications for
Trustees specified in this Declaration of Trust shall, unless within thirty days
thereafter such person meets such qualifications, be null and void and the
vacancy in the number of Trustees so created may be filled by the Trustees as
provided in Section 8.4 hereof.

At all elections of Trustees the candidates receiving the greatest number of
votes shall be elected.

SECTION 8.3. RESIGNATION AND REMOVAL.

Any Trustee may resign his trust in instrument in writing signed by him and
delivered or mailed to the other Trustees at the principal office of the Trust,
and such resignation shall take effect immediately or at a later date according
to the terms of the instrument. Any Trustee may be removed at any time by
written instrument signed by all the other Trustees specifying the date when
such removal shall become effective; provided, however, that such removal shall
not be effective until approved by affirmative vote of the holders of a majority
of the shares present or represented and entitled to vote at a duly held meeting
of the Beneficiaries call for the purpose.

Any Trustee may also be removed by affirmative vote for his removal cast by a
majority of Trustees then in office if such Trustee does not meet the
qualifications for Trustees specified in this Declaration of Trust for more than
thirty (30) consecutive days during his term of office.


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SECTION 8.4. FILLING VACANCY.

In case a vacancy in the number of Trustees shall occur, the remaining Trustees,
though less than a majority of the whole authorized number of Trustees, may, by
a vote of a majority of their number, fill any vacancy in the Board of Trustees
for the unexpired term of the Trustee whose office has become vacant. No
appointment or election of a Trustee, other than reelection, shall become
effective until the person so appointed or elected shall have signed this
Declaration and an instrument bearing the acceptance of the person so appointed
shall have been acknowledged by one or more of the existing Trustees and
recorded in the manner provided in Section 11.5 hereof. Hereupon the Trust
property shall vest in the new Trustee jointly with the continuing Trustee or
Trustees without further act or conveyance.

SECTION 8.5. TRUST CONTINUES.

The death, resignation, incompetency or removal of any one or more of the
Trustees shall not operate to annul the Trust or to revoke any existing agency
created pursuant to the terms of this Declaration or invalidate any action
theretofore taken by the Trustees.

SECTION 8.6. TRUSTEES' MEETINGS AND ACTION.

The Trustees may act with or without a meeting. Meetings of the Trustees shall
be called and held as provided in the By-Laws. Notice of any meetings may be
waived by any Trustee either before or after such meeting. The concurrence of
all the Trustees shall not be necessary for the validity of any action taken by
them, but a decision expressed in a vote passed at a meeting by a majority of
the Trustees present, or expressed in writing signed by a majority of the
Trustees without a meeting, shall constitute the action of the Trustees and have
the same effect as if assented to by all. At any meeting a majority of the
Trustees shall constitute a quorum. Any deed, mortgage, lease or other
instrument or writing executed by any Trustee or officer of the Trust shall be
valid and binding upon the Trustees and upon the Trust if such Trustee or
officer acted under authority granted by the Trustees by a vote or writing
passed or signed as above provided.

In the event that any Trustee or Trustees shall notify the other Trustees in
writing that they do not wish to participate in the approval or disapproval of
any particular matter presented to the Trustees, a majority of the other
Trustees shall have authority to act for the Trust with respect to such matter.

SECTION 8.7. TRUSTEES' COMPENSATION.

The Trustees shall receive reasonable compensation for their services as
Trustees and officers hereunder as fixed by the Trustees.


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SECTION 8.8. BY-LAWS OF TRUST.

The By-Laws shall be as set forth in Exhibit A attached to this Declaration. The
Trustees may from time to time amend or repeal said By-Laws which may, among
other things, provide for the conduct of their business, define the duties of
the officers, agents, employees and representatives and provide for their
appointment, number and qualification, fix the time, place and notice of
meetings of the Trustees, provide for the form of certificates representing
shares of beneficial interest and regulate or restrict issuance or transfer of
shares as provided in Section 5.9 of this Declaration.

SECTION 8.9. EXECUTIVE COMMITTEE.

The Trustees, acting unanimously, may appoint from among their own number an
executive committee of two or more persons to whom they, acting unanimously, may
delegate such of the powers herein given to the Trustees as they may deem
expedient, except as herein otherwise provided.

SECTION 8.10. TRUSTEE'S OTHER BUSINESS ACTIVITIES.

Each Trustee may, from time to time, for his own account engage in, or directly
or indirectly be interested in, business activities of the types conducted or to
be conducted by the Trust; provided however, that any person who owns, directly
or indirectly, more than one percent 1% of the securities of, or acts as an
officer, trustee, director, employee of or consultant for, or is otherwise
affiliated with or controlled by, any real estate investment trust, or any other
real estate company (a) that competes with the Trust for investments, (b) that
is a major supplier of services to the Trust, or (c) in which the Trust has a
significant financial interest, or any person who is an agent of, or is
otherwise affiliated with or controlled by any such person, shall not be
qualified to serve as a Trustee.

ARTICLE IX
DISTRIBUTIONS TO BENEFICIARIES
- ------------------------------

SECTION 9.1. TRUSTEES MAY MAKE DISTRIBUTIONS.

The Trustees may from time to time distribute ratably among the Beneficiaries
such proportion of the cash available from operations of the Trust, net profits,
surplus (including paid-in surplus) or capital or assets of the Trust as they
may deem proper, and such distribution may be made in cash or in property
(including any type of obligation of the Trust or any assets thereof); and the
Trustees may distribute ratably among the Beneficiaries additional shares
issuable hereunder in such manner and on such terms as the Trustees may deem
proper. In making such distributions the Trustees shall be guided by the
requirements for qualification of the Trust as a "real estate investment trust"
under provisions of the Internal Revenue Code, as now enacted or as may
hereafter be amended from time to time, but nevertheless the amount of all
distributions and the time of declaration and payment thereof shall be wholly in
the discretion of the Trustees, as shall also the determination of what
constitutes cash available from operations of the Trust, net profits or surplus.
Such distributions may


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be among the Beneficiaries of record at the time of declaring a distribution or
among the Beneficiaries of record at such other date (not more than thirty days
prior to payment of such distribution) as the Trustees shall determine.

SECTION 9.2. RETAINED AMOUNTS.

The Trustees may always retain from the net profits or cash receipts such amount
as they may deem necessary to pay the debts or expenses of the Trust or to meet
obligations of the Trust, or as they may deem desirable to use in the conduct of
its affairs or to retain for future requirements or extensions of the business.

SECTION 9.3. INFORMATION TO BENEFICIARIES.

The Trust shall furnish to the Beneficiaries from time to time such statements,
certificates or other information as is then required by the law, or regulation
thereunder, applicable to a "real estate investment trust" qualifying as such
under the Internal Revenue Code.

ARTICLE X
AMENDMENT OF TRUST
- ------------------

SECTION 10.1. AMENDMENT.

At any time when no shares in the Trust are outstanding, the Trustees may amend
any provisions of this Declaration. A certificate signed by a majority of the
Trustees, setting forth such amendment and reciting that it was duly adopted by
the Trustees, or a copy of the Declaration as amended executed by a majority of
the Trustees, shall be recorded as provided in Section 11.5 hereof and lodged
among the records of the Trust and shall be conclusive evidence of such
amendment.

At any time when shares in the Trust are outstanding, the Trustees may amend the
Declaration in any particular, except with respect to the liability of
beneficiaries, with the approval of the owners of a majority of all the shares
in the Trust, in writing or by vote at a meeting of the Beneficiaries, provided
that the notice of the meeting shall have set forth the nature of the proposed
amendment. A certificate signed by a majority of the Trustees setting forth an
amendment and reciting that it was duly adopted by the Trustees and approved as
aforesaid, or a copy of the Declaration as amended executed by a majority of the
Trustees, shall be recorded as provided in Section 11.5 hereof and lodged among
the records of the Trust and shall be conclusive evidence of such amendment.

Notwithstanding the foregoing (and notwithstanding the fact that some lesser
percentage may be permitted by Law), the approval of the owners of at least 70%
of the outstanding shares of the Trust shall be required to amend or repeal
Sections 5.9, 8.1, 8.2, 8.4, 11.19, 12.2 and this Section 10.1 of this
Declaration unless at least 70% of the Trustees have voted to amend or repeal
such sections, in which event the approval of the owners of only a majority of
the outstanding shares shall be required.


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ARTICLE XI
MISCELLANEOUS
- -------------

SECTION 11.1. FAILURE TO QUALIFY AS REAL ESTATE INVESTMENT TRUST.

The failure of the Trust to qualify as a "real estate investment trust" under
the Internal Revenue Code shall not render the Trustees liable to the
Beneficiaries or to any other person or in any manner operate to annul the
Trust.

SECTION 11.2. LAWS OF OHIO GOVERN.

This instrument is executed by the Trustees and delivered in the State of Ohio
and with reference to the laws thereof, and the rights of all parties and the
construction and effect of every provision hereof shall be subject to and
construed according to the laws of said State. The Trust will not, in dealing
with any Trustee, investment adviser, officer or employee of the Trust enter
into any transactions contrary to the obligations imposed upon trustees by
courts of equity of the State of Ohio.

SECTION 11.3. COUNTERPARTS.

This Declaration may be simultaneously executed in several counterparts, each of
which so executed shall be deemed to be an original, and such counterparts,
together, shall constitute but one and the same instrument, which shall be
sufficiently evidenced by any such original counterpart.

SECTION 11.4. CERTIFICATIONS.

Any certificate signed by a person (who according to the records of the Trust
appears to be a Trustee hereunder) concerning the number or identity of Trustees
or Beneficiaries, showing that the execution of any instrument or writing has
been duly authorized, showing the form of any vote passed at a meeting of
Trustees or Beneficiaries, the fact that the number of Trustees or Beneficiaries
present at any meeting or executing any written instrument satisfied the
requirements of this Declaration of Trust, the form of any by-laws adopted by or
the identity of any officer appointed by the Trustees or the existence or
non-existence of any fact or facts which in any manner relate to the affairs of
the Trust shall be conclusive evidence as to the matters so certified in favor
of any person dealing with the Trustees, or any one or more of them, and the
successors of such person.

SECTION 11.5. RECORDING.

This Declaration of Trust, any amendment thereof, evidence of any change of
Trustees and of the By-Laws and amendments thereto, and evidence of
effectiveness of Section 11.10 shall, and any other matters relating to the
Trust or its officers, Trustees or powers may be recorded with the Trust's
Transfer Agent or such other bank or trust company as the Trustees shall from
time to time designate. Anyone dealing with the Trust may rely conclusively upon
such recording and

                                       21

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instruments so recorded, and on any certificate of the kind described in Section
11.4 hereof which is signed by a person who according to such recording appears
to be a Trustee hereunder.

SECTION 11.6. ANNUAL FINANCIAL STATEMENTS.

The Trustees shall cause to be prepared for each fiscal year of the Trust an
annual report consisting of a detailed statement of the activities of the Trust
during each such fiscal year and a balance sheet and a statement of income and
surplus of the Trust, which financial statement shall contain an opinion thereon
of an independent certified accountant or independent public accountant based on
an examination of the records and books of account of the Trust made in
accordance with generally accepted auditing procedures. A copy of such annual
report shall be delivered to each Beneficiary hereunder within ninety days after
the close of the period covered by the report and prior to the annual meeting of
Beneficiaries for the next fiscal year following the close of such period. A
manually signed copy of the report shall also be filed with the Trustees. In
addition, the Trustees shall cause to be prepared and delivered to Beneficiaries
hereunder interim financial reports, at least quarterly containing a current
balance sheet which may be unaudited.

SECTION 11.7. INFORMATION ON SHARE OWNERSHIP.

Every Beneficiary shall be obligated to furnish to the Trustees upon demand a
written statement disclosing the actual and constructive (as the terms "actual"
and "constructive" are defined for purposes of the "real estate investment
trust" provisions in the Internal Revenue Code and the regulations proposed or
in effect thereunder) ownership of the shares registered in the name of such
Beneficiary. A list of the Beneficiaries failing or refusing to comply in whole
or in part with a demand of the Trustees for such written statement shall be
maintained by the Trustees as part of the records of the Trust. The Trustees may
establish such requirements as to furnishing of information as to actual or
constructive ownership of shares as they may from time to time deem advisable
and may, under provision in the By-Laws, condition the issuance of certificates
and registration of ownership of shares in the name of any person upon the
furnishing of such information and on such information showing that issuance of
the certificate and registration of such person as a Beneficiary will not, in
the opinion of counsel for the Trust, result in the Trust becoming disqualified
for taxation as a real estate investment trust under the Internal Revenue Code.

SECTION 11.8. FISCAL YEAR.

The Trustees may establish a fiscal year and from time to time alter or change
the same.

SECTION 11.9. NOTICES.

Notices delivered or sent by mail to any Beneficiary at his last address of
record as shown by the register of the Trust shall be deemed properly delivered
and be binding upon all parties.

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SECTION 11.10. CONTINGENT POWERS OF BENEFICIARIES.

If, in the opinion of counsel for the Trust delivered to the Trustees, this
Declaration may contain the following provision without causing the
Beneficiaries to be personally liable for the obligations of the Trust and
without impairing the right of the Trust to continue to do business or own
property under the applicable laws in the states in which it is at the time
doing business, and without preventing the Trust from qualifying as a "real
estate investment trust" under the Internal Revenue Code as amended and the
Regulations thereunder, then such provision shall be deemed to be included in
this Declaration and to be controlling over any inconsistent provision. Upon the
delivery of any such opinion of counsel, the Trustees shall cause an instrument
in writing, setting forth such delivery and the effectiveness of this Section
11.10 to be acknowledged by one or more of the Trustees and recorded as provided
in Section 11.5 hereof.

This Declaration may be amended or altered, except as to the exemption from
personal liability of Trustees and Beneficiaries and the prohibition of
assessments upon Beneficiaries, at any meeting of the Beneficiaries called for
the purpose by the affirmative vote of the holders of not less than
three-fourths of the shares entitled to vote at the meeting.

Prior to each annual meeting of the Beneficiaries the Trustees shall request the
opinion of counsel for the Trust whether, under the applicable laws in the
states in which the Trust is then doing business or owns property, this
Declaration of Trust may contain the foregoing provision without causing the
Beneficiaries to be personally liable for the obligations of the Trust, without
impairing the right of the Trust to continue to do business under the laws of
such states, and without preventing the Trust from qualifying as a "real estate
investment trust" under the Internal Revenue Code as amended and the Regulations
thereunder.

SECTION 11.11. INVESTMENT POLICY.

The initial investment of the Trust shall consist of the Union Commerce Building
which shall be subject to a net lease to The Union Commerce Bank on the terms
described in Registration Statement File Number 2-18814, as from time to time
amended, and exhibits thereto filed with the Securities and Exchange Commission.
The Trustees in office are authorized in their sole discretion to determine the
final terms of purchase of said property and lease of the same and to effect
such purchase and lease for the Trust.

After the initial investment, the Trustees shall be guided by the following
investment policy:

Investments by the Trust shall be directed primarily to the acquisition and
holding of income-producing real estate used for industrial, commercial, or
multiple family residential purposes.

Special emphasis is to be given to favorably located properties which may be
subjected to a net lease to a single tenant which has sufficient resources to
give substantial security to its rental commitments under such net lease and
which would itself occupy the premises or would sublet rental space.

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Investments by the Trust may also include properties which offer opportunities
for a higher, but less secure, return. In general, the Trust will not invest in
unimproved real property or in leaseholds on which permanent buildings have not
been completed and will confine its investments in industrial property to those
which can be leased on a long term basis to a financially responsible single
tenant.

The Trust will purchase properties for long term investment and will not engage
in short term sales and purchases unless the nature of particular properties
indicates special reasons for believing that the proceeds of their sale might
better be invested in other properties.

The Trust may engage in mortgage financing of its acquisitions where the same
appears feasible and advantageous, and may pledge the individual properties so
acquired or its other properties under such mortgages. However, the Trust will
not borrow maximum percentages of purchase prices or take any other steps which
would give the Trust securities a high leverage.

The Trust will generally use, as a charge against its income, straight line
depreciation based on its best estimate of the useful life of each property. If
in particular cases the use of accelerated depreciation appears advisable, the
Trust may use that method in particular cases. The Trust policy regarding
depreciation and sales of property may in the future be affected by changes in
the laws and regulations of the United States and its political subdivisions,
particularly those relating to federal income taxes, and such policy may be
adjusted in the light of any such changes.

The Trust will not engage in underwriting securities of other issuers, will not
invest substantially in securities of other issuers for the purpose of
exercising control or in securities of or interests in persons primarily engaged
in real estate activities, will not make loans to other persons, and will not
invest in real estate mortgages; provided, however, that this paragraph shall
not apply to or prevent investment in shares (or transferable certificates of
beneficial interest) in other real estate investment trusts which meet the
requirements of Part II of Subchapter M of Chapter I of Subtitle A of the
Internal Revenue Code, or other securities the holdings of which would not
disqualify the Trust as a real estate investment trust under said Part II.

The Trust may from time to time borrow money on a short term basis in addition
to long term mortgage financing. Ordinarily the Trust will acquire investments
for cash with or without mortgage financing. If it seems advisable, however,
future acquisitions may be financed in whole or in part, by the issuance of
shares or senior securities which may or may not be convertible and may or may
not be accompanied by share purchase warrants. The Trust may also pay for
investments by exchanging properties.

United States Government obligations, Ohio bank accounts, and state or municipal
obligations may be held as a means of providing liquid assets for contingencies
and future investment, but any such investment will be on a temporary basis,
will not be in amounts which would in the opinion of counsel for the Trust
disqualify the Trust for treatment as a "real estate investment trust" under the
Internal Revenue Code and Regulations (proposed or in effect) thereunder, and
will not be of a type

                                       24

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which would in the opinion of counsel for the Trust prevent exemption of the
shares from the Ohio Intangibles Tax.

There is to be no restriction on the portion of the Trust's assets which may be
invested in any particular type of real estate or in any single property.
Generally, investment in assets other than real estate will not at any time
exceed 10% of the Trust's.

The Trust may make investments in any state of the United States and any other
jurisdiction where, in the opinion of counsel for the Trust, the Trust may
legally operate without affecting the limited liability of the shareholders
except in respect to tort claims, contract claims where shareholder liability is
not negated, claims for taxes and certain statutory liabilities.

SECTION 11.12. NOTICES ON DISTRIBUTIONS.

All distributions to beneficiaries shall be accompanied by a written statement
advising of the sources of funds or properties so distributed. In case there is
any doubt as to such source the communication may so state, and, in such event,
a further statement shall be mailed to Beneficiaries not later than sixty (60)
days after the close of the fiscal year of the Trust in which the distribution
was made. Such statements may be based on the figures shown by the books of
account of the Trust.

SECTION 11.13. TRANSACTIONS WITH INTERESTED PARTIES.

No Trustee, officer or adviser of the Trust, or any person affiliated with any
such persons, shall sell any property or assets to the Trust or purchase any
property or assets from the Trust, directly or indirectly, nor shall any such
person receive any commission or any other remuneration, directly or indirectly,
in connection with the purchase or sale of Trust assets, except pursuant to
transactions that are fair and reasonable to the shareholders of the Trust and
that relate to: (a) the acquisition by the Trust of federally insured or
guaranteed mortgages at prices not exceeding the currently quoted prices at
which the Federal National Mortgage Association is purchasing comparable
mortgages; (b) the acquisitions of other mortgages on terms no less favorable
than similar transactions involving unaffiliated parties; or (c) the acquisition
by the Trust of other property at prices not exceeding the fair value thereof as
determined by independent appraisal. All such transactions and all other
transactions in which any such persons have any direct or indirect interest
shall be approved by a majority of the Trustees, including a majority of the
independent Trustees. If the Trust has an adviser, all commissions or
remuneration received by any such persons in connection with any such
transactions shall be deducted from the advisory fee.

SECTION 11.14. ADVISERS.

Subject to the provisions of this Declaration, the Trustees may employ any
person, firm or corporation as adviser. Any advisory contract shall be for a
period not longer than one year. Any such advisory contract shall provide that
it may be terminated at any time, without penalty, by the

                                       25
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Trustees or by the holders of majority of the outstanding shares of beneficial
interest upon not less than 60 days' written notice to the adviser.

SECTION 11.15. LIMITATION ON EXPENSES.

The aggregate annual expenses of every character paid or incurred by the Trust,
excluding interest, taxes, expenses in connection with the issuance of
securities, shareholder relations, acquisition, operation, maintenance,
protection and disposition of Trust properties, but including advisory fees and
mortgage servicing fees and all other expenses, shall not exceed the greater of:
(a) 1-1/2% of the average net assets at cost before deducting depreciation
reserves, less total liabilities, calculated at least quarterly on a basis
consistently applied; or (b) 25% of the net income of the Trust, excluding
provision for depreciation and realized capital gains and losses and
extraordinary items, and before deducting advisory and servicing fees and
expenses, calculated at least quarterly on a basis consistently applied; but in
no event shall aggregate annual expenses exceed 1-1/2% of the total invested
assets of the Trust. If the Trust has an adviser, the adviser shall reimburse
the Trust for the amount by which aggregate annual expenses paid or incurred by
the Trust as defined herein exceed the amounts herein provided.

SECTION 11.16. APPRAISALS.

The consideration paid for real property acquired by the Trust after its initial
investment in the Union Commerce Building shall be based upon the value of the
property to the Trust as determined by the Trustees on the basis of a real
estate appraisal prepared by a qualified, disinterested, independent appraiser.

SECTION 11.17. PROHIBITED INVESTMENTS.

The Trust shall not invest in (a) mortgages, land contracts, unimproved real
property which in the aggregate exceed 5% of its gross assets, as shown on its
books at the time of such investment (b) real property subject to a mortgage
other than an insurance company, bank or institutional lender and then only if,
on the basis of independent appraisal, the unpaid balance of such mortgage does
not exceed 2/3 of the fair market value, (c) securities in any company holding
investments or engaging in activities prohibited by this Declaration for this
Trust, or (d) commodities.

SECTION 11.18. PROHIBITED ACTIVITIES.

The Trust shall not do any of the following: (a) engage in any short sale,
borrow unsecured more than 8% of its net worth or encumber any of its real
property for more than 2/3 of the fair market value of such property as shown by
independent appraisal, (b) engage in trading activities, (c) issue more than one
class of securities or securities redeemable at the option of the holder, except
that the Trust may issue securities evidencing borrowing secured by real estate
not in excess of 2/3 of the value of such security as determined by independent
appraisal, (d) engage in distribution of securities

                                       26
   32


issued by others, or (e)issue warrants, options, or similar evidence of a right
to buy Trust securities other than to all shareholders ratably.

SECTION 11.19. NO POWER TO DISQUALIFY TRUST AS A REAL ESTATE INVESTMENT TRUST.

No Trustee and no Beneficiary shall take any action which would cause the Trust
to abandon its purpose of providing an investment vehicle for numerous
shareholders with small holdings or which would, in the opinion of counsel for
the Trust, furnished prior to such action, prevent the Trust from qualifying or
continuing to qualify as a "real estate investment trust" under the Internal
Revenue Code and the Regulations (proposed or in effect) thereunder unless
either (i) 70% or more of the Trustees then in office have recommended such
action and holders of at least a majority of the outstanding shares have voted
to approve such action or (ii) at least a majority but less than 70% of such
Trustees have recommended such action and holders of 70% or more of the
outstanding shares have voted to approve such action. No Beneficiary shall have
any power to control the Trustees or the affairs of this Trust, or to exercise
any voting or approval powers, if such powers would at the time in the opinion
of counsel for the Trust (a) prevent the Beneficiaries from being free from
personal liability for the obligations of the Trust under any applicable law, or
(b) cause the Trust to be an illegal or invalid organization under the law of
any jurisdiction in which it owns property or does business.

SECTION 11.20. PURPOSE OF ARTICLE AND SECTION HEADINGS.

The Article and Section headings inserted in this Declaration are for
convenience of reference and are not to be taken or affect the meaning,
construction, or effect of any provision hereof.

SECTION 11.21. CONTROLLING EFFECT OF ARTICLE XI.

The provisions of this Article XI shall be controlling in all respects over any
other provisions of this Declaration.

SECTION 11.22. TRUSTEES' POWER TO INCUR INDEBTEDNESS AND OTHER OBLIGATIONS -
LIMITATIONS THEREON.

Notwithstanding anything to the contrary in this Declaration of Trust, the
Trustees may issue, assume, incur or secure Indebtedness or shares or other
securities of any class or classes which may or may not have preferences or
restrictions not applicable to "Shares of Beneficial Interest, $1 Par Value"
subject only to the limitations of clause (b) of this Section 11.22. The terms
of Indebtedness and shares or other securities shall be determined by the
Trustees at or before incurring or issuing the same and may include any terms
deemed advisable by the Trustees including, but not limited to, dividend or
interest rates, dividend restrictions and priorities, conversion rights and
prices, voting rights, redemption rights and prices, maturity dates, provisions
for acceleration of maturity, rights on liquidation, subordination provisions,
sinking fund provisions, remedies on default and other provisions. The
obligations of the Trust under Indebtedness or shares or other securities may be

                                       27

   33

secured in any manner determined by the Trustees. All or part of the properties
of the Trust may be subjected to, or may be acquired subject to, mortgage or
pledge to secure Indebtedness (within the limitations on the same provided in
this Section 11.22) without regard to the extent of the encumbrance in relation
to the value of the individual properties.

The Trustees shall not without the same shareholder approval that would be
required for amendment of this Declaration of Trust, issue, assume or incur
Indebtedness:

(a) if, immediately after issuing, assuming or incurring the same, the
outstanding Indebtedness would exceed 83-1/3% of the value of the assets of the
Trust, which shall be conclusively deemed to be that determined by the Trustees
except that in connection with any issue of bonds or debentures representing a
debt of more than 10% of the book value of the assets of the Trust before
deducting depreciation, the value of the land and buildings of the Trust shall
be as determined by an independent appraiser chosen by the Trustees

(b) unless the existing cash flow of the Trust, or the reasonably projected
future cash flow of the Trust, excluding extraordinary items, is sufficient to
cover the interest on the Indebtedness.

As used in this Section 11.22, "Indebtedness" means all liabilities which would
be included as liabilities in accordance with generally accepted accounting
principles in effect at February 12, 1974, but not including items constituting
"Shareholders' Equity and reserve.

Compliance with the 83-1/3% limitation in this Section 11.22 may be determined
at any time by a national accounting firm designated by the Trustees and such
determination shall be conclusive. In making such determination the accounting
firm may rely upon certificates of the Chairman or Secretary of the Trust or
appraisers or other experts as to factual matters or as to the determination of
fair value of the assets of the Trust by the Trustees and, as to legal matters,
said accounting firm may rely upon the opinion of counsel for the Trust.

SECTION 11.23. TRUSTEES' POWER TO INVEST IN NEW BUILDINGS AND PARTNERSHIPS,
JOINT VENTURES AND UNIMPROVED LAND FOR NEW BUILDINGS.

Notwithstanding anything to the contrary contained in this Declaration of Trust,
the Trustees shall have power to acquire an interest or interests in improved or
unimproved real estate or leaseholds or in partnerships, joint ventures,
corporations or other associations owning improved or unimproved real estate or
leaseholds and having as their principal purpose the development of real estate
into income producing property; provided however, that, (a) the Trustees shall
not have power to make such investment in such unimproved property or in such
partnership, joint venture, corporation, or other association owning unimproved
property, unless such unimproved property is acquired or held for purposes of
development into income producing property within a reasonable period of time or
is acquired or held incidental to income producing property and (b) the Trustees
shall have no power to make such investment in a partnership, joint venture or
similar association unless the Trust shall have received an opinion of counsel
to the effect that the Trust will not be liable for the obligations

                                       28

   34

or liabilities of the partnership, joint venture or similar association and that
the investment will not result in disqualification of the Trust as a real estate
investment trust under the Internal Revenue Code.

In connection with the incurring of indebtedness or issue of securities, and
notwithstanding provisions of Section 10.1, the Trustees, without shareholder
approval, may impose any restrictions which they deem advisable on the powers
granted by Section 11.23 and may make such restrictions part of the Declaration
of Trust.

SECTION 11.24. TRUSTEES' POWER TO INVEST IN REAL ESTATE MORTGAGES AND IN CERTAIN
EVIDENCES OF INDEBTEDNESS.

Notwithstanding anything to the contrary contained in this Declaration of Trust,
the Trustees shall have the power (a) to invest in real estate mortgages without
limitation as to amount and (b) in addition to those temporary investments
authorized by the ninth paragraph of Section 11.11 hereof to invest in or
acquire and hold evidences of indebtedness having a period remaining to
maturity, at the time of investment or acquisition, of not more than two (2)
years. Investment in or acquisition of evidences of indebtedness is authorized
hereunder only in the amounts which would not in the opinion of counsel of the
Trust disqualify the Trust for treatment as a "real estate investment trust"
under the Internal Revenue Code and Regulations (proposed or in effect)
thereunder. The Trustees are hereby empowered, whether by amendment to this
Section by action of the Trustees or otherwise, to place limitations on the
authorizations set forth in the first sentence hereof if in their judgment such
limitations are necessary or desirable in connection with the incurring of
indebtedness or issuance of securities by the Trust, or in connection with
qualification by the Trust to do business in any state. To the extent that this
provision is inconsistent with the other terms of this Declaration of Trust,
including without limitation Sections 11.11 (Investment Policy) and 11.17
(Prohibited Investments), and Article X (Amendment of Trust), this provision
shall prevail.

SECTION 11.25. OPTIONS RESPECTING TRUST SECURITIES.

Notwithstanding anything to the contrary contained in this Declaration of Trust,
including without limitation the provisions of subsection 11.18(e) hereof, the
Trust may from time to time grant options, warrants or other rights to purchase
securities of the Trust. The Trustees are hereby empowered, whether by amendment
to this Section by action of the Trustees or otherwise, to place limitations on
the authorizations set forth in the first sentence hereof if in their judgment
such limitations are necessary or desirable in connection with the incurring of
indebtedness or issuance of securities by the Trust, or in connection with
qualification by the Trust to do business in any state. To the extent that this
provision is inconsistent with the other terms of this Declaration of Trust,
including without limitation Article X (Amendment of Trust), this provision
shall prevail.

                                       29

   35


SECTION 11.26. AUTHORITY OF TRUSTEES TO AUTHORIZE ADDITIONAL RESTRICTIONS.

The Trustees are hereby empowered, by amendment to this Declaration of Trust
without shareholder action, or by agreement or otherwise, to place limitations
on the authority of the Trustees if in their judgment such limitations are
necessary or desirable in connection with the incurring of indebtedness or
issuance of securities by the Trust or in connection with the Trust's entering
into any contract or agreement or doing business in any state.

SECTION 11.27. AUTHORITY OF TRUSTEES TO AUTHORIZE CERTAIN INVESTMENT, FINANCING
AND OTHER ACTIVITIES.

Notwithstanding anything to the contrary in this Declaration of Trust, the
Trustees are hereby empowered to authorize the following activities in
connection with the investment or financing of the assets of the Trust: making
loans to other persons, notwithstanding the provisions of Section 11.11; making
investments in real estate mortgages regardless of maturity, notwithstanding the
provisions of Sections 11.11 and 11.24; investing in excess of 10% of its assets
in assets other than real estate, notwithstanding the provisions of Section
11.11; purchasing assets without the necessity of obtaining a real estate
appraisal prepared by a qualified, disinterested, independent appraiser,
notwithstanding the provisions of Section 11.16; investing in mortgages, land
contracts or unimproved property which in the aggregate exceed 5% of its assets,
notwithstanding the provisions of Section 11.17; investing in real property
subject to a mortgage even if the unpaid balance of such mortgage exceeds
two-thirds of the fair market value of the real property, notwithstanding the
provisions of Section 11.17; effectuating short sales of securities,
notwithstanding the provisions of Section 11.18; borrowing unsecured more than
8% of its net worth or encumbering any of its real property for more than
two-thirds of the fair market value of such property, notwithstanding the
provisions of Section 11.18; issuing securities evidencing borrowings secured by
real estate in excess of two-thirds of the value of such security,
notwithstanding the provisions of Section 11.18; and making investments in
unimproved property or in a partnership, joint venture, corporation or other
association owning unimproved property without receiving an opinion of counsel
with respect thereto to the effect that the Trust will not be liable for the
obligations or liabilities of the partnership, joint venture or association and
the investment will not result in disqualification of the Trust as a real estate
investment trust under the Internal Revenue Code, notwithstanding the provisions
of Section 11.23.

ARTICLE XII
DURATION OF THE TRUST
- ---------------------

SECTION 12.1. TERM OF TRUST.

This Trust shall continue without limitation of time, except that (a) the Trust
is subject to termination pursuant to Sections 2.8 or 12.2 or, when applicable,
Section 11.10, and (b)in the event that Ohio Revised Code, Section 2131.08, or
any other statute or rule of law shall provide that the Trust may not continue
perpetually, then the Trust shall continue for the longest period of time
permitted by


                                       30
   36

law, unless sooner terminated as herein provided, and to the extent that
measuring lives in being are required to determine the term of the Trust, such
measuring lives in being shall be the following persons living at the time of
the execution of this Declaration, and the Trust shall in such event continue
until the death of the last survivor of them plus such maximum additional period
of years as is permitted by law, unless sooner terminated as herein provided:
Robert F. Black, James D. Ireland, Gilbert H. Scribner, Stuart F. Silloway,
Russell J. Olderman and the following:




                                                           
Karen Fredonia Black             Sharron Pendleton Black           Elizabeth Harrison Black
Robert Fager Black III           Michael Frazer Black              Elizabeth Frazer Vehring
Pamela Harrow Vehring            Alexander Todd Vehring            Tracy Leseure Yeomans
Patricia Yeomans                 Richard Black Yeomans             Jeanne Carol Olderman
Helen Eaton Scribner             Nancy Van Dyke Scribner II        Wm. Van Dyke Scribner II
William Gilbert Smith            Edith Goodrich Kirk               Nancy V. D. Kirk
William Douglass Kirk, Jr.       Donald Scribner Kirk              Robert D. Judson, Jr.
Gilbert Hilton Judson            Douglas Stahl Judson              Duncan Scribner Judson
Frank Van Dyke Judson            Hunter Romeyn Judson              Carol Yeomans
Jill Francis Olderman            Virgina Kraft Olderman



SECTION 12.2. SALE OF ALL TRUST PROPERTY.

No merger of the Trust into another entity, no consolidation or combination of
the Trust with one or more other entities, and no sale, exchange or other
disposition (otherwise than by lease or other arrangement for the Trust's
operational and management purposes or by mortgage, pledge or other financing
technique) of more than 50% of the Trust property or the sale of the whole or
any part of the Trust property for any shares, bonds, or other securities or
obligations of the purchaser as a step in proceedings that would result in the
merger, consolidation, dissolution or termination of the Trust shall be made
without the consent of the holders of at least (i) a majority of the outstanding
shares if at least 70% of the Trustees have approved such action or (ii) 70% of
the outstanding shares if at least a majority but less than 70% of the Trustees
have approved such action, in either case given at a meeting of the shareholders
held for that purpose; provided that the voting requirements of Section 2.8
shall apply with respect to any merger intended merely to change the Trust from
a trust entity to a corporation and provided further that no vote of Trust
shareholders shall be required with respect to a merger of the Trust with
another entity if the Trust would be the surviving entity and if, after the
transaction, no shareholder would be in violation of any limitation on share
ownership adopted pursuant to Section 5.9.

SECTION 12.3. LIQUIDATION.

On disposal of the Trust property pursuant to Sections 2.8, 11.10 or 12.2, the
Trustees shall make provision for the payment of all outstanding obligations,
taxes and other liabilities, accrued or contingent, of the Trust, and shall then
distribute the remaining assets of the Trust ratably among the holders of the
outstanding shares. Upon completion of the distribution of such remaining
assets, the

                                       31

   37



Trust shall terminate and the Trustees shall be discharged of any and all
further liabilities and duties hereunder and the right, title and interest of
all parties shall be canceled and discharged. The powers of the Trustees shall
continue until the affairs of the Trust shall have been wound up and all
obligations discharged.

         IN WITNESS WHEREOF, the undersigned, being all of the Trustees of First
Union Real Estate Equity and Mortgage Investments, have hereunto set their hands
to this Amended and Restated Declaration of Trust this 7th day of December, 1999
and hereby certify that the Trustees amended and restated the Declaration of
Trust with the approval of the owners of a majority of the shares of beneficial
interest in the Trust on November 16, 1999, and that this Amended and Restated
Declaration of Trust sets forth each and every provision of this Declaration as
amended through November 16, 1999, and further certify that the Trustees named
on the first page of this Declaration constitute all the present Trustees of the
Trust.

          /s/ William A. Ackman                   /s/ William A. Scully
          -------------------------------         -----------------------------
              William A. Ackman                       William A. Scully

          /s/ Daniel J. Altobello                 /s/ Daniel Shuchman
          -------------------------------         -----------------------------
              Daniel J. Altobello                     Daniel Shuchman

          /s/ David P. Berkowitz                  /s/ Steven S. Snider
          -------------------------------         -----------------------------
              David P. Berkowitz                      Steven S. Snider

          /s/ Daniel P. Friedman                  /s/ Mary Ann Tighe
          -------------------------------         -----------------------------
              Daniel P. Friedman                      Mary Ann Tighe

          /s/ James A. Williams                   /s/ David S. Klafter
          -------------------------------         -----------------------------
              James A. Williams                       David S. Klafter

         Signed in the Presence of:

          /s/ F. Ronald O'Keefe
          -------------------------------
              F. Ronald O'Keefe

          Witness as to the above signatories

          /s/ Stephen J. Garchik
          -------------------------------
              Stephen J. Garchik

         Signed in the Presence of:

          /s/ Roxanne Escandar
          -------------------------------
              Roxanne Escandar



         Witness as to the signature of Stephen J. Garchick


                                       32

   38


STATE OF NEW YORK     )
                      ) SS:
COUNTY OF NEW YORK    )

BEFORE ME, Rosalie Souders, the undersigned, personally appeared William A.
Ackman, Daniel J. Altobello, David P. Berkowitz, Daniel P. Friedman, David S.
Klafter, William A. Scully, Daniel Shuchman, Steven S. Snider, Mary Ann Tighe
and James A. Williams, known to me to be persons whose names were subscribed to
the within instrument and acknowledged that they executed the same for the
purposes and the capacities therein set forth.

IN WITNESS WHEREOF, I have hereunto set my hand and official seal at New York,
New York this 7th day of December, 1999.



/s/ Rosalie Souders
- --------------------------------
NOTARY PUBLIC



STATE OF VIRGINIA     )
                      ) SS:
COUNTY OF FAIRFAX     )

BEFORE ME, Tamara S. DePaolis, the undersigned, personally appeared Stephen J.
Garchik, known to me to be the person whose name was subscribed to the within
instrument and acknowledged that he executed the same for the purposes and the
capacities therein set forth.

IN WITNESS WHEREOF, I have hereunto set my hand and official seal at Reston,
Virginia this 9th day of December, 1999.


/s/ Tamara S. DePaolis
- --------------------------------
NOTARY PUBLIC



                                       33

EX-10.R

   1
                                                                 Exhibit (10)(r)


                         -------------------------------

                          Registration Rights Agreement


                          Dated as of November 1, 1999


                                     between


             First Union Real Estate Equity and Mortgage Investments


                                       and


                          The Parties Signatory Hereto


                         -------------------------------


   2


                          REGISTRATION RIGHTS AGREEMENT


                This Registration Rights Agreement (the "Agreement") is made and
entered into as of the 1st day of November, 1999, between First Union Real
Estate Equity and Mortgage Investments, an Ohio business trust (the "Company"),
and Gotham Partners, L.P., Gotham Partners III, L.P. and Gotham Partners
International, Ltd. (each, a "Purchaser" and collectively, the "Purchasers").

                WHEREAS, the Company and the Purchasers have entered into those
certain Standby Purchase Agreements, each dated as of August 11, 1998, and a
Letter Agreement, dated as of April 19, 1999 (collectively, the "Standby
Agreement"), which provides for the sale by the Company and the purchase by the
Purchasers of the Company's shares of beneficial interest, $1.00 par value per
share (the "Common Shares"), in connection with the Offerings (as defined in the
Standby Agreement) contemplated thereby; and

                WHEREAS, in connection with the Standby Agreement, the Company
has agreed to provide to the Purchasers, their respective successors, assigns
and direct and indirect transferees the registration rights set forth in this
Agreement.

                ACCORDINGLY, the parties hereto agree as follows:

                1. DEFINITIONS.

                As used in this Agreement, the following capitalized defined
terms shall have the following meanings:

                "1933 ACT" shall mean the Securities Act of 1933, as amended
from time to time.

                "1934 ACT" shall mean the Securities Exchange Act of l934, as
amended from time to time.

                "ADDITIONAL PIGGYBACK RIGHTS" shall have the meaning set forth
in Section 2.3(c) hereof.

                "COMPANY" shall have the meaning set forth in the preamble and
shall also include the Company's successors.

                "DEMAND EXERCISE NOTICE" shall have the meaning set forth in
Section 2.3(a)(i) hereof.

                "DEMAND REGISTRATION REQUESTS" shall have the meaning set forth
in Section 2.3(a)(i) hereof.


   3

                "DEMAND REGISTRATIONS" shall have the meaning set forth in
Section 2.3(a)(i) hereof.

                "EFFECTIVENESS PERIOD" shall have the meaning set forth in
Section 2.1(a)(ii) hereof.

                "ENTERPRISE SHARES" shall mean the "Warrant Shares" entitling
Enterprise Asset Management, Inc. to purchase 500,000 Common Shares as referred
to in the Agreement, dated as of November 2, 1998, between Enterprise Asset
Management, Inc. and the Company.

                "FILING DATE" shall have the meaning set forth in Section
2.1(a)(i).

                "HOLDERS" shall mean the Purchasers and their respective
affiliates, for so long as they own any Registrable Securities, and their
respective successors, assigns and direct and indirect transferees who become
registered owners of Registrable Securities.

                "MATERIAL TRANSACTION" shall have the meaning set forth in
Section 2.1(a)(ii) hereof.

                "MATERIAL TRANSACTION TOLLING PERIOD" shall have the meaning set
forth in Section 2.1(a)(ii) hereof.

                "NASD" shall mean the National Association of Securities
Dealers, Inc.

                "OFFERING" shall mean the rights offering conducted by the
Company pursuant to the Prospectus, dated April 13, 1999, as supplemented by the
Prospectus Supplement, dated April 21, 1999, and consummated on May 14, 1999.

                "OTHER DEMAND RIGHTS" shall have the meaning set forth in
Section 2.2(b)(ii) hereof.

                "PERSON" shall mean an individual, partnership (general or
limited), corporation, limited liability company, trust or unincorporated
organization, or a government or agency or political subdivision thereof.

                "PIGGYBACK REGISTRATION" shall mean a registration effected
pursuant to Section 2.2 hereof.

                "PIGGYBACK REGISTRATION STATEMENT" shall have the meaning
assigned thereto in Section 2.2 hereof.

                "PIGGYBACK RIGHTS" shall have the meaning assigned thereto in
Section 2.2(a) hereof.

                "PROSPECTUS" shall mean the prospectus included in a
Registration Statement, including any preliminary prospectus, and any such
prospectus as amended or supplemented by any prospectus supplement, including
any such prospectus supplement with respect to the terms of the offering of any
portion of the Registrable Securities covered by a Registration Statement, and
by all other amendments and supplements to a prospectus,

                                      -2-


   4

including post-effective amendments, and in each case including all material
incorporated by reference therein.

                "PURCHASER" shall have the meaning set forth in the preamble.

                "REGISTERED REGISTRABLE SECURITIES" shall have the meaning set
forth in Section 2.4 hereof.

                "REGISTRABLE SECURITIES" shall mean the Securities; provided,
however, that Securities shall cease to be Registrable Securities when (i) a
Registration Statement with respect to such Securities shall have been declared
effective under the 1933 Act and such Securities shall have been disposed of
pursuant to such Registration Statement, (ii) such Securities have been sold to
the public pursuant to Rule l44 (or any similar provision then in force) under
the 1933 Act, or (iii) such Securities shall have ceased to be outstanding.

                "REGISTRATION EXPENSES" shall mean any and all expenses incurred
by the Company or any Holder in connection with any registration, filing or
qualification of Registrable Securities, including without limitation: (i) all
SEC, securities exchange or NASD registration and filing fees, (ii) all fees and
expenses incurred in connection with compliance with state securities or blue
sky laws and compliance with the rules of the NASD (including reasonable fees
and disbursements of counsel for any underwriters or Holders in connection with
blue sky qualification of any of the Registrable Securities and any filings with
the NASD), (iii) all expenses incurred in connection with the preparation, word
processing, printing and distribution of any Registration Statement, any
Prospectus, any amendments or supplements thereto, any underwriting agreements
and securities sales agreements, (iv) all fees and expenses incurred in
connection with the listing, if any, of any of the Registrable Securities on any
securities exchange or exchanges, (v) the fees and disbursements of counsel for
the Company and of the independent public accountants of the Company, including
the expenses of any special audits or "cold comfort" letters required by or
incident to such performance and compliance, (vi) the fees, disbursements and
expenses of any "qualified independent underwriter" engaged pursuant to Section
3(p) hereof, (vii) the reasonable fees and disbursements of one counsel
representing the Holders and (viii) any fees and disbursements of the
underwriters customarily required to be paid by issuers of securities and the
fees and expenses of any special experts retained by the Company in connection
with any Registration Statement, but excluding underwriting discounts and
commissions and transfer taxes, if any, relating to the sale or disposition of
Registrable Securities by the Holders.

                "REGISTRATION STATEMENT" shall mean any registration statement
of the Company which covers any of the Registrable Securities pursuant to the
provisions of this Agreement, and all amendments and supplements to any such
Registration Statement, including post-effective amendments, in each case
including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.

                                      -3-

   5

                "SEC" shall mean the United States Securities and Exchange
Commission or any successor agency or government body performing the functions
currently performed by the United States Securities and Exchange Commission.

                "SECTION 2.2 SALE NUMBER" shall have the meaning set forth in
Section 2.2(b) hereof.

                "SECTION 2.3 SALE NUMBER" shall have the meaning set forth in
Section 2.3(d) hereof.

                "SECURITIES" shall mean (i) the Common Shares acquired by each
Purchaser and its affiliates in connection with the Offering; and (ii) any
equity securities of the Company issued or issuable with respect to any of such
Common Shares in connection with a reclassification, recapitalization, merger,
consolidation or other reorganization, stock dividend or stock split.

                "SHELF REGISTRATION" shall mean a registration effected pursuant
to Section 2.1 hereof.

                "SHELF REGISTRATION STATEMENT" shall mean a "shelf" registration
statement of the Company pursuant to the provisions of Section 2.1 of this
Agreement which (i) covers all of the Registrable Securities and all of the
Enterprise Shares (including any equity securities of the Company issued or
issuable with respect to any of such Enterprise Shares in connection with a
reclassification, recapitalization, merger, consolidation or other
reorganization, stock dividend or stock split) and (ii) covers no other
securities of the Company that have been or will be issued and which shelf
registration statement is on a Form S-3 or a successor form pursuant to Rule 415
under the 1933 Act, or any similar rule that may be adopted by the SEC, and all
amendments to such registration statement, including post-effective amendments,
in each case including the Prospectus contained therein, all exhibits thereto
and all material incorporated by reference therein.

                "STANDBY AGREEMENT" shall have the meaning set forth in the
preamble.

                "UNDERWRITERS' REPRESENTATIVE" shall mean the managing
underwriter, or, in the case of a co-managed underwriting, the managing
underwriter designated as the Underwriters' Representative by the co-managers.

                "VALID BUSINESS REASON" shall have the meaning set forth in
Section 2.1(a)(ii) hereof.

                2.  REGISTRATION UNDER THE 1933 ACT.

                2.1 SHELF REGISTRATION. (a) The Company shall:

                (i) not later than the date that is 45 days after the Purchasers
deliver a written request to the Company (the date such request is delivered to
be determined in accordance with Section 5.3 hereto) with respect to the filing
of the Shelf Registration Statement hereinafter

                                      -4-

   6

referred to (the "Filing Date"), file with the SEC, and thereafter shall use its
best efforts to cause to be declared effective as promptly as practicable, but
not later than 120 days after the Filing Date, a Shelf Registration Statement
relating to the offer and sale of the Registrable Securities by the Holders from
time to time in accordance with the methods of distribution (including an
underwritten offering) elected from time to time by the Holders participating in
the Shelf Registration and set forth in such Shelf Registration Statement;

                (ii) use its best efforts to keep the Shelf Registration
Statement continuously effective until the earliest to occur of:

                         (A)     the date when all Registrable Securities
                                 covered by the Shelf Registration Statement
                                 have been sold pursuant to any Registration
                                 Statement under this Agreement or cease to be
                                 outstanding or otherwise to be Registrable
                                 Securities;

                         (B)     the date on which all of the following
                                 conditions have been satisfied: (1) the
                                 Registrable Securities represent less than five
                                 percent (5%) of the outstanding Common Shares
                                 of the Company; (2) none of the Holders have
                                 designees on the Company's Board of Trustees
                                 and (3) the Company delivers to the Holders an
                                 opinion of counsel reasonably acceptable to the
                                 Holders to the effect that (x) the Holders are
                                 not and have not been "affiliates" (within the
                                 definition of Rule 144 under the 1933 Act) of
                                 the Company for the preceding three consecutive
                                 months and (y) the Registrable Securities may
                                 be freely disposed of pursuant to Rule 144
                                 under the 1933 Act or otherwise; and

                         (C)     the date which is seven years from the date
                                 hereof

(the "Effectiveness Period"), PROVIDED, HOWEVER, that if the Company determines
by a resolution of the Board of Trustees of the Company or authorized committee
thereof that in its good faith judgment (a "Valid Business Reason") the
continued availability of the Shelf Registration Statement would materially
interfere with any material financing, acquisition, corporate reorganization or
merger or other transaction (including any significant regulatory event)
involving the Company (a "Material Transaction"), the continued availability of
the Shelf Registration Statement may be suspended for a reasonable period of
time; PROVIDED, HOWEVER, that (1) in the case of a Material Transaction that
requires the Company to seek the approval of the Company's shareholders or would
require the Company to prepare and file with the SEC a registration statement
under the 1933 Act or the 1934 Act, such suspension shall in no event exceed 120
days or (2) in the case of any other Material Transaction, such suspension shall
in no event exceed 90 days; PROVIDED, FURTHER that such suspensions shall not
occur more than two times and in no event for more than 180 days in the
aggregate in any consecutive twelve-month period during the Effectiveness Period
(such period during which the Effectiveness Period may be suspended, the
"Material Transaction Tolling Period"); and

                                      -5-



   7

                  (iii) notwithstanding any other provisions hereof, use its
best efforts to ensure that (A) the Shelf Registration Statement and any
amendment thereto and any Prospectus forming a part thereof complies in all
material respects with the 1933 Act and the rules and regulations thereunder,
(B) the Shelf Registration Statement and any amendment thereto does not, when it
becomes effective, contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading and (C) the Prospectus forming a part of the
Shelf Registration Statement does not include an untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements,
in light of the circumstances under which they were made, not misleading.

                  (b) Each Holder of Registrable Securities agrees that, upon
receipt of any notice from the Company that the Company has determined to
suspend the availability of the Shelf Registration Statement for use by the
Holders pursuant to Section 2.1(a)(ii) above, such Holder will discontinue its
disposition of Registrable Securities pursuant to the Shelf Registration
Statement and, if so directed by the Company, will deliver to the Company (at
the Company's expense) all copies, other than permanent file copies, then in
such Holder's possession of the Prospectus covering such Registrable Securities
that was in effect at the time of receipt of such notice.

                  (c) (i) If any Holder of Registrable Securities requests that
some or all of its Registrable Securities covered by the Shelf Registration
Statement be sold in an underwritten offering, the Company shall, as promptly as
practicable, but no later than ten days after receipt of such request, give
written notice of such request to all Holders of Registrable Securities. Any
Holder of Registrable Securities who wishes to participate in the underwritten
offering may, within ten days of receipt of such notice, elect to have all or
any of its Registrable Securities included in such underwritten offering;
PROVIDED, HOWEVER, that if the number of Registrable Securities requested to be
included in such registration, in the opinion of the Underwriters'
Representative, exceeds the largest number that can be sold in an orderly manner
in such offering within a price range acceptable to the Holders of a majority of
the Registrable Securities proposed to be registered, then the number of such
Registrable Securities to be included in such underwritten registration shall be
allocated pro rata among all Holders requesting that their Registrable
Securities be included in such registration, based on the number of Registrable
Securities proposed to be sold by each Holder. Notwithstanding the foregoing,
the Company shall have no obligations under Section 3(l) in respect of an
underwritten offering of Registrable Securities unless and until the Company
shall have received written notification from the Holders of Registrable
Securities that the intended method of distribution is an underwritten offering
of Registrable Securities with a reasonably anticipated aggregate offering price
to the public of at least ten million ($10,000,000) dollars.

                  (ii) If any of the Registrable Securities covered by the Shelf
Registration Statement are to be sold in an underwritten offering, the
Underwriters' Representative will be selected by the Holders of a majority of
the Registrable Securities to be included in such offering and shall be
reasonably acceptable to the Company. No Holder may participate in any
underwritten registration hereunder unless such Holder (a) agrees to sell such
Holder's Registrable Securities on the basis provided in any underwriting
arrangements approved by the Holders of a

                                      -6-

   8

majority of the Registrable Securities to be included in the offering and (b)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms of such
underwriting arrangements. In connection with any underwritten offering under
this Section 2.1, each of the participating Holders and the Company shall be a
party to the underwriting agreement with the underwriters and may be required to
make certain customary representations and warranties (in the case of the
participating Holders as to the Registrable Securities being sold by the
participating Holder in such underwritten offering and the plan of distribution
thereof) and provide certain customary indemnification for the benefit of the
underwriters.

                2.2 PIGGYBACK REGISTRATION. (a) If at any time the Company
proposes to register (including for this purpose a registration effected by the
Company for the account of the Company or shareholders of the Company other than
the Holders of the Registrable Securities for offer and sale Common Shares under
the 1933 Act (other than pursuant to registrations on Form S-4 or Form S-8 or
similar forms solely for registration of securities in connection with an
employee benefit plan or dividend reinvestment plan, merger or consolidation or
exchange offer), as soon as practicable (but in no event less than ten business
days prior to the date of filing any related Registration Statement), the
Company shall give the Holders of the Registrable Securities written notice of
such registration. Upon the written request of any Holder given within ten days
following the date such notice is delivered (as determined in accordance with
Section 5.3 hereof), the Company shall use all reasonable efforts to cause to be
included in such Registration Statement (a "Piggyback Registration Statement"),
and use all reasonable efforts to cause to be registered under the 1933 Act, all
the Registrable Securities that such Holder shall have requested to be
registered (such right of Holders to request that their Registrable Shares be
included in a Piggyback Registration Statement, "Piggyback Rights").
Notwithstanding anything to the contrary in this Section 2.2(a), the Company
shall not be required to include any Registrable Securities in such Piggyback
Registration Statement if (i) the Piggyback Registration Statement is a "shelf"
registration statement on Form S-3 or other appropriate form pursuant to Rule
415 under the 1933 Act and (ii) the Shelf Registration Statement is effective
and available for sales of Registrable Securities. The Company shall have the
absolute right to withdraw or cease to prepare or file any Piggyback
Registration Statement for any offering referred to in this Section 2.2 without
any obligation or liability to the Holders; PROVIDED, that the Company shall
promptly notify the Holders in writing of any such action and shall, subject to
the provisions of Section 2.5, reimburse Holders of Registrable Securities
requested to be included in such Piggyback Registration Statement for all
reasonable out-of-pocket expenses incurred by such Holders in connection with
such Piggyback Registration Statement prior to such withdrawal by the Company.

                  (b) If any Piggyback Registration Statement relates to an
underwritten offering of Common Shares and such Common Shares and the number of
Registrable Securities requested to be included in such registration, in the
opinion of the Underwriters' Representative, exceeds the largest number (the
"Section 2.2 Sale Number") that can be sold in an orderly manner in such
offering, then the Company shall include in such registration:

                           (i) all Common Shares that the Company proposes to
register for its own account (the "Company Securities");

                                       -7-


   9

                           (ii) if the number of Company Securities is zero, all
securities being included in such registration pursuant to the terms of any
contractual demand registration rights granted to any Person other than a Holder
("Other Demand Rights"); and

                           (iii) (x) to the extent that the number of Company
Securities is more than zero but less than the Section 2.2 Sale Number, all
securities being included in such registration pursuant to the terms of any
Other Demand Rights and all Registrable Securities requested to be included in
such registration by Holders of Registrable Securities; provided, however, that,
if the number of such Registrable Securities, securities being included pursuant
to Other Demand Rights and Company Securities exceeds the Section 2.2 Sale
Number, the aggregate number of such Registrable Securities and securities being
included pursuant to Other Demand Rights (not to exceed the Section 2.2 Sale
Number) to be included in such registration shall be allocated on a pro rata
basis among all Holders requesting that Registrable Securities be included in
such registration and all Persons exercising Other Demand Rights based on the
number of Registrable Securities then owned by each such Holder requesting
inclusion or the number of securities to be included pursuant to Other Demand
Rights then owned by each such Person, as applicable, in relation to the
aggregate number of Registrable Securities then owned by all such Holders
requesting inclusion and all Persons exercising Other Demand Rights; and

                           (y) to the extent that the number of Company
Securities is zero, and the number of securities being included pursuant to
Other Demand Rights is less than the Section 2.2 Sale Number, all Registrable
Securities requested to be included in such registration by Holders of
Registrable Securities, PROVIDED, HOWEVER, that, if the number of such
Registrable Securities and securities being included pursuant to Other Demand
Rights exceeds the Section 2.2 Sale Number, the aggregate number of such
Registrable Securities (not to exceed the Section 2.2 Sale Number) to be
included in such registration shall be allocated on a pro rata basis among all
Holders requesting that Registrable Securities be included in such registration
based on the number of Registrable Securities then owned by each such Holder
requesting inclusion in relation to the aggregate number of Registrable
Securities then owned by all such Holders requesting inclusion.

                  (c) No Holder may participate in any underwritten registration
pursuant to this Section 2.2 unless such Holder (a) agrees to sell such Holder's
Registrable Securities on the basis provided in any underwriting arrangements
entered into by the Company and the underwriters and (b) completes and executes
all customary questionnaires, underwriting agreements and other documents
reasonably required under the terms of such underwriting arrangements.

                  (d) The holders of the Registrable Securities shall be
entitled to have their Registrable Securities included in an unlimited number of
Piggyback Registrations pursuant to this Section 2.2.

                2.3 DEMAND REGISTRATION.

                  (a) (i) If the Shelf Registration Statement is not available
for use by the Holders for a period exceeding ten consecutive business days
because the Company has failed to satisfy the eligibility requirements for the
use of a registration statement on Form S-3, each Holder shall have the right,
subject to the next sentence and to Section 2.3(b) and Section 2.3(d) below, to
require the Company to file a Registration Statement under the 1933 Act (which

                                      -8-

   10

Registration Statement shall only include such securities as shall be permitted
to be included in the Shelf Registration Statement) covering all or any part of
its respective Registrable Securities, by delivering a written request therefor
to the Company specifying the number of Registrable Securities to be included in
such registration by such Holder and the intended method of distribution
thereof. If the Company again becomes eligible to use a registration statement
on Form S-3 before a Holder exercises the right described in the immediately
preceding sentence, such Holder will no longer be permitted to exercise that
right with respect to that particular instance of the Company's failure to meet
those eligibility requirements. All such requests by any Holder pursuant to this
Section 2.3(a)(i) are referred to herein as "Demand Registration Requests," and
the registrations so requested are referred to herein as "Demand Registrations"
(with respect to any Demand Registration, the Holder(s) making such demand for
registration being referred to as the "Initiating Holder"). As promptly as
practicable, but no later than five business days after receipt of a Demand
Registration Request, the Company shall give written notice (the "Demand
Exercise Notice") of such Demand Registration Request to all Holders of record
of Registrable Securities.

                           (ii) The Company, subject to Section 2.3(d) and
Section 2.3(e), shall include in a Demand Registration (x) the Registrable
Securities of the Initiating Holder and (y) the Registrable Securities of any
other Holder which shall have made a written request to the Company for
inclusion in such registration (which request shall specify the maximum number
of Registrable Securities intended to be disposed of by such Holder) within ten
days following the date of the Demand Exercise Notice.

                           (iii) The Company shall use its best efforts to
promptly effect such registration under the 1933 Act of the Registrable
Securities which the Company has been so requested to register, for distribution
in accordance with such intended method of distribution.

                  (b) The Demand Registration rights granted in Section 2.3(a)
to the Holders are subject to the following limitations: (i) each registration
in respect of a Demand Registration Request must include, in the aggregate
(based on the Common Shares included in such registration by the Company, all
Holders and all holders of Piggyback Rights and Additional Piggyback Rights
(each as defined below) participating in such registration), Common Shares
having an aggregate market value of at least $5 million; (ii) the Company shall
not be required to cause a registration pursuant to Section 2.3(a)(i) to be
declared effective within a period of 90 days after the effective date of a
registration statement filed by the Company covering a firm commitment public
offering; (iii) if the Company is involved in a Material Transaction for which
the Board of Trustees of the Company or an authorized committee thereof has
concluded that any registration of Registrable Securities should not be made or
continued because a Valid Business Reason exists, (x) the Company may postpone
filing a Registration Statement relating to a Demand Registration Request until
such Valid Business Reason no longer exists, but in no event for a period longer
than the Material Transaction Tolling Period, and (y) in case a Registration
Statement has been filed or is effective, in each case, relating to a Demand
Registration Request, the Company may cause such Registration Statement to be
withdrawn and/or its availability for use by the Holders suspended or may
postpone amending or supplementing such Registration Statement until such Valid
Business Reason no longer exists, but in no event for a period longer than the
Material Transaction Tolling Period; and the Company shall give written notice
of its

                                      -9-

   11

determination to postpone, withdraw or suspend the availability for use by the
Holders of a Registration Statement and of the fact that the Valid Business
Reason for such postponement, withdrawal or suspension no longer exists, in each
case, promptly after the occurrence thereof; and (iv) the Company's obligations
under this Section 2.3 shall terminate at such time as the Company's obligation
to keep the Shelf Registration Statement effective pursuant to Section
2.1(a)(ii) shall terminate.

                  Each Holder of Registrable Securities agrees that, upon
receipt of any notice from the Company that the Company has determined to
withdraw or suspend the availability for use by the Holders of any Registration
Statement pursuant to clause (iii) above, such Holder will discontinue its
disposition of Registrable Securities pursuant to such Registration Statement
and, if so directed by the Company, will deliver to the Company (at the
Company's expense) all copies, other than permanent file copies, then in such
Holder's possession of the Prospectus covering such Registrable Securities that
was in effect at the time of receipt of such notice. If the Company shall have
withdrawn or prematurely terminated a Registration Statement filed under Section
2.3(a)(i) (whether pursuant to clause (iii) above or as a result of any stop
order, injunction or other order or requirement of the SEC or any other
governmental agency or court), the Company shall not be considered to have
effected an effective registration for the purposes of this Agreement until the
Company shall have filed a new Registration Statement covering the Registrable
Securities covered by the withdrawn Registration Statement and such Registration
Statement shall have been declared effective and shall not have been withdrawn.
If the Company shall give any notice of withdrawal, postponement or suspension
of a Registration Statement, the Company shall, at such time as the Valid
Business Reason that caused such withdrawal or postponement no longer exists
(but in no event later than such number of days after the date of the
postponement or withdrawal that equals the Material Transaction Tolling Period),
use its best efforts to effect the registration under the 1933 Act of the
Registrable Securities covered by the withdrawn or postponed Registration
Statement in accordance with this Section 2.3 (unless the Initiating Holder
shall have withdrawn such request, in which case the Company shall be considered
to have effected an effective registration for the purposes of this Agreement).

                  (c) The Company, subject to Section 2.3(d) and Section 2.3(e),
may elect to include in any Registration Statement and offering made pursuant to
Section 2.3(a)(i), (i) any authorized but unissued Common Shares and (ii) any
other Common Shares which are requested to be included in such registration
pursuant to the exercise of piggyback registration rights granted by the Company
after the date hereof ("Additional Piggyback Rights"); PROVIDED, HOWEVER, that
such inclusion shall be permitted only pursuant to and subject to the terms of
the underwriting agreement or arrangements, if any, entered into by the
Initiating Holder.

                                      -10-


   12

                  (d) If any requested registration pursuant to Section 2.3(a)
involves an underwritten offering and the number of securities to be included in
such registration (at the request of the Holders or any other Persons (including
any Common Shares requested by the Company, by Holders exercising Piggyback
Rights or by holders exercising Additional Piggyback Rights)) in the opinion of
the Underwriters' Representative exceeds the largest number (the "Section 2.3
Sale Number") that can be sold in an orderly manner in such offering within a
price range acceptable to the Initiating Holder, the Company shall include in
such registration:

                           (i) all Registrable Securities requested to be
included in such registration by Holders of Registrable Securities; PROVIDED,
HOWEVER, that, if the number of such Registrable Securities exceeds the Section
2.3 Sale Number, the number of such Registrable Securities (not to exceed the
Section 2.3 Sale Number) to be included in such registration shall be allocated
on a pro rata basis among all Holders requesting that Registrable Securities be
included in such registration based on the number of Registrable Securities then
owned by each such Holder requesting inclusion in relation to the aggregate
number of Registrable Securities then owned by all such Holders requesting
inclusion;

                           (ii) to the extent that the number of Registrable
Securities to be included by all Holders is less than the Section 2.3 Sale
Number, Common Shares that the Company proposes to register; and

                           (iii) to the extent that the number of Registrable
Securities to be included by all Holders and the number of Common Shares to be
included by the Company is less than the Section 2.3 Sale Number, any other
Common Shares that the holders thereof propose to register pursuant to the
exercise of Additional Piggyback Rights.

                  If, as a result of the proration provisions of this Section
2.3(d), any Holder shall not be entitled to include all Registrable Securities
in a registration that such Holder has requested be included, such Holder may
elect to withdraw his request to include Registrable Securities in such
registration or may reduce the number requested to be included; PROVIDED,
HOWEVER, that (x) such request must be made in writing prior to the execution of
the underwriting agreement and (y) such withdrawal shall be irrevocable.

                  (e) In connection with any Demand Registration, the Initiating
Holder shall have the right to designate the Underwriters' Representative for
such registration, PROVIDED that such Underwriters' Representative is reasonably
satisfactory to the Company. No Holder may participate in any underwritten
registration hereunder unless such Holder (a) agrees to sell such Holder's
Registrable Securities on the basis provided in any underwriting arrangements
approved by the Initiating Holder and (b) completes and executes all
questionnaires, underwriting agreements and other documents required under the
terms of such underwriting arrangements.

                  2.4 REDUCTION OF AVAILABILITY ON SHELF REGISTRATION STATEMENT.
If any Registrable Securities are registered for sale and sold in connection
with any registration pursuant to Section 2.2 or Section 2.3 (the "Registered
Registrable Securities"), the extent to which the Shelf Registration Statement
is available for the sale of Registrable Securities by Holders shall be reduced
by a number of Securities equal to the number of Registered Registrable
Securities.

                                      -11-


   13

                  2.5 EXPENSES. The Company shall pay all Registration Expenses
in connection with any registration pursuant to Section 2.1 and Section 2.3 and,
except as hereinafter provided, Section 2.2. The Company shall pay the
Registration Expenses associated with the first two Piggyback Registrations, and
the Holders shall be responsible for any Registration Expenses associated with
any subsequent registration pursuant to Section 2.2. Each Holder shall pay all
underwriting discounts and commissions and transfer taxes, if any, relating to
the sale or disposition of such Holder's Registrable Securities pursuant to any
Registration Statement.

                3. REGISTRATION PROCEDURES. In connection with the obligations
of the Company with respect to Registration Statements pursuant to Section 2.1,
Section 2.2 or Section 2.3 hereof, the Company shall:

                (a) prepare and file with the SEC the Registration Statement,
within the relevant time period specified in Section 2.1, Section 2.2 or Section
2.3 hereof, as applicable, on the appropriate form under the 1933 Act reflecting
the methods of distribution (including an underwritten offering) of the
Registrable Securities elected from time to time by the Holders, which form (i)
shall be selected by the Company, (ii) shall be available for the sale of the
Registrable Securities by the selling Holders thereof and (iii) shall comply as
to form in all material respects with the requirements of the applicable form
and include or incorporate by reference all financial statements required by the
SEC to be filed therewith or incorporated by reference therein, and use its best
efforts to cause such Registration Statement to become effective and remain
current (which obligation may be satisfied by filing reports with the SEC
pursuant to the Company's reporting obligations under the 1934 Act) and in
compliance with the provisions of the 1933 Act for the period specified in
Section 2.1, Section 2.2 or Section 2.3, as applicable;

                (b) prepare and file with the SEC such amendments and
post-effective amendments to each Registration Statement as may be necessary
under applicable law to keep such Registration Statement current (which
obligation may be satisfied by filing reports with the SEC pursuant to the
Company's reporting obligations under the 1934 Act) and in compliance with the
provisions of the 1933 Act for the period specified in Section 2.1, Section 2.2
or Section 2.3, as applicable, and to facilitate the disposition of all
securities covered by each Registration Statement during the applicable period
in accordance with the intended method or methods of distribution (including an
underwritten offering) by the selling Holders thereof and cause each Prospectus
to be filed pursuant to Rule 424 (or any similar provision then in force) under
the 1933 Act and comply with the provisions of the 1933 Act, the 1934 Act and
the rules and regulations thereunder applicable to them with respect to the
disposition of all securities covered by each Registration Statement during the
applicable period in accordance with the intended method or methods of
distribution (including an underwritten offering) by the selling Holders
thereof;

                (c) furnish to each Holder and to each underwriter of an
underwritten offering of Registrable Securities, if any, without charge, as many
copies of each Prospectus, including each preliminary Prospectus, as such Holder
or underwriter may reasonably request, including

                                      -12-

   14

financial statements and schedules and, if the Holder so requests, all exhibits
in order to facilitate the public sale or other disposition of the Registrable
Securities;

                (d) register or qualify the Registrable Securities under all
applicable state securities or "blue sky" laws of such jurisdictions as any
Holder covered by a Registration Statement and each underwriter of an
underwritten offering of Registrable Securities shall reasonably request by the
time the applicable Registration Statement is declared effective by the SEC, and
do any and all other acts and things which may be reasonably necessary or
advisable to enable each such Holder and underwriter to consummate the
disposition in each such jurisdiction of such Registrable Securities owned by
such Holder;

                (e) notify promptly each Holder, their counsel and the
Underwriters' Representative, if any, and promptly confirm such advice in
writing (i) when a Registration Statement has become effective and when any
post-effective amendments thereto become effective, (ii) of any request by the
SEC or any state securities authority for post-effective amendments to a
Registration Statement and Prospectus or for additional information after the
Registration Statement has become effective, (iii) of the issuance by the SEC or
any state securities authority of any stop order suspending the effectiveness of
a Registration Statement or the initiation of any proceedings for that purpose,
(iv) if, between the effective date of a Registration Statement and the closing
of any sale of Registrable Securities covered thereby, the representations and
warranties of the Company contained in any underwriting agreement, securities
sales agreement or other similar agreement, if any, relating to the offering
cease to be true and correct in all material respects, (v) of the happening of
any event or the discovery of any facts during the period a Registration
Statement is effective which makes any statement made in such Registration
Statement or the related Prospectus untrue in any material respect or which
requires the making of any changes in such Registration Statement or Prospectus
in order to make the statements therein not misleading or otherwise to comply in
all material respects with the provisions of the 1933 Act, (vi) of the receipt
by the Company of any notification with respect to the suspension of the
qualification of the Registrable Securities for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose and (vii) of the
reasonable determination by the Company that a post-effective amendment to such
Registration Statement would be appropriate;

                (f) furnish counsel for the Holders and the Underwriters'
Representative, if any, copies of any comment letters received from the SEC or
any other request by the SEC or any state securities authority for amendments or
supplements to a Registration Statement and Prospectus or for additional
information;

                (g) obtain the withdrawal of any order suspending the
effectiveness of a Registration Statement at the earliest possible moment;

                (h) furnish to each Holder, and each underwriter, if any,
without charge, at least one conformed copy of each Registration Statement and
any post-effective amendment thereto, including financial statements and
schedules (without documents incorporated therein by reference and all exhibits
thereto, unless requested);

                                      -13-


   15

                (i) cooperate with the selling Holders to facilitate the timely
preparation and delivery of certificates representing Registrable Securities to
be sold and not bearing any restrictive legends; and enable such Registrable
Securities to be in such denominations and registered in such names as the
selling Holders or the underwriters, if any, may reasonably request at least two
business days prior to the closing of any sale of Registrable Securities;

                (j) upon the occurrence of any event or the discovery of any
facts, each as contemplated by Section 3(e)(ii), Section 3(e)(iii), Section
3(e)(v), Section 3(e)(vi) and Section 3(e)(vii) hereof, as promptly as
practicable after the occurrence of such an event, prepare a supplement or
post-effective amendment to the Registration Statement or the related Prospectus
or any document incorporated therein by reference or file any other required
document so that, as thereafter delivered to the purchasers of the Registrable
Securities, such Prospectus will not contain at the time of such delivery any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading, and notify the Holders to suspend use of the
Prospectus as promptly as practicable after any such event or discovery, and
each Holder agrees to suspend use of the Prospectus until the Company has
amended or supplemented the Prospectus to correct such misstatement or omission,
PROVIDED, HOWEVER, that if the Company suspends the use of the Prospectus for
the circumstances described in Section 2.1(a)(ii) or Section 2.3(b) hereof, such
suspension shall be limited to a number of days equal to the Material
Transaction Tolling Period. At such time as such public disclosure is otherwise
made or the Company determines that such disclosure is not necessary, in each
case to correct any misstatement of a material fact or to include any omitted
material fact, the Company agrees promptly to notify each Holder of such
determination and to furnish each Holder such number of copies of the Prospectus
as amended or supplemented, as such Holder may reasonably request;

                (k) a reasonable time prior to the filing of any Registration
Statement, any Prospectus, any amendment to a Registration Statement or
amendment or supplement to any Prospectus or any document which is to be
incorporated by reference into a Registration Statement or any Prospectus after
the initial filing of a Registration Statement, provide copies of such document
to the Holders and make representatives of the Company as shall be reasonably
requested by the Holders, available for discussion of such document (it being
understood that , with respect to any such Registration Statement, Prospectus or
amendment or supplement thereto, the Holders shall have the opportunity to
comment on the disclosure relating to such Holders therein, and the Company
shall not file such Registration Statement, Prospectus or amendment or
supplement thereto without the consent of the Holders to such disclosure, which
consent shall not be unreasonably withheld);

                (l) enter into agreements (including underwriting agreements)
and take all other reasonable, customary and appropriate actions in order to
expedite or facilitate the disposition of such Registrable Securities and in
such connection whether or not an underwriting agreement is entered into and
whether or not the registration is an underwritten registration:

                                      -14-


   16

                         (i) make such representations and warranties to the
                Holders and the underwriters, if any, in form, substance and
                scope as are customarily made by issuers to underwriters in
                similar underwritten offerings as may be reasonably requested by
                them;

                         (ii) obtain opinions of counsel to the Company and
                updates thereof (which counsel and opinions (in form, scope and
                substance) shall be reasonably satisfactory to the Underwriters'
                Representative, if any, and the Holders of the Registrable
                Securities being sold) addressed to each selling Holder and the
                underwriters, if any, covering the matters customarily covered
                in opinions requested in sales of securities or underwritten
                offerings and such other matters as may be reasonably requested
                by such Holders and Underwriters' Representative;

                         (iii) obtain "cold comfort" letters and updates thereof
                from the Company's independent certified public accountants
                (and, if necessary, any other independent certified public
                accountants of any subsidiary of the Company or of any business
                acquired by the Company for which financial statements are, or
                are required to be, included in the Registration Statement)
                addressed to the underwriters, if any, and use reasonable
                efforts to have such letter addressed to the selling Holders (to
                the extent consistent with Statement on Auditing Standards No.
                72 of the American Institute of Certified Public Accounts), such
                letters to be in customary form and covering matters of the type
                customarily covered in "cold comfort" letters to underwriters in
                connection with similar underwritten offerings, and, in addition
                to the dates set forth below, shall be dated the effective date
                of any prospectus supplement to the Prospectus included in the
                applicable Registration Statement;

                         (iv) enter into a securities sales agreement with the
                Holders and an agent of the Holders providing for, among other
                things, the appointment of such agent for the selling Holders
                for the purpose of soliciting purchases of Registrable
                Securities, which agreement shall be in form, substance and
                scope customary for similar offerings;

                         (v) if an underwriting agreement is entered into, cause
                the same to set forth indemnification provisions and procedures
                substantially equivalent to the indemnification provisions and
                procedures set forth in Section 4 hereof with respect to the
                underwriters and all other parties to be indemnified pursuant to
                said Section or, at the request of any underwriters, in the form
                customarily provided to such underwriters in similar types of
                transactions; and

                         (vi) deliver such documents and certificates as may be
                reasonably requested and as are customarily delivered in similar
                offerings to the holders of registrable securities being sold
                and the managing underwriters, if any.

                                      -15-


   17

The above shall be done at each closing under any underwriting or similar
agreement as and to the extent required thereunder.

                (m) make available for inspection by representatives of the
Holders, any underwriters participating in any disposition pursuant to a
Registration Statement, and any counsel or accountant retained by any of the
foregoing (but not more than one counsel for all Holders and one counsel for all
underwriters), all financial and other records, pertinent corporate documents
and properties of the Company reasonably requested by any such Persons, and
cause the respective officers, directors, employees, and any other agents of the
Company to supply all information reasonably requested by any such
representative, underwriter, special counsel or accountant in connection with
the Shelf Registration Statement, and make such representatives of the Company
available for discussion of such documents as shall be reasonably requested by
the Holders or any underwriters so that they may conduct a reasonable
investigation within the meaning of Section 11 of the 1933 Act;

                (n) cause all Registrable Securities to be listed on a national
securities exchange;

                (o) otherwise comply with all applicable rules and regulations
of the SEC and make available to its securityholders, as soon as reasonably
practicable, an earnings statement covering at least 12 months which shall
satisfy the provisions of Section 11(a) of the 1933 Act and Rule 158 thereunder;

                (p) in the event that any broker-dealer registered under the
1934 Act shall underwrite any Registrable Securities or participate as a member
of an underwriting syndicate or selling group or "assist in the distribution"
(within the meaning of the Rules of Fair Practice and the By-Laws of the NASD)
or any successor thereto, as amended from time to time) thereof, whether as a
Holder of such Registrable Securities, or as an underwriter, a placement or
sales agent or a broker or dealer in respect thereof, or otherwise, assist such
broker-dealer in complying with the requirements of such Rules and By-Laws,
including by (A) if such Rules or By-Laws shall so require, engaging a
"qualified independent underwriter" (as defined in Rule 2720 (or any successor
thereto)) to participate in the preparation of the Registration Statement
relating to such Registrable Securities and to exercise usual standards of due
diligence in respect thereto, (B) indemnifying any such qualified independent
underwriter to the extent of the indemnification of underwriters provided in
Section 4 hereof (or to such other customary extent as may be requested by such
underwriter), and (C) providing such information to such broker-dealer as may be
required in order for such broker-dealer to comply with the requirements of the
Rules of Fair Practice of the NASD; and

                (q) cooperate and assist in any filings required to be made with
the NASD and in the performance of any due diligence investigation by any
underwriter and its counsel (including any qualified independent underwriter
that is required to be retained in accordance with the rules and regulations of
the NASD).

                The Company may (as a condition to such Holder's participation
in any registration) require each Holder to furnish to the Company such
information regarding the Holder and the

                                      -16-

   18

proposed distribution by such Holder of its Registrable Securities as the
Company may from time to time reasonably request in writing.

                In the event that Holders dispose of Registrable Securities
pursuant to an underwritten offering, the Company shall not effect any sale or
distribution of, or file any registration statement with respect to, any
securities (within the meaning of Section 2(1) of the 1933 Act) of the Company
other than Registrable Securities for 90 days after completion of such
underwritten offering or such shorter period as the Underwriters' Representative
shall reasonably determine is necessary and the Holders of Registrable
Securities not covered by such underwritten offering shall not publicly sell any
Registrable Securities not so covered for 90 days after completion of such
underwritten offering or such shorter period as the Underwriters' Representative
shall reasonably determine is necessary. In the case of the registration of any
underwritten primary equity offering initiated by the Company (other than any
registration by the Company on (i) Form S-8, or a successor or substantially
similar form, of (A) an employee stock option, stock purchase or compensation
plan or of securities issued or issuable pursuant to any such plan or (B) a
dividend reinvestment plan or (ii) Form S-4) or the registration of any rights
offering by the Company, the Holders agree, if requested in writing by the
managing underwriter or underwriters administering such offering, in the case of
an underwritten offering, or if requested by the Company, in the case of a
rights offering, not to effect any offer, sale or distribution of Registrable
Securities (or any option or right to acquire Registrable Securities) during the
period commencing on the 10th day prior to the effective date of the
registration statement covering such underwritten primary equity offering and
ending on the 90th day after the completion of such underwritten offering or on
such earlier date as such managing underwriter shall reasonably determine is
necessary.

                4. INDEMNIFICATION; CONTRIBUTION.

               (a) The Company agrees to indemnify and hold harmless the
Holders, each Person who participates as an underwriter (any such Person being
an "Underwriter") and each Person, if any, who controls any Holder or
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act, and the respective officers, directors, partners, employees,
representatives and agents of any of the foregoing, as follows:

                         (i) against any and all loss, liability, claim, damage
        and expense whatsoever, as incurred, arising out of any untrue statement
        or alleged untrue statement of a material fact contained in any
        Registration Statement (or any amendment or supplement thereto) pursuant
        to which Registrable Securities were registered under the 1933 Act,
        including all documents incorporated therein by reference, or the
        omission or alleged omission therefrom of a material fact required to be
        stated therein or necessary to make the statements therein not
        misleading, or arising out of any untrue statement or alleged untrue
        statement of a material fact contained in any Prospectus or the omission
        or alleged omission therefrom of a material fact necessary in order to
        make the statements therein, in the light of the circumstances under
        which they were made, not misleading;

                                      -17-


   19

                         (ii) against any and all loss, liability, claim, damage
        and expense whatsoever, as incurred, to the extent of the aggregate
        amount paid in settlement of any litigation, or any investigation or
        proceeding by any government agency or body, commenced or threatened, or
        of any claim whatsoever based upon any such untrue statement or
        omission, or any such alleged untrue statement or omission; PROVIDED
        that (subject to Section 4(d) below) any such settlement is effected
        with the written consent of the Company; and

                         (iii) against any and all expense whatsoever, as
        incurred (including the fees and disbursements of counsel chosen by any
        indemnified party), reasonably incurred in investigating, preparing or
        defending against any litigation, or any investigation or proceeding by
        any government agency or body, commenced or threatened, or any claim
        whatsoever based upon any such untrue statement or omission, or any such
        alleged untrue statement or omission, to the extent that any such
        expense is not paid under subparagraph (i) or (ii) above;

PROVIDED, HOWEVER, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by the
Holder in its capacity as Holder or underwriter expressly for use in a
Registration Statement (or any amendment thereto) or any Prospectus.

                (b) Each Holder severally, but not jointly, agrees to indemnify
and hold harmless the Company, each underwriter and the other selling Holders,
and each Person, if any, who controls the Company, any underwriter or any other
selling Holder within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act, and the respective officers, directors, partners, employees,
representatives and agents of any of the foregoing, against any and all loss,
liability, claim, damage and expense described in the indemnity contained in
Section 4(a) hereof, as incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions, made in the Registration
Statement (or any amendment thereto) or any Prospectus included therein in
reliance upon and in conformity with written information with respect to such
Holder furnished to the Company by such Holder in its capacity as Holder
expressly for use in the Registration Statement (or any amendment thereto) or
such Prospectus; PROVIDED, HOWEVER, that the aggregate amount which any such
Holder shall be required to pay pursuant to Section 4(b) and Section 4(e) shall
in no case be greater than the amount of net proceeds received by such Holder
from the sale of Registrable Securities pursuant to such Registration Statement.

                (c) Each indemnified party shall give notice as promptly as
reasonably practicable to each indemnifying party of any action or proceeding
commenced against it in respect of which indemnity may be sought hereunder, but
failure so to notify an indemnifying party shall not relieve such indemnifying
party from any liability hereunder to the extent it is not materially prejudiced
as a result thereof and in any event shall not relieve it from any liability
which it may have otherwise than on account of this indemnity agreement. If any
such action shall be brought against an indemnified party, and it shall notify
the indemnifying party thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it wishes, jointly with any other
similarly notified indemnifying party, to assume the defense thereof with
counsel

                                      -18-

   20

satisfactory to the indemnified party. An indemnifying party may participate at
its own expense in the defense of such action; PROVIDED, HOWEVER, that counsel
to the indemnifying party shall not (except with the consent of the indemnified
party) also be counsel to the indemnified party. In no event shall the
indemnifying party or parties be liable for the fees and expenses of more than
one counsel (in addition to any local counsel) separate from their own counsel
for all indemnified parties in connection with any one action or separate but
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances. No indemnifying party shall, without the
prior written consent of the indemnified parties, settle or compromise or
consent to the entry of any judgment with respect to any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever in respect of which indemnification or
contribution could be sought under this Section 4 (whether or not the
indemnified parties are actual or potential parties thereto), unless such
settlement, compromise or consent (i) includes an unconditional release of each
indemnified party from all liability arising out of such litigation,
investigation, proceeding or claim and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act by or on behalf of any
indemnified party.

                (d) If at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel, such indemnifying party agrees that it shall be liable for any
settlement of the nature contemplated by Section 4(a)(ii) effected without its
written consent if (i) such settlement is entered into more than 45 days after
receipt by such indemnifying party of the aforesaid request, (ii) such
indemnifying party shall have received notice of the terms of such settlement at
least 30 days prior to such settlement being entered into and (iii) such
indemnifying party shall not have reimbursed such indemnified party in
accordance with such request prior to the date of such settlement.

                  (e) If the indemnification provided for in this Section 4 is
for any reason unavailable to or insufficient to hold harmless an indemnified
party in respect of any losses, liabilities, claims, damages or expenses
referred to therein, then each indemnifying party shall contribute to the
aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, in such proportion as is
appropriate to reflect the relative fault of the Company on the one hand and the
Holders on the other hand in connection with the statements or omissions which
resulted in such losses, liabilities, claims, damages or expenses, as well as
any other relevant equitable considerations.

         The relative fault of the Company on the one hand and the Holders on
the other hand shall be determined by reference to, among other things, whether
any such untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by the
Company or the Holders and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.

         The Company and the Holders agree that it would not be just and
equitable if contribution pursuant to this Section 4 were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to above in this Section 4. The aggregate
amount of losses, liabilities, claims, damages and expenses incurred by an
indemnified party and referred to above in this Section 4 shall be deemed to
include any legal

                                      -19-

   21

or other expenses reasonably incurred by such indemnified party in
investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.

         Notwithstanding the provisions of this Section 4, no Holder shall be
required to contribute any amount in excess of the amount by which the net
proceeds received by such Holder for the Securities sold by it exceeds the
amount of any damages which such Holder has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission.

         No Person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.

         For purposes of this Section 4, each Person, if any, who controls a
Holder within the meaning of Section 15 of the 1933 Act or Section 20 of the
1934 Act shall have the same rights to contribution as such Holder, and each
director of the Company, and each Person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act
shall have the same rights to contribution as the Company.

                5. MISCELLANEOUS.

                5.1 RULE 144. For so long as the Company is subject to the
reporting requirements of Section 13 or 15 of the 1934 Act, the Company
covenants that it will timely file the reports required to be filed by it under
the 1933 Act and Section 13(a) or 15(d) of the 1934 Act and the rules and
regulations adopted by the SEC thereunder. If the Company ceases to be so
required to file such reports, the Company covenants that it will upon the
request of any Holder (a) make publicly available such information as is
necessary to permit sales pursuant to Rule 144 under the 1933 Act, and (b) take
such further action that is reasonable in the circumstances, in each case, to
the extent required from time to time to enable such Holder to sell its
Registrable Securities without registration under the 1933 Act within the
limitation of the exemptions provided by (i) Rule 144 under the 1933 Act, as
such Rule may be amended from time to time, or (ii) any similar rules or
regulations hereafter adopted by the SEC. Upon the request of any Holder, the
Company will deliver to such Holder a written statement as to whether it has
complied with such requirements.

                5.2 AMENDMENTS AND WAIVERS. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of Holders
of at least a majority of the outstanding Registrable Securities affected by
such amendment, modification, supplement, waiver or departure.

                5.3 NOTICES. All notices and other communications provided for
or permitted hereunder shall be made in writing by hand delivery, registered
first-class mail, telex, telecopier, or any courier guaranteeing overnight
delivery (a) if to a Holder, at the most current address given

                                      -20-


   22

by such Holder to the Company by means of a notice given in accordance with the
provisions of this Section 5.3, which address initially is the address set forth
in the Standby Agreement with respect to the Purchaser; and (b) if to the
Company, initially at the Company's address set forth in the Standby Agreement,
and thereafter at such other address of which notice is given in accordance with
the provisions of this Section 5.3.

                All such notices and communications shall be deemed to have been
duly given: at the time delivered by hand, if personally delivered; two business
days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt is acknowledged, if telecopied; and on
the next business day if timely delivered to an air courier guaranteeing
overnight delivery.

                5.4 SUCCESSOR AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors, assigns and transferees of each
of the parties, including, without limitation and without the need for an
express assignment, subsequent Holders. If any transferee of any Holder shall
acquire Registrable Securities, in any manner, whether by operation of law or
otherwise, such Registrable Securities shall be held subject to all of the terms
of this Agreement, and by taking and holding such Registrable Securities such
Person shall be conclusively deemed to have agreed to be bound by and to perform
all of the terms and provisions of this Agreement, including the restrictions on
resale set forth in this Agreement, and such Person shall be entitled to receive
the benefits hereof. Upon any such transfer of Registrable Securities, the
transferring Holder shall be relieved of and fully discharged from all
obligations hereunder, whether such obligations arose before or after such
transfer.

                5.5 SPECIFIC ENFORCEMENT. The parties hereto acknowledge that
there would be no adequate remedy at law if the Company fails to perform any of
its obligations hereunder and that the Purchasers and the Holders from time to
time of the Registrable Securities may be irreparably harmed by any such
failure, and accordingly agree that the Purchasers and such Holders, in addition
to any other remedy to which they may be entitled at law or in equity, shall be
entitled to compel specific performance of the respective obligations of the
Company under this Agreement in accordance with the terms and conditions of this
Agreement, in any court of the United States or any state thereof having
jurisdiction.

                5.6 COUNTERPARTS. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.

                5.7 HEADINGS. The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect the meaning hereof.

                5.8 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
THE PRINCIPLES OF CONFLICT OF LAWS THEREOF.

                                      -21-


   23

                5.9 SEVERABILITY. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.

                5.10 NO PERSONAL LIABILITY. Notwithstanding anything contained
herein to the contrary, this Agreement is made and executed on behalf of the
Company, a business trust organized under the laws of the State of Ohio, by its
officer(s) on behalf of the Trustees thereof, and none of the Trustees or any
additional or successor Trustee hereafter appointed, or any beneficiary,
officer, employee or agent of the Company shall, except as otherwise may be
required by law, have any liability in such Trustee's, beneficiary's, officer's,
employee's or agent's personal or individual capacity, but instead, all parties
shall look solely to the property and assets of the Company for satisfaction of
claims of any nature arising under or in connection with this Agreement.

                                      -22-

   24


                IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first written above.

                                    FIRST UNION REAL ESTATE EQUITY
                                      AND MORTGAGE INVESTMENTS


                                    By: /s/ Authorized Signer
                                        ____________________________
                                        Name:
                                        Title:

Confirmed and accepted as
 of the date first above
 written:

GOTHAM PARTNERS, L.P.

By: Section H Partners, L.P.
    By:  Karenina Corp.


    By: /s/ Authorized Signer
        ____________________________
        Name:
        Title:

GOTHAM PARTNERS III, L.P.

By: Section H Partners, L.P.
    By: Karenina Corp.


    By: /s/ Authorized Signer
        ____________________________
        Name:
        Title:

GOTHAM PARTNERS INTERNATIONAL, LTD.


    By: /s/ Authorized Signer
        ____________________________
        Name:
        Title:

                                      -23-

EX-12

   1
                                                                      EXHIBIT 12





                                     FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS AND
                                                    FIRST UNION MANAGEMENT, INC.
                                       STATEMENTS OF RATIOS OF COMBINED INCOME FROM OPERATIONS
                                              AND COMBINED NET INCOME TO FIXED CHARGES
                                                    (IN THOUSANDS, EXCEPT RATIOS)


                                                                                    Years Ended December 31,
                                                            -----------------------------------------------------------------------
                                                               1999            1998            1997           1996           1995
                                                             --------        --------        --------       --------       --------

                                                                                                            
Income (loss) before capital gain or
  loss, extraordinary loss, cumulative
  effect of accounting change and after
  loss allocated to minority interest                        $(29,130)       $(91,465)       $  4,434       $  1,681       $    881

Add fixed charges, exclusive of
  construction interest capitalized                            38,880          51,437          30,479         24,018         22,987
                                                             --------        --------        --------       --------       --------

Income (loss) from operations, as defined                       9,750         (40,028)         34,913         25,699         23,868
Capital gains                                                  28,334          10,346           1,468           --           31,577

Reduction for unrealized loss on
  carrying value of assets
 identified for disposition                                      --              --              --             --          (14,000)
                                                             --------        --------        --------       --------       --------

Net income (loss), as defined                                $ 38,084        $(29,682)       $ 36,381       $ 25,699       $ 41,445
                                                             ========        ========        ========       ========       ========

Fixed charges:
  Interest
     - Mortgage loans                                        $ 28,264        $ 29,032        $ 15,437       $  8,877       $  7,670
     - Senior notes                                             1,113           5,856           8,875          9,090          9,305
     - Notes payable                                            4,232           3,757            --             --             --
     - Bank loans and other                                     4,833          12,214           5,552          5,459          5,422
     - Capitalized interest                                      --              --              --              121            169
     Amortization of debt issue costs                              39             150             215            196            184
     Rents (1)                                                    399             428             400            396            406
                                                             --------        --------        --------       --------       --------

Fixed charges, as defined                                    $ 38,880        $ 51,437        $ 30,479       $ 24,139       $ 23,156
                                                             ========        ========        ========       ========       ========

Preferred dividend accrued                                   $  2,833        $  2,999        $  4,831       $    845       $   --
                                                             ========        ========        ========       ========       ========

Ratio of income (loss) from operations, as
 defined, to fixed charges                                        .25            --              1.15           1.06           1.03
                                                             ========        ========        ========       ========       ========

Ratio of net income (loss), as defined,
 to fixed charges                                                 .98            --              1.19           1.06           1.79
                                                             ========        ========        ========       ========       ========

Ratio of net income (loss) as defined, to
 fixed charges and
 preferred dividend                                               .91            --              1.03           1.03           1.79
                                                             ========        ========        ========       ========       ========



______________________

(1)    The interest portion of rentals is assumed to be one-third of all ground rental and net lease payments.

EX-13

   1
                                                                      EXHIBIT 13
                                                                      ----------

                              FINANCIAL HIGHLIGHTS
   Years ended December 31, (In thousands, except per share data and footnote)



                                                                                   1999              1998
                                                                                ---------         ---------
                                                                                            
Revenues                                                                        $ 120,774         $ 148,062
Loss before capital gains, extraordinary loss,
  and loss from discontinued operations                                           (22,294)          (63,769)
Net loss before preferred dividend                                                 (6,304)          (83,518)
Net loss applicable to common shares of beneficial interest                        (9,137)          (86,517)
Funds from (used in) operations before preferred dividend                          10,726           (10,785)
Funds from (used in) operations after preferred dividend                            7,894           (13,784)
Dividends declared for common shares of beneficial interest                        13,166             3,478

Per share
  Loss applicable to shares of beneficial interest before capital gains,
    extraordinary loss, and loss from discontinued operations                   $    (.65)        $   (2.17)
  Net loss applicable to common shares of beneficial interest,
    basic and diluted                                                                (.24)            (2.81)
  Dividends declared per common share of beneficial interest                          .31               .11


                        MARKET PRICE AND DIVIDEND RECORD

                                                          DIVIDENDS
                             HIGH           LOW            DECLARED
                           -------------------------------------------
1999 QUARTERS ENDED
    December 31            $ 5 1/16        $ 4 3/4         $     .155
    September 30             5 3/8           4 5/8               .155
    June 30                  5 1/16          4
    March 31                 5 15/16         3 15/16       ----------
                                                           $      .31
                                                           ==========

1998 QUARTERS ENDED
    December 31            $ 6 1/8         $ 3 7/16        $
    September 30             9 9/16          5 3/16
    June 30                 11 7/8           8 3/4
    March 31                16 7/8          11                    .11
                                                           ----------
                                                           $      .11
                                                           ==========

    The Trust's shares are traded on the New York Stock Exchange (Ticker Symbol:
FUR). As of December 31, 1999, there were 3,000 recordholders of the Trust's
shares of beneficial interest. The Trust estimates the total number of
beneficial owners at approximately 9,000.

                                        1

   2




                                              SELECTED FINANCIAL DATA
                For the years ended December 31, (In thousands, except per share data and footnotes)

                                                                  1995           1996           1997         1998          1999
                                                               -------------------------------------------------------------------
                                                                                                         
OPERATING RESULTS
  Revenues(1)                                                  $  79,205      $  81,867      $ 110,539    $ 148,062      $ 120,774
  Income (loss) before unrealized loss on
    carrying value of assets identified for
    disposition, capital gains, extraordinary loss,
    cumulative effect of accounting change and
    loss from discontinued operations(1),(2),(3),(4)                 881          1,681          7,278      (63,769)       (22,294)
  Unrealized loss on carrying value of
    assets identified for disposition                            (14,000)
  Capital gains, net                                              31,577                         1,468       10,346         28,334
  Income (loss) before extraordinary loss,
    cumulative effect of accounting change and
    loss from discontinued operations(1),(2),(3),(4)              18,458          1,681          8,746      (53,423)         6,040
  Extraordinary loss from early
    extinguishment of debt(5)                                       (910)          (286)          (226)      (2,399)        (5,508)
  Cumulative effect of change in
    accounting method(6)                                          (4,325)
  Loss from discontinued operations(1),(3)                                                      (2,844)     (27,696)        (6,836)
  Net income (loss) before preferred dividend                     13,223          1,395          5,676      (83,518)        (6,304)
  Net income (loss) applicable to shares of
    beneficial interest                                           13,223            550            845      (86,517)        (9,137)
  Dividends declared for shares of
    beneficial interest                                            7,542          7,684         11,651        3,478         13,166
  Per share of beneficial interest
    Income (loss) before capital gains,
     extraordinary loss, cumulative effect of
      accounting change and loss from
      discontinued operations(1),(2),(3),(4)                   $     .05      $     .05      $     .10    $   (2.17)     $    (.65)
    Income (loss) before extraordinary loss,
      cumulative effect of accounting change
      and loss from discontinued operations(1),(2),(3),(4)          1.02            .05            .16        (1.83)           .08
    Extraordinary loss from early
      extinguishment of debt(5)                                     (.05)          (.02)          (.01)        (.08)          (.14)
    Cumulative effect of change in accounting
      method(6)
    Loss from discontinued operations(1),(3)                        (.24)                         (.12)        (.90)          (.18)
    Net income (loss) applicable to shares
      of beneficial interest, basic and diluted                      .73            .03            .03        (2.81)          (.24)
    Dividends declared per share of
      beneficial interest                                            .41            .44            .44          .11            .31

FINANCIAL POSITION AT YEAR END
  Total assets                                                 $ 376,144      $ 413,054      $ 734,984    $ 742,623      $ 461,452
  Long-term obligations(7)                                       258,454        254,868        458,637      553,576        256,717
  Total equity                                                    77,500        124,957        235,310      150,696        169,710

OTHER DATA
  Net cash provided by (used for)
  Operations                                                   $  12,989      $  11,085      $  15,940    $   5,919      $   9,409
  Investing                                                      (28,345)       (47,002)      (112,233)     (52,429)       112,089
  Financing                                                       15,783         35,466        110,124       72,781        109,128


                                        2

   3
This Selected Financial Data should be read in conjunction with the Combined
Financial Statements and Notes thereto.

(1)  In September 1997, First Union acquired the interests of its joint venture
     partners in eight shopping malls and 50% of another mall for $88 million in
     cash and the assumption of $203 million of mortgage debt.

(2)  The results of Impark have been classified as discontinued operations for
     1997, 1998 and 1999 as Impark will be spun off to the shareholders of the
     Trust in 2000. In 1998, Impark recognized a $15 million reduction of
     goodwill.

(3)  In 1998, loss before capital gains, extraordinary loss, cumulative effect
     of accounting change and loss from discontinued operations included
     expenses of $17.6 million related to the proxy contest and the resulting
     change in the composition of the Trust's Board of Trustees:




                                                                              
      Litigation and proxy expenses                                              $  4.8 million
      Other professional fees to avoid change in composition of Board               1.5 million
      Severance expenses for employee change in control agreements
       and employment contract termination                                          3.7 million
      Expenses related to termination of First Union's former chairman,
       president and chief executive officer                                        3.4 million
      Vesting of restricted stock upon change in composition of Board               4.2 million
                                                                                 --------------
                                                                                 $ 17.6 million
                                                                                 ==============


     In 1995, income before capital gains, extraordinary loss, cumulative effect
     of accounting change and loss from discontinued operations included $1.6
     million of litigation and proxy expenses.

(4)  In 1998, the Trust recognized $36 million in losses on the carrying value
     of properties identified for disposition. In 1999, the Trust recognized
     $9.8 million in losses on the carrying value of assets identified for
     disposition.

(5)  In 1999, the Trust repaid $46 million in mortgage debt resulting in a
     prepayment penalty of $5.5 million. In 1998, the Trust repaid approximately
     $87.5 million of its 8 7/8% Senior Notes resulting in $1.6 million in
     unamortized issue costs and solicitation fees being expensed. Also, in the
     fourth quarter of 1998, the Trust renegotiated its bank agreement and $90
     million note payable resulting in $.8 million of deferred costs being
     expensed. In 1997 and 1996, the Trust renegotiated its bank credit
     agreements, resulting in a $226,000 and $286,000 charge, respectively,
     related to the write-off of unamortized costs. In November 1995, the Trust
     repaid approximately $36 million of mortgage debt resulting in a $910,000
     charge for the write-off of unamortized costs and prepayment premiums.

(6)  In December 1995, the Trust changed its accounting method to directly
     expense internal leasing costs and recorded a $4.3 million noncash charge
     for the cumulative effect of the accounting change as of the beginning of
     1995.

(7)  Included in long-term obligations are senior notes and mortgage loans. Bank
     loans are classified as long-term for 1995 through 1997.

                                        3
   4


                             COMBINED BALANCE SHEETS
                        As of December 31, (In thousands)



                                                                                           1999             1998
                                                                                        ---------------------------
                                                                                                    
ASSETS
INVESTMENTS IN REAL ESTATE
  Land                                                                                  $  53,028         $ 123,439
  Buildings and improvements                                                              271,223           674,791
                                                                                        ---------         ---------
                                                                                          324,251           798,230
  Less - Accumulated depreciation                                                         (75,161)         (165,285)
                                                                                        ---------         ---------
       Total investments in real estate                                                   249,090           632,945
INVESTMENT IN JOINT VENTURE                                                                 1,786             1,722
MORTGAGE LOANS AND NOTES RECEIVABLE,
  including current portion of $64 and $58, respectively                                    5,426             5,508
OTHER ASSETS
  Cash and cash equivalents- unrestricted                                                  45,005            28,649
                            - restricted                                                   12,836            16,526
  Accounts receivable and prepayments, net of allowances
    of $496 and $876, respectively                                                         10,386            14,929
  Investments                                                                             104,013                 5
  Inventory                                                                                 3,395             1,827
  Deferred charges and other, net                                                           1,244             6,864
  Unamortized debt issue costs, net                                                         4,479             7,608
  Other                                                                                       385               280
  Net assets of discontinued operations                                                    23,407            25,760
                                                                                        ---------         ---------
       Total assets                                                                     $ 461,452         $ 742,623
                                                                                        =========         =========

LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
  Mortgage loans, including current portion of $1,817 and $4,308, respectively          $ 195,051         $ 345,042
  Notes payable                                                                            49,128            94,996
  Senior notes                                                                             12,538            12,538
  Bank loans                                                                                                101,000
  Accounts payable and accrued liabilities                                                 22,936            25,826
  Deferred obligations                                                                     10,579            10,602
  Deferred capital gains and other deferred income                                          1,510             1,923
                                                                                        ---------         ---------
       Total liabilities                                                                  291,742           591,927
                                                                                        ---------         ---------
SHAREHOLDERS' EQUITY
  Preferred shares of beneficial interest, $25 liquidation preference, 2,300,000
    shares authorized, 1,349,000 shares outstanding in 1999 and 1998                       31,737            31,737
  Shares of beneficial interest, $1 par, unlimited authorization, outstanding              42,472            31,416
  Additional paid-in capital                                                              218,831           190,679
  Undistributed loss from operations                                                     (123,322)         (115,968)
  Undistributed capital gains                                                                                14,949
  Deferred compensation                                                                        (8)
  Accumulated other comprehensive income
    Foreign currency translation adjustment                                                                  (2,117)
                                                                                        ---------         ---------
       Total shareholders' equity                                                         169,710           150,696
                                                                                        ---------         ---------
       Total liabilities and shareholders' equity                                       $ 461,452         $ 742,623
                                                                                        =========         =========
The accompanying notes are an integral part of these statements.



                                        4
   5


                        COMBINED STATEMENTS OF OPERATIONS
     For the years ended December 31, (In thousands, except per share data)



                                                                                           1999           1998           1997
                                                                                        ---------------------------------------
                                                                                                             
REVENUES
  Rents                                                                                 $ 116,482      $ 144,128      $ 100,383
  Interest- Mortgage loans                                                                    463          1,211          2,907
          - Short-term investments                                                          2,649          1,337          1,525
          - Investments                                                                                      302            494
  Equity in income from joint venture                                                          64            148            488
  Management fees                                                                             332            353          2,808
  Other income                                                                                784            583          1,934
                                                                                        ---------      ---------      ---------
                                                                                          120,774        148,062        110,539
                                                                                        ---------      ---------      ---------
EXPENSES
  Property operating                                                                       44,894         54,626         37,380
  Real estate taxes                                                                         9,937         12,453          9,948
  Depreciation and amortization                                                            25,331         27,603         18,787
  Interest- Mortgage loans                                                                 28,264         29,032         15,437
          - Notes payable                                                                   4,232          3,757
          - Senior notes                                                                    1,113          5,856          8,875
          - Bank loans and other                                                            4,833          9,552          3,436
  General and administrative                                                               14,664         28,104          9,398
  Litigation and proxy                                                                                     4,848
  Unrealized loss on carrying value of assets identified for
    disposition and impaired assets                                                         9,800         36,000
                                                                                        ---------      ---------      ---------
                                                                                          143,068        211,831        103,261
                                                                                        ---------      ---------      ---------

INCOME (LOSS) BEFORE CAPITAL GAIN, EXTRAORDINARY LOSS,
 AND LOSS FROM DISCONTINUED OPERATIONS                                                    (22,294)       (63,769)         7,278
  Capital gains, net                                                                       28,334         10,346          1,468
  Extraordinary loss from early extinguishment of debt                                     (5,508)        (2,399)          (226)
  Loss from discontinued operations                                                        (6,836)       (27,696)        (2,844)
                                                                                        ---------      ---------      ---------
NET INCOME (LOSS) BEFORE PREFERRED DIVIDEND                                                (6,304)       (83,518)         5,676
  Preferred dividend                                                                       (2,833)        (2,999)        (4,831)
                                                                                        ---------      ---------      ---------
NET INCOME (LOSS) APPLICABLE TO SHARES OF BENEFICIAL INTEREST                           $  (9,137)     $ (86,517)     $     845
                                                                                        =========      =========      =========

PER SHARE DATA
  Income (loss) applicable to shares of beneficial
    interest before capital gain, extraordinary
    loss and loss from discontinued operations                                          $    (.65)     $   (2.17)     $     .10
                                                                                        ---------      ---------      ---------
  Income (loss) before extraordinary loss and
    loss from discontinued operations                                                         .08          (1.83)           .16
  Extraordinary loss from early extinguishment of debt                                       (.14)          (.08)          (.01)
  Loss from discontinued operations                                                          (.18)          (.90)          (.12)
                                                                                        ---------      ---------      ---------
NET INCOME (LOSS) APPLICABLE TO SHARES OF BENEFICIAL INTEREST,
  BASIC AND DILUTED                                                                     $    (.24)     $   (2.81)     $     .03
                                                                                        =========      =========      =========
ADJUSTED SHARES OF BENEFICIAL INTEREST, BASIC                                              38,827         30,772         24,537
ADJUSTED SHARES OF BENEFICIAL INTEREST, DILUTED                                            38,836         31,015         25,415


                  COMBINED STATEMENTS OF COMPREHENSIVE RESULTS
                 For the years ended December 31, (In thousands)

Net income (loss)                                                                       $  (9,137)     $ (86,517)     $     845
  Other comprehensive income
    Available for sale securities                                                                             66            (66)
    Foreign currency translation adjustment                                                 2,117         (1,305)          (812)
                                                                                        ---------      ---------      ---------
Comprehensive loss                                                                      $  (7,020)     $ (87,756)     $     (33)
                                                                                        =========      =========      =========


The accompanying notes are an integral part of these statements.


                                        5

   6
                   COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
                        (In thousands, except footnotes)



                                                                                    Preferred
                                                                                    Shares of     Shares of     Additional
                                                                                    Beneficial    Beneficial      Paid-In
                                                                                     Interest      Interest       Capital
- ----------------------------------------------------------------------------------------------------------------------------------
                                                                                                        
BALANCE DECEMBER 31, 1996                                                            $ 54,109      $ 17,622      $ 56,672

  Net income before preferred dividend
  Dividends paid or accrued on shares of beneficial
    interest ($.44/share)
  Dividends accrued on preferred shares ($2.10/share)
  Sale of 3,910,000 shares of beneficial interest, net                                                3,910        42,211
  Sale of 6,325,000 shares of beneficial interest, net                                                6,325        68,139
  Shares sold under long-term incentive ownership
    plan and share option agreements                                                                     96           611
  Restricted shares issued                                                                              226         2,934
  Deferred compensation related to restricted shares
  Foreign currency translation adjustment
  Available for sale securities                                                      --------      --------      --------
BALANCE DECEMBER 31, 1997                                                              54,109        28,179       170,567
- ----------------------------------------------------------------------------------------------------------------------------------
  Net loss before preferred dividend
  Dividends paid on shares of beneficial interest ($.11/share)
  Dividends paid or accrued on preferred shares ($2.10/share)
  Conversion of preferred shares                                                      (22,372)        3,144        19,228
  Shares sold under long-term incentive ownership
    plan and share option agreements                                                                    373         2,623
  Restricted shares issued                                                                              343         4,632
  Restricted shares forfeited                                                                          (453)       (5,147)
  Shares purchased                                                                                     (170)       (1,660)
  Issuance of 500,000 stock warrants                                                                                  436
  Deferred compensation related to restricted shares
  Vesting of restricted shares
  Foreign currency translation adjustment
  Available for sale securities
                                                                                     --------      --------      --------
BALANCE DECEMBER 31, 1998                                                              31,737        31,416       190,679
- ----------------------------------------------------------------------------------------------------------------------------------
  Net loss before preferred dividend
  Dividends paid or accrued on shares of beneficial interest
    ($.31/share)
  Dividends paid or accrued on preferred shares ($2.10/share)
  Sale of 12,549,445 shares of beneficial interest                                                   12,549        33,927
  Shares purchased                                                                                   (1,506)       (6,485)
  Compensation on variable stock options                                                                              666
  Restricted shares issued                                                                               18            62
  Restricted shares canceled                                                                             (5)          (18)
  Deferred compensation related to restricted shares
  Foreign currency translation adjustment
                                                                                     --------      --------      --------
BALANCE DECEMBER 31, 1999                                                            $ 31,737      $ 42,472      $218,831
                                                                                     ========      ========      ========




The accompanying notes are an integral part of these statements.

(1)  Includes the balance of cumulative undistributed net loss of First Union
     Management, Inc. of $6,579,000, $5,446,000, $36,077,000 and $46,936,000 as
     of December 31, 1996, 1997, 1998 and 1999, respectively.

(2)  Cumulative distributions in excess of the Trust's net income from inception
     are $11,330,000.

                                        6


   7




  Restated
Undistributed                                                                        Foreign
Income (Loss)                                                     Available          Currency
    From                 Undistributed          Deferred           for Sale         Translation
 Operations(1),(2)       Capital Gains       Compensation         Securities        Adjustment
- -----------------------------------------------------------------------------------------------
                                                                       
$ (15,167)                 $  14,949         $  (3,229)

    5,676

  (11,651)
   (4,831)

                                                (3,160)
                                                   746
                                                                                 $    (812)
                                                               $     (66)
- ---------                  ---------         ---------         ---------         ---------
  (25,973)                    14,949            (5,643)              (66)             (812)
- -----------------------------------------------------------------------------------------------
  (83,518)
   (3,478)
   (2,999)

                                                (4,975)
                                                 5,600

                                                   312
                                                 4,706
                                                                                    (1,305)
                                                                      66
- ---------                  ---------           -------          --------           -------
 (115,968)                    14,949                 -                 -            (2,117)
- -----------------------------------------------------------------------------------------------
   (6,304)

                             (13,166)
   (1,050)                    (1,783)

                                                   (80)
                                                    23
                                                    49
                                                                                     2,117
- ---------                  ---------         ---------         ---------         ---------
$(123,322)                 $       -         $      (8)         $      -         $       -
=========                  =========         =========         =========         =========


                                        7

   8


                     COMBINED STATEMENTS OF CHANGES IN CASH
                 For the years ended December 31, (In thousands)



                                                                         1999              1998             1997
                                                                      ---------------------------------------------
                                                                                                 
CASH PROVIDED BY (USED FOR) OPERATIONS
  Net income (loss) before preferred dividend
      and loss from discontinued operations                           $     532         $ (55,822)        $   8,520
  Adjustments to reconcile net income (loss) before preferred
      dividend and loss from discontinued operations to net
      cash provided by operations
    Depreciation and amortization                                        25,331            27,603            18,787
    Extraordinary loss from early extinguishment of debt                  5,508             2,399               226
    Capital gains, net                                                  (28,334)          (10,346)           (1,468)
    Loss on carrying value of assets identified for
      disposition and impaired assets                                     9,800            36,000
    Vesting of restricted shares                                                            4,184
    Increase in deferred charges and other, net                             (64)           (1,316)           (4,998)
    Increase (decrease) in deferred income                                 (413)              401             1,505
    Increase in deferred interest on mortgage investments                                      (6)             (122)
    Decrease in deferred obligations                                        (23)              (20)              (18)
    Net changes in other assets and liabilities                          (2,928)            2,842            (6,492)
                                                                      ---------          --------          --------
     Net cash provided by operations                                      9,409             5,919            15,940
                                                                      ---------          --------          --------
CASH PROVIDED BY (USED FOR) INVESTING
  Repayment of mortgage investment and note receivable                                     25,045            16,200
  Principal received from mortgage investments                               82               139               216
  Proceeds from sales of properties                                     227,508             6,507            18,374
  Purchase of investments                                              (104,013)           (1,771)          (12,746)
  Sale of investments                                                                      15,141
  Investments in properties                                                               (63,022)             (834)
  Acquisition of joint venture interests, net of cash acquired                                              (72,900)
  Deposit for property acquisitions                                                          (170)           (2,315)
  Investment in Impark, net of cash acquired                                              (11,195)          (36,574)
  Investments in capital and tenant improvements                        (11,488)          (23,103)          (21,654)
                                                                      ---------          --------          --------
    Net cash provided by (used for) investing                           112,089           (52,429)         (112,233)
                                                                      ---------          --------          --------
CASH PROVIDED BY (USED FOR) FINANCING
  Increase (decrease) in bank loans                                    (101,000)           55,900            19,300
  Increase in notes payable                                              49,000            90,000
  Increase in mortgage loans                                             66,689            30,000             2,737
  Repayment of mortgage loans- Normal payments                           (3,463)           (3,951)           (2,765)
                               - Balloon payments                       (49,548)             (468)          (13,835)
  Mortgage repayment penalties                                           (5,846)
  Repayment of note payable                                             (90,000)
  Repayment of senior notes                                                               (87,462)
  Purchase of First Union shares                                         (7,989)           (1,830)
  Sale and employee option exercises of First Union shares               46,476             2,996           121,291
  Sale of hedge agreement                                                                     825
  Debt issue costs paid                                                  (4,031)           (3,320)           (1,261)
  Dividends paid to shares of beneficial interest                        (6,583)           (6,577)          (10,473)
  Dividends paid to preferred shares of beneficial interest              (2,833)           (3,332)           (4,870)
                                                                      ---------          --------          --------
    Net cash provided by (used for) financing                          (109,128)           72,781           110,124
                                                                      ---------          --------          --------
  Increase in cash and cash equivalents from
      continuing operations                                              12,370            26,271            13,831
  Cash and cash equivalents at beginning of year                         45,175            16,864             2,951
                                                                      ---------          --------          --------
  Cash and cash equivalents at end of year                               57,545            43,135            16,782
  Change in cash from discontinued operations                               296             2,040                82
                                                                      ---------          --------          --------
  Cash and cash equivalents at end of year, including
    discontinued operations                                           $  57,841         $  45,175         $  16,864
                                                                      =========         =========         =========


The accompanying notes are an integral part of these statements.

                                        8


   9


                     NOTES TO COMBINED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
    First Union Real Estate Investments ("Trust") and First Union Management,
Inc. ("Company") are in the real estate and parking and transit ticket equipment
manufacturing industries with properties and operations primarily in the United
States and Canada. The accounting policies of the Trust and Company conform to
generally accepted accounting principles and give recognition, as appropriate,
to common practices within the real estate, parking and manufacturing
industries.
    Under a trust agreement, the shares of the Company are held for the benefit
of the shareholders of the Trust. Accordingly, the financial statements of the
Company and Trust have been combined. Additionally, as the Company owns Imperial
Parking Limited ("Impark"),the financial statements of Impark are consolidated
with those of the Company. The Trust announced in January 2000 a planned
distribution to its shareholders of the parking business. The distribution is
expected to be completed in the first half of 2000. The financial information
for 1999,1998 and 1997 classifies the parking business as "discontinued
operations."
    The preparation of the financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses during the reporting periods. Actual results
could differ from these estimates.
    The Trust's properties were leased to the Company through February 28, 1999.
Thereafter, the Trust became self-managed.
    At December 31, 1999 and 1998, buildings and improvements included $1.2
million of equipment and $8.1 million of equipment and appliances, respectively.
Equipment and appliances are depreciated over useful lives of five to ten years.
    Tenant leases generally provide for billings of certain operating costs and
retail tenant leases generally provide for percentage rentals, in addition to
fixed minimum rentals. The Trust and Company accrue the recovery of operating
costs based on actual costs incurred and accrue percentage rentals based on
current estimates of each retail tenant's sales. In July 1998, the Trust adopted
the Financial Accounting Standards Board's Emerging Issues Task Force Bulletin
98-9 (EITF-98-9), "Accounting for Contingent Rent in Interim Financial Periods."
EITF-98-9 requires that contingent rental income, such as percentage rent which
is dependent on sales of retail tenants, be recognized in the period that a
tenant exceeds its specified sales breakpoint. Consequently, the Trust accrues
the majority of percentage rent income in the fourth quarter of each year in
accordance with EITF-98-9. For the years ended December 31, 1999, 1998 and 1997,
the accrued recovery of operating costs and percentage rent income approximated
$30.0 million, $36.2 million and $21.9 million, respectively. Deferred revenue
is derived primarily from revenue received in advance of its due date.
    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 alterations are depreciated over the
life of the lease of the tenant. The Trust annually reviews its portfolio of
properties for any impairment as required by Statement of Financial Accounting
Standards (SFAS) 121, "Accounting for Long-Lived Assets and Long-Lived Assets to
be Disposed of."

                                        9

   10

    The Trust's buildings are depreciated as follows:

                                    Life             Buildings
                                  (in years)       (in thousands)
                                  ------------------------------
                                     40              $ 168,548
                                     30                 98,563
                                     25                  3,952
                                     10                    160
                                                     ---------
                                                     $ 271,223
                                                     =========

    The Trust's useful lives for the calculation of depreciation are as follows:

                                                           Life
                                                         (in years)
                                  ---------------------------------
                                   Shopping malls          40
                                   Office buildings        40
                                   Parking garages       25 - 40
                                   Parking facilities      10

    The Trust accounts for its investment in a joint venture which it does not
control using the equity method of accounting. This investment, which represents
a 50% non-controlling ownership interest in a shopping mall, was recorded
initially at the Trust's cost and subsequently adjusted for the Trust's equity
in income and cash distributions.
    At December 31, 1999 and 1998, $1.1 million and $12.6 million of cash was
restricted, respectively, based on terms of a mortgage. Additionally, $1.7
million and $3.9 million of cash as of December 31, 1999 and 1998, respectively,
was classified as restricted because it secures benefits under change of control
agreements with employees of the Trust and Company. The restricted cash can also
be used for reimbursement of legal and other expenses incurred for claims
against Trustees serving prior to the change in the majority of the Board that
occurred in June 1998. The Trust also has $10.0 million of cash on deposit to
collateralize Impark's bank loan and is classified as restricted in the Combined
Balance Sheets at December 31, 1999.
    Investments as of December 31, 1999, consisted of U.S. Treasury Bills. The
U.S. Treasury Bills were classified as held-to-maturity securities and were
recorded at cost plus accrued interest. Of the $104.0 million of U.S. Treasury
Bills, $5.0 million is held on deposit as collateral for Impark's bank loan.
    The Trust has calculated earnings per share for 1999, 1998 and 1997 in
accordance with SFAS 128, "Earnings Per Share." SFAS 128 requires that common
share equivalents be excluded from the weighted average shares outstanding for
the calculation of basic earnings per share. The reconciliation of shares
outstanding for the basic and fully diluted earnings per share calculation is as
follows (in thousands):

                                                   1999       1998       1997
                                                  ----------------------------
       Basic weighted average shares              38,827     30,772     24,537
       Stock options, treasury method                           243        571
       Restricted shares, treasury method              9                   307
                                                  ------     ------     ------
       Diluted weighted average shares            38,836     31,015     25,415
                                                  ======     ======     ======

    The preferred shares and warrants to purchase shares of beneficial interest
are anti-dilutive and are not included in the weighted average shares
outstanding for the diluted earnings per share.
    Financial instruments held by the Trust and Company include cash and cash
equivalents, accounts receivable, mortgage loans receivable, accounts payable,
revolving credit agreements, long-term debt and interest rate caps. The Trust
and Company do not hold or issue financial instruments or derivative financial
instruments for trading purposes.


                                       10
   11

    During 1998 and subsequently amended in 1999, the Financial Accounting
Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." The Statement requires companies to recognize all
derivatives on the balance sheet as assets or liabilities, measured at fair
value. Gains or losses resulting from changes in the values of those derivatives
would be accounted for depending on the use of the derivatives and whether they
qualify for hedge accounting. This Statement is effective for fiscal years
beginning after June 15, 2000. The Trust believes that the effect of SFAS 133 on
its financial statements will be immaterial.
    Certain reclassifications have been made to prior year balances so that they
are comparable to 1999.

2. DISCONTINUED OPERATIONS
    In January 2000, the Trust announced plans to distribute to its common
shareholders shares of a restructured Impark, currently a subsidiary of the
Company. Prior to the spin-off, Ventek International, Inc., a subsidiary of
Impark, will be sold to the Company. The 1999 loss on disposal includes an
estimate for losses from Impark's operations through March 31, 2000, the
cumulative foreign currency translation at December 31, 1999, and costs
associated with the spin-off. After the spin-off, Impark will be a publicly
owned company. Common shareholders of the Trust will receive one share of Impark
for every 20 common shares of beneficial interest of the Trust that they own.
The Trust's Combined Financial Statements and Notes to Combined Financial
Statements report Impark as a discontinued operation.

    DISCONTINUED OPERATIONS (AMOUNTS IN THOUSANDS)

                                                   1999        1998       1997
                                                -------------------------------

   Net operating income                         $   8,380   $  7,423  $   5,170
   Less- Interest expense                           1,888      2,662      2,116
       - Depreciation and amortization              5,277      5,786      4,105
       - General and administrative                 4,022      9,473      1,793
       - Goodwill impairment                                  15,000
       - Foreign currency (gain) loss              (1,060)     2,198
                                                ---------   --------  ---------
   Loss from operations                            (1,747)   (27,696)    (2,844)
   Loss on disposal                                (5,091)
                                                ---------   --------  ---------
   Total discontinued operations                $  (6,838)  $(27,696) $  (2,844)
                                                =========   ========  =========

    NET ASSETS OF DISCONTINUED OPERATIONS (AMOUNTS IN THOUSANDS)



                                                                  1999           1998
                                                                -----------------------
ASSETS
                                                                        
  Real estate, net of accumulated depreciation                  $10,961        $ 8,557
  Equipment, net of accumulated depreciation                      5,414          6,032
  Note receivable                                                 2,991
  Accounts receivable and prepayments                             3,990          6,880
  Inventory                                                         865            971
  Goodwill, net of accumulated amortization                      42,690         45,379
  Management contracts, net of accumulated amortization             901          1,852
  Deferred charges                                                  214            150
LIABILITIES
  Bank loans                                                     22,501         24,821
  Accounts payable and accrued liabilities                       19,148         17,880
  Deferred income                                                 2,970          1,360
                                                                -------        -------
    Net assets of discontinued operations excluding cash         23,407         25,760
Cash                                                              2,414          2,118
                                                                -------        -------
                                                                $25,821        $27,878
                                                                =======        =======



                                       11

   12

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES OF DISCONTINUED OPERATIONS
    The real estate assets of $11.0 million consist of land, buildings and
construction in progress at December 31, 1999 that will be transferred to Impark
when the spin-off from the Trust occurs. The buildings are depreciated using a
40-year life.
    Parking leasehold improvements are depreciated over five years. Routine
maintenance and repairs, including replacements, are charged to expense, while
replacements which improve or extend the lives of existing properties are
capitalized.
    Goodwill represents the excess of cost over the value assigned to the net
assets from the purchase of Impark. Goodwill is amortized on a straight-line
basis over 20 years. Accumulated amortization at December 31, 1999 and 1998, was
$4.8 million and $2.3 million, respectively. Impark recorded a U.S. $15 million
reduction of goodwill in December 1998, in accordance with SFAS 121.
    Lease and management agreements are recorded at cost and represent Impark's
investment in parking lot agreements acquired from other parking lot management
companies. The underlying value of this asset is calculated by discounting
future cash flows of each agreement over its length of term. Management and
lease agreements terminated before the life of the agreements are expensed.
Amortization is provided on a straight-line basis over their useful lives of
approximately three years as of the acquisition in April 1997. Accumulated
amortization at December 31, 1999 and 1998 was $4.9 million and $3.6 million,
respectively.
    Inventory consists of parking equipment parts and supplies and is recorded
at the lower of cost determined on a first-in, first-out basis, or replacement
cost.
    The assets and liabilities of the Canadian operations are translated into
U.S. dollars at the exchange rates in effect at the balance sheet date. Income
statement accounts are translated at the weighted average exchange rates for the
year. The gains or losses resulting from these translations are recorded in a
separate component of shareholders' equity. Gains or losses resulting from
realized foreign currency and intercompany transactions are included in net
income.

BANK DEBT
    As of December 31, 1999, Impark has $22.5 million outstanding under a
secured credit agreement. The credit agreement consists of revolving and term
commitments of $4.5 million and $21.1 million, respectively. The credit
agreement matures in April 2000. The weighted average interest rate for the
credit agreement was 6.9% for 1999 and 7% for 1998. As the bank loans are at
market interest rates, the fair value is the carrying amount of the loans.
    The Trust paid a fee to the bank facility lenders and provided $15.0 million
in cash to secure a portion of the balance outstanding under the bank facility
during 1999.
    The revolving credit facility bears interest at the lender's prime rate plus
75 basis points and the term facility bears interest at the Canadian Bankers
Acceptance rate plus 175 basis points. Additionally, upon maturity of this
credit facility, Impark will pay to the lenders a fee of 55 basis points
retroactive to the inception date of the bank credit facility.
    As part of the spin-off of Impark to the Trust's shareholders, the Trust
will repay Impark's bank credit facilities.

MINORITY INTEREST IN IMPARK
    The Company in the third and fourth quarter of 1999 purchased the common
stock of Impark owned by the employees of Impark for approximately $1.0 million.
As a result of these transactions, the Company owns 100% of the common stock of
Impark and the employees of Impark own $.4 million or 4% preferred stock of
Impark. Additionally, the Company purchased $.5 million in preferred stock in
Impark from two terminated employees during 1999.


                                       12

   13

SALE OF SUBSIDIARIES OF IMPARK
    Inner-Tec Security Consultants Ltd., a security business, was sold in June
1999 to a former executive officer for a $.5 million note and cash of $.6
million. The note is for two years and bears interest at 12% per annum for the
first year and 16% per annum for the second year. The note receivable is current
at December 31, 1999.
    Robbins Parking Services, Ltd. was sold in the second quarter of 1999 to the
former president of Impark for a $2.1 million ten-year note bearing interest at
8% per annum. The Trust also sold a building to the former president of Impark
for a $.3 million, ten-year mortgage note bearing interest at 8% per annum for
the first five years and 9.25% per annum for the second five years.
    Imperial Parking Asian Ltd. was sold in September 1999 for $.6 million to an
unrelated third party.

SEVERANCE
    During 1999, Impark reversed a severance provision of $1.8 million, while
recording an additional severance expense of $.9 million, resulting in a
reduction of severance expense in 1999 of $.9 million. The reversal of the 1998
provision for severance expense was the result of settling all claims with
Impark's former president below the 1998 accrued amount. The 1999 severance
provision represents termination expense which is expected to be paid through
2005 for final termination agreements entered into as of December 31, 1999.

    Severance Accrual (amounts in thousands)

                                                        1999           1998
                                                     -----------------------

                 Beginning balance                   $  2,352      $
                 Expense, net                            (873)        2,352
                 Payments                                (354)
                                                     --------      --------
                 Balance at end of year              $  1,125      $  2,352
                                                     ========      ========

3. FINANCIAL INSTRUMENTS
    The Trust owns two interest rate protection agreements ("caps") which
protect the Trust from the impact of rising interest rates on two floating rate
mortgage loans. The first interest rate cap in the notional amount of $16
million expires in July 2002 and limits interest rate increases above 7% for one
month LIBOR. The net book value of this interest cap is $133,000 at December 31,
1999.The second interest rate cap is for the notional amount of $21.1 million
and protects the Trust from increases in interest rates above 9.65%. The net
book value of this interest rate cap is $106,000 at December 31, 1999.

4. COMPREHENSIVE INCOME
    Comprehensive income includes changes in shareholders' equity, such as
foreign currency translation adjustments and reserves for the valuation of
securities held for sale, which are shown separately and have no effect on the
Trust's net income or shareholders' equity.

5. WARRANTS TO PURCHASE SHARES OF BENEFICIAL INTEREST
    The Trust in November 1998 issued 500,000 warrants which allow a third party
to purchase 500,000 shares of beneficial interest at $10 per share. The warrants
expire in November 2008. The Trust issued the warrants to the third party as
part of the consideration for various services provided to the Trust and
recorded $.4 million in expense as a measurement of this consideration in 1998.
The fair value of the consideration was determined using the Black-Scholes model
using the following factors - 10-year term, 4% dividend yield, 4% risk free
interest rate and 32% for volatility.

                                       13

   14

6. COMBINED STATEMENTS OF CHANGES IN CASH
    The Trust and Company consider all highly liquid short-term investments with
original maturities of three months or less to be cash equivalents. The Trust
and Company paid interest of $39.8 million, $51.4 million and $29.9 million in
1999, 1998 and 1997, respectively.

7. LOSS ON CARRYING VALUE OF ASSETS IDENTIFIED FOR DISPOSITION
   AND IMPAIRED ASSET
    Management reviews the net realizable value of the Trust's portfolio
periodically to determine whether an allowance for possible losses is necessary.
The carrying value of the Trust's investments in real estate is evaluated on an
individual property basis in accordance with SFAS 121. In June 1999, the Trust
recorded $9.0 million in losses on the carrying value of six shopping malls
because the Trust agreed to sell these malls at a sales price which was below
net book value. These six malls were sold in December 1999. In December 1998,
the Trust recorded $36.0 million in losses on the carrying value of three
shopping centers, two office properties and a parking facility which were
identified for disposition. The Trust determined that these assets, which were
actively being marketed for sale, were impaired based on the bids received for
them as compared to their net book value. The bids received for these assets
best represent the cash flow to be realized in accordance with SFAS 121. These
assets were sold in 1999. In December 1999, the Trust, in accordance with SFAS
121, recorded $.8 million in losses on the carrying value of an asset that it
has identified for sale.
    In January 1997, the Trust sold a shopping center for $9.0 million in cash.
The sale resulted in a capital loss of $4.0 million which was provided for as
part of a $14.0 million noncash, unrealized loss on the carrying value of
certain assets that was recorded in December 1995.
    The amount of assets identified for sale, the reserve for loss and the
losses deducted from the reserve are summarized for the years ended December 31
in the following table (amounts in thousands):



                                                                                         Restated
                                                       1999              1998              1997
                                                    ----------------------------------------------
                                                                               
Net book value of assets identified for sale        $  83,837         $   5,163         $  27,451
Additions                                             204,712            79,034               808
Depreciation                                                               (360)             (387)
Sales of assets                                      (282,171)                            (22,709)
                                                    ---------         ---------         ---------
Net book value of assets identified
  for sale at year end                              $   6,378         $  83,837         $   5,163
                                                    =========         =========         =========
Reserve for loss                                    $  39,630         $   3,630         $   7,605
Additions to reserve                                    9,800            36,000            (3,975)
Losses realized on sale of assets                     (48,406)
Reversal of realized loss                                (224)
                                                    ---------         ---------         ---------
Reserve for loss at year end                        $     800         $  39,630         $   3,630
                                                    =========         =========         =========


    Property net operating income, which is rents less operating expenses for
assets identified for sale, are summarized for the years ended December 31 in
the following table (amounts in thousands):

                                       1999          1998            1997
                                     --------------------------------------
Revenues                             $   472        $15,217        $17,145
Less-Operating expenses                   57          7,756          8,456
                                     -------        -------        -------
Property net operating income        $   415        $ 7,461        $ 8,689
                                     =======        =======        =======


                                       14

   15

8. CAPITAL GAINS AND LOSSES
    The Trust sold a shopping center in February 1999 for $21.6 million,
resulting in a capital gain of $.4 million. In May 1999, the Trust sold eight
apartment complexes for $86 million, resulting in a capital gain of $8.7
million. Additionally, in May and June 1999 the Trust sold five shopping malls
and a strip shopping center for $59.4 million, resulting in capital gains of $19
million. The Trust sold two office properties, a parking lot, and nine shopping
malls in 1999 for $215.2 million, resulting in a capital gain of $.2 million.
    In May 1998, the Trust sold its investment in the land beneath the
Huntington Building in Cleveland, OH for $6.1 million, resulting in a capital
gain of $1.7 million. Additionally, an $18.8 million mortgage investment secured
by the Huntington Building was repaid in 1998, resulting in the recognition of a
$7.7 million capital gain which was deferred when the building was sold in 1982
since the Trust received the mortgage note as consideration. In June 1998, the
Trust sold a forward exchange agreement, resulting in a gain of $.8 million. The
forward exchange contract was purchased to protect the Trust from foreign
currency fluctuations resulting from notes issued in conjunction with the
acquisition of Impark. In December 1998, the Trust sold a land parcel in Monroe,
LA, resulting in a gain of $.1 million.
    In November 1997, the Trust sold an apartment complex in Dayton, OH for $.7
million in cash,a $2.6 million, 8.75% second mortgage, secured by the property,
and the assumption by the purchaser of a $7.6 million existing mortgage loan.
The capital gain recognized was $2.7 million. In December 1997, the Trust sold
an office complex in Oklahoma City, OK for $4.7 million in cash, resulting in a
capital loss of $1.2 million.

9. EXTRAORDINARY LOSS FROM EARLY EXTINGUISHMENT OF DEBT
    In 1999, the Trust repaid $45.9 million in mortgage debt prior to maturity
resulting in a prepayment penalty of $5.5 million. The mortgage debt was repaid
because it was cross-collateralized with the mortgages on six shopping malls
which were sold in December 1999.
    In 1998, the Trust repaid approximately $87.5 million of its 8-7/8% senior
notes resulting in $1.6 million of unamortized issue costs and solicitation fees
being expensed. Additionally, the Trust renegotiated its bank credit agreement
and the terms of the $90 million note payable in 1998 resulting in $.8 million
of deferred costs related to the bank credit agreement and note payable being
expensed.
    In 1997, the Trust renegotiated its bank credit agreements resulting in $.2
million of deferred costs relating to its prior bank credit agreements being
expensed.

10. INVESTMENTS IN MORTGAGE LOANS AND NOTES RECEIVABLE
    As of December 31, the Trust had the following investments in mortgage loans
and notes receivable (amounts in thousands):



                                                       Current
                                                       Rate on
                                                      Investment       1999          1998
                                                      --------------------------------------
                                                                         
   Second mortgage loan secured by an apartment
   complex in Dayton, OH, maturing in 2002               8.75%        $2,560        $2,581
Note receivable secured by management contract
   on an apartment complex in Atlanta, GA,
   maturing in 2008                                        10%         1,666         1,727
Note receivable secured by Temple Mall Company,
   maturing in 2023                                         6%         1,200         1,200
                                                                      ------        ------
                                                                      $5,426        $5,508
                                                                      ======        ======


    The market value of mortgage investments is approximately $4.9 million as of
December 31, 1999 based on current market conditions and interest rates. The
mortgage loan secured by the apartment complex in Dayton, OH was repaid in March
2000 for $2.5 million.


                                       15

   16

11. BANK LOANS
    As of December 31, 1998, the Trust had $101 million outstanding under a
fully secured $110 million credit agreement at a weighted average interest rate
of 8.37%. The bank loans were repaid and the credit facility was terminated in
1999.

12. MORTGAGE LOANS PAYABLE AND DEFERRED OBLIGATION
    As of December 31, 1999, the Trust had outstanding $195.1 million of
mortgage loans due in installments extending to the year 2018. Interest rates on
fixed rate mortgages range from 7.5% to 15% with $71.1 million of mortgage loans
bearing interest based on LIBOR. Variable rate mortgage loans of $34.0 million
were outstanding at December 31, 1998 at a weighted average interest rate of
7.32%. The weighted average interest rate of the variable rate mortgages is
8.96% at December 31, 1999. Principal payments due during the five years
following December 31, 1999 are $1.8 million, $35.9 million, $83.5 million, $2.0
million and $31.1 million, respectively.
    A $38.2 million mortgage at 12.25% provides for the lender to participate in
the cash flow of the secured property over predefined levels.
    A $29.6 million mortgage loan at 15% is a second mortgage loan that matures
in 2000. The second mortgage loan requires that the interest is paid quarterly
at a 7% pay rate with 8% deferred. This second mortgage note also requires that
the first $.6 million of cash flow remaining after paying the debt service on
the first and second mortgage loans be deposited into an escrow account on an
annual basis. Cash flow above the $.6 million threshold is to be used to repay
the deferred interest on the second mortgage loan. The lender of the second
mortgage loan was granted an option exercisable in April 2000 to purchase the
shopping mall securing the first and second mortgages for $2.0 million in excess
of the mortgage loan balances. The Trust has a put option exercisable in April
2000 to require the lender to purchase the mall if the lender fails to exercise
its option.
    The fair value of mortgage loans payable is $200.5 million at December 31,
1999 based on current market conditions and interest rates.
    The Trust also has outstanding a $10.6 million deferred obligation at an
interest rate of 14.88%, which was repaid in January 2000. The fair value of the
deferred obligation is approximately $13.6 million at December 31, 1999.

13. SENIOR NOTES
    The Trust has approximately $12.5 million of 8-7/8% Senior Notes outstanding
at December 31, 1999. The fair value of the Senior Notes is approximately $12.3
million based on current market quotations.

14. PREFERRED SHARES OF BENEFICIAL INTEREST
    In October 1996, the Trust issued $57.5 million of Series A cumulative
convertible redeemable preferred shares of beneficial interest ("Series A
Preferred Shares"). The 2,300,000 Series A Preferred Shares were issued at a par
value of $25 per share and are each convertible into 3.31 common shares of
beneficial interest. The distributions on the Series A Preferred Shares are
cumulative and equal to the greater of $2.10 per share (equivalent to 8.4% of
the liquidation preference per annum) or the cash distributions on the common
shares of beneficial interest into which the Series A Preferred Shares are
convertible (determined on each of the quarterly distribution payment dates for
the Series A Preferred Shares). The Series A Preferred Shares are not redeemable
prior to October 29, 2001, and at no time will they be redeemable for cash. On
and after October 29, 2001, the Series A Preferred Shares are redeemable at the
option of the Trust at the conversion rate of one Series A Preferred Share for
3.31 common shares of beneficial interest. The Trust may exercise its option
only if for 20 trading days within any period of 30 consecutive trading days,
the closing price of the common shares of beneficial interest on the New York
Stock Exchange equals or exceeds the conversion price of $7.5625 per share of
beneficial interest.


                                       16

   17

    In February 1998, 951,000 Series A Preferred Shares were converted to
3,144,000 common shares of beneficial interest.

15. NOTES PAYABLE
    The Trust has a $49.1 note payable loan bearing interest at 7.25% per annum
and maturing in March 2000. The note payable is secured by a $99.0 million U.S.
Treasury Bill.
    The Trust as of December 31, 1998 had notes payable of $90.0 million and
$4.9 million outstanding. The $90.0 million note payable was repaid during the
first six months of 1999. The $4.9 million note was payable to the trustee of an
escrow account which secures the change in control agreements entered into by
the Trust and Company with their employees. The note was payable upon demand by
the trustee. The $4.9 million liability for the note payable was reversed by the
Trust in 1999 because the Trust believes that there is sufficient liquidity to
meet any remaining severance payments and legal fees associated with the change
in the majority of the Trust's Board of Trustees.

16. SHARE OPTIONS
    The Trust has the following share option plans for key personnel and
Trustees.

1981 STOCK OPTION PLAN
    This plan provided that option prices be at the fair market value of the
shares at the date of grant and that option rights granted expire 10 years after
the date granted. Adopted in 1981, the plan originally reserved 624,000 shares
for the granting of incentive and nonstatutory share options. Subsequently, the
shareholders approved amendments to the plan reserving an additional 200,000
shares, for a total of 824,000 shares, for the granting of options and extending
the expiration date to December 31, 1996. The amendments did not affect
previously issued options. In June 1998, a change in the majority of the Trust's
Board of Trustees resulted in all share options not previously vested to become
fully vested as of that date.
    The activity of the plan is summarized for the years ended December 31 in
the following table:



                   1999          Weighted      1998          Weighted        1997         Weighted
                  Shares          Average     Shares          Average       Shares         Average
                  -----------------------     ------------------------      -----------------------
                                                                           
Exercised                                     186,155        $    8.51      39,809        $    7.64
Canceled          82,550        $   10.61     317,281             8.22      13,590            13.14
Expired            7,280            17.07      16,120            17.43      22,880            17.55


    As of December 31, 1999, the following options were outstanding under the
1981 plan:



                                          Options Outstanding                                       Options Exercisable
                   ------------------------------------------------------------------------       ---------------------------------
                                                            Weighted
    Year                                                     Average           Weighted                               Weighted
  Options            Number           Range of           Remaining Years        Average              Number            Average
  Granted          Outstanding      Exercise Prices         of Options       Exercise Price        Exercisable       Exercise Price
- -----------------------------------------------------------------------------------------------------------------------------------
                                                                                                   
  1996                22,500          $  7.375                 6.20            $  7.375               22,500           $  7.375


The weighted average exercise price of the 112,330 options outstanding on
January 1, 1999 was $10.386 per share.

LONG-TERM INCENTIVE OWNERSHIP PLAN
    This plan, adopted in 1994 and amended in 1999, reserved 1,629,785 shares
for the granting of incentive and nonstatutory share options and restricted
shares. In accordance with the original plan, 9% of the shares of beneficial
interest resulting from the conversion of preferred shares in February 1998 and
the January 1997 and June 1997 shares of beneficial interest offerings were
reserved and added to the plan for grant. In May 1999, the plan was amended with
shareholder approval and 1,357,037 shares of beneficial interest were reserved
and added to the plan. The share


                                       17

   18
options expire eight to ten years after being granted. The price of the options
is the fair market value of the shares at the date of grant with the exception
of the option grants in November 1998 and May 1999. The stock options granted in
1998 were granted at exercise prices exceeding the market price per share. The
option grants in May 1999 were at the equity price of the rights offering.
Additionally, the options granted in 1998 and 1999 have a cost of capital
feature whereby the exercise price of the options will increase by 10%,
compounded annually and prorated monthly, beginning in May 2000 and in each
November thereafter, less the amount of per share dividends or other
distributions to shareholders. Because the 1998 and 1999 option grants are
deemed to be variable, compensation expense will be recorded when the market
price of the shares of beneficial interest exceeds the option price for these
shares. As of December 31, 1999, the option price of the 1998 grants did not
exceed the market price of shares of beneficial interest, consequently no
compensation expense was recorded for 1999; the option price of the 1999 grants
was less than the market price of shares of beneficial interest and compensation
expense of approximately $.7 million was recorded in 1999. In June 1998, a
change in the majority of the Trust's Board of Trustees occurred resulting in
all stock options vesting that had been granted prior to that date.
    Since the inception of this plan and prior to the June 1998 change in the
composition of the Board of Trustees, restricted shares were issued to key
employees. The holders of restricted shares received dividends and had voting
rights but could not sell or transfer the shares until the restrictions lapsed.
In June 1998, a change in the majority of the Trust's Board of Trustees occurred
resulting in all restrictions being removed from the restricted shares that had
been previously granted and a $4.2 million expense was recorded for the
remaining deferred compensation which had not been expensed as of that date.
Deferred compensation of $5 million in 1998 and $3.2 million in 1997 was
recorded. Amortization of the deferred compensation of $.3 million and $.7
million was recognized in 1998 and 1997, respectively.
    The activity of this plan is summarized for the years ended December 31 in
the following table:



                                     1999           Weighted          1998           Weighted         1997          Weighted
                                    Shares           Average         Shares           Average        Shares          Average
                                ------------------------------------------------------------------------------------------------
                                                                                                
Share options granted               627,471        $    3.69        1,800,000        $    7.50       327,000        $   14.19
Share options canceled               69,840            11.32          501,468            10.83         7,102             7.38
Share options exercised                   -                           168,382             7.10        52,754             7.31
Restricted shares granted            17,500                           343,964                        226,867
Restricted shares canceled            5,000                           606,852                          3,521
Shares purchased by
  employees                               -                            18,499                          9,005
Additional shares reserved        1,357,037                           282,941                        921,150
Available share options
  and restricted shares           1,057,391                           270,485                      1,041,687


    As of December 31, 1999, this plan had the following options outstanding:



                                  Options Outstanding                                    Options Exercisable
            ----------------------------------------------------------------------    --------------------------------

                                                       Weighted
 Year                                                   Average        Weighted                           Weighted
Options      Number            Range of             Remaining Years     Average         Number             Average
Granted    Outstanding      Exercise Prices            of Options    Exercise Price   Exercisable      Exercise Price
- ----------------------------------------------------------------------------------------------------------------------
                                                                                   
1996            2,334        $       7.375                4.20     $       7.375         2,334         $      7.375
1997           20,000         14.125-14.25                5.30           14.1875        20,000              14.1875
1998        1,800,000            6.19-8.19                8.83              7.19       450,000                 7.19
1999          627,471                 3.69                9.50              3.69       156,868                 3.69
            ---------                                              -------------       -------         ------------
            2,449,805                                              $        6.36       629,202         $       6.76
            =========                                              =============       =======         ============


    The weighted average exercise price of the 1,892,174 options outstanding as
of January 1, 1999 was $7.71 per share.


                                       18

   19
    The Trust accounts for stock option awards in accordance with APB 25 and has
adopted the disclosure-only provisions of SFAS 123, "Accounting for Stock-Based
Compensation." Consequently, compensation cost has not been recognized for the
share option plans except for the options granted in May 1999 which have an
exercise price that is less than the year end per share market price. If
compensation expense for the Trust's two share option plans had been recorded
based on the fair value at the grant date for awards in 1999, 1998 and 1997,
consistent with SFAS 123, the Trust's net income would be adjusted as follows
(amounts in thousands, except per share data):



                                                                                    Restated
                                                   1999              1998             1997
                                               ----------------------------------------------
                                                                           
   Net income (loss) applicable to shares
  of beneficial interest                       $   (9,137)        $  (86,517)        $ 845
Effect of stock options as calculated              (1,481)              (557)         (569)
                                               ----------         ----------         -----
Net income (loss) as adjusted                  $  (10,618)        $  (87,074)        $ 276
                                               ==========         ==========         =====
Per share
  Basic and diluted:
  Net income (loss)                            $     (.24)        $    (2.81)        $ .02
  Effect of stock options as calculated              (.04)              (.02)         (.02)
                                               ----------         ----------         -----
  Net income (loss), as adjusted               $     (.28)        $    (2.83)        $   -
                                               ==========         ==========         =====


    The fair value of each option grant is estimated on the date of the grant
using the Black- Scholes option pricing model, with the following weighted
average assumptions used for grants in 1999, 1998 and 1997.

                                               1999         1998        1997
                                               ------------------------------
             Risk-free interest rate             5%          5%         5.7%
             Expected option life              8 yrs.       10 yrs.    4 yrs.
             Expected volatility                20%         32%         23%
             Expected dividend yield             3%          4%        3.5%

TRUSTEE SHARE OPTION PLAN
    In 1999, the shareholders approved a share option plan for members of the
Board of Trustees. This plan provides compensation in the form of common shares
of beneficial interest and options to acquire common shares for Trustees who are
not employees of First Union and who are not affiliated with Apollo Real Estate
Advisors or Gotham Partners. A total of 500,000 shares of beneficial interest
are available under this plan.
    The eligible Trustees serving on the Board on the day following the 1999
annual meeting were granted the lesser of 2,500 shares or the number of shares
having a market price of $12,500 as of the annual meeting date. Seven Trustees
each received 2,500 shares; two Trustees later resigned in 1999 and forfeited
their shares. The shares vest and are non-forfeitable on the day prior to the
2000 annual meeting as long as the Trustee is still a member of the Board. The
Trustees receive dividends and have the right to vote the shares. Deferred
compensation of $.1 million was recorded and $48,000 was recognized as
amortization expense in 1999.
    Each eligible Trustee who purchases a minimum of $5,000 of shares between
annual meeting dates will receive options, commencing in the year 2000, to
purchase four times the number of shares that he has purchased. Shares purchased
in excess of $25,000 between annual meeting dates will not be taken into account
for option grants. The option prices will be the greater of fair market value on
the date of grant or $6.50 for half of the options, and the greater of fair
market value or $8.50 for the other half of the options. The option prices will
be increased by 10% per annum beginning May 2000 and decreased by dividend
distributions made after November 1998. The options vest and become exercisable
one year after being granted.
    At December 31, 1999, a total of 12,500 shares were outstanding under this
plan and options were not yet required to be granted for shares that the
Trustees purchased.


                                       19
   20


17. SHAREHOLDER RIGHTS PLAN
    In March 1990, the Board of Trustees declared a dividend consisting of one
right to purchase one share of beneficial interest of the Trust with respect to
each share of beneficial interest. The rights may be exercised only if a person
or group acquires 15% or more of the outstanding shares of beneficial interest,
makes a tender offer for at least 15% of the outstanding shares of beneficial
interest or is declared to be an "adverse person." The Board of Trustees amended
the plan in 1999 for specific shareholders to acquire shares of beneficial
interest exceeding the 15% threshold. The shareholder rights plan will expire on
March 30, 2000 and the plan will terminate.

18. FEDERAL INCOME TAXES
    The Trust has made no provision for current or deferred Federal and state
income taxes on the basis that it qualifies under the Internal Revenue Code (the
"Code") as a real estate investment trust ("REIT") and has distributed all of
its taxable income to shareholders. Qualification as a REIT involves the
application of highly technical and complex provisions of the Code, for which
there are only limited judicial or administrative interpretations. The
complexity of these provisions is greater in the case of a stapled REIT such as
the Trust. The Trust's ability to qualify as a REIT is dependent upon its
continued exemption from the anti-stapling rules of the Code, which, if they
were to apply, would prevent the Trust from qualifying as a REIT. Qualification
as a REIT also involves the determination of various factual matters and
circumstances. The failure of the Trust to qualify as a REIT would have a
material adverse effect on the Trust's ability to make dividends to its
shareholders and to pay amounts due on its indebtedness. Disqualification of
REIT status during any of the preceding five calendar years would cause a REIT
to incur corporate tax with respect to a year that is still open to adjustment
by the Internal Revenue Service. In addition, unless entitled to relief under
certain statutory provisions, a REIT also would be disqualified from reelecting
REIT status for the four taxable years following the year during which
qualification is lost.
    In order to continue to meet certain REIT qualification income tests of the
Code for the year 2000, the Impark parking businesses must be disposed of or
other sources of qualified income obtained. The disposition of Impark is
currently planned by distributing the stock of the parking business to the
shareholders. If the disposal of the parking business is not accomplished or
another source of qualified income obtained in time to allow the REIT income
tests for the year 2000 to be satisfied, then the continued REIT classification
of the Trust for 2000 will be dependent on the Trust being able to demonstrate
it is using ordinary business care and prudence in an effort to dispose of this
property, and, if it can so demonstrate, it will be subject to certain excise
taxes for non-qualifying income.
    The Trust and Company treat certain items of income and expense differently
in determining net income reported for financial and tax purposes. Such items
resulted in a net decrease in income for tax reporting purposes of $1.8 million
in 1999 and a net increase in income for tax reporting purposes of $72.0 million
in 1998 and $8.0 million for 1997.
    As of December 31, 1999, net investments in real estate after accumulated
depreciation for tax reporting purposes was approximately $282.6 million as
compared to $263.3 million for financial reporting purposes.


                                       20

   21

    The 1999 quarterly allocation of cash dividends per common share of
beneficial interest for individual shareholders' income tax purposes was as
follows:

                                       20% Rate
                                        Capital    Ordinary    Total
                  Dates Paid             Gains      Income      Paid
             -------------------------------------------------------
             October 29, 1999         $  .155     $     -    $  .155
             January 28, 2000            .155           -       .155
                                      -------     -------    -------
                                      $  .310     $     -    $  .310
                                      =======     =======    =======

    The 1999 quarterly allocation of cash dividends per preferred share of
beneficial interest for individual shareholders' income tax purposes was as
follows:

                                       20% Rate
                                        Capital    Ordinary    Total
                  Dates Paid             Gains      Income      Paid
             -------------------------------------------------------
              February 1, 1999        $  .525     $     -    $  .525
              April 30, 1999             .525           -       .525
              July 31, 1999              .525           -       .525
              October 29, 1999           .525           -       .525
              January 28, 2000           .525           -       .525
                                      -------     -------    -------
                                      $ 2.625     $     -    $ 2.625
                                      =======     =======    =======

19. LEGAL CONTINGENCY
    The Trust has pursued legal action against the State of California
associated with the 1986 flood of Sutter Buttes Center, formerly Peach Tree
Center. In September 1991, the court ruled in favor of the Trust on the
liability portion of this inverse condemnation suit, which the State of
California appealed. However, in the third quarter of 1999, the 1991 ruling in
favor of the Trust was reversed by the State of California appeals court.
Accordingly, the Trust expensed $1.2 million in deferred legal fees which the
earlier court ruling in favor of the Trust had allowed for recovery.

20. SUBSEQUENT EVENT
    The Trust in January 2000 repaid its $10.6 million deferred obligation
resulting in a prepayment penalty of $3.1 million.

21. BUSINESS SEGMENTS
    The Trust and Company's business segments include ownership of shopping
centers, apartment complexes, office buildings, parking facilities, mortgage
investments and parking and transit ticket equipment manufacturing (Ventek).
Corporate rent and operating expense consist primarily of ground lease income
from a property leased to a third party. Rent, property operating expense and
real estate taxes, interest expense, depreciation, capital improvements and
identifiable assets for real estate assets have been identified for each of the
business segments for the last three years. The apartment portfolio was sold in
May 1999 and during 1999, the Trust sold 16 shopping centers, two office
facilities and a parking lot. Impark and the Trust's Canadian parking facilities
are shown as discontinued operations for 1999, 1998 and 1997 because they will
be spun off to the Trust's shareholders in 2000. Property net operating income
is property rent and sales revenue less property operating expense, cost of
goods sold and real estate taxes. Corporate interest expense consists of the
Trust's non-recourse notes payable, senior notes, and bank loan interest
expense. Corporate depreciation and amortization consist primarily of the
amortization of deferred issue costs on non-recourse debt and the leasehold
improvements for its corporate office. Corporate assets consist primarily of
cash and cash equivalents, leasehold improvements for the corporate office and
deferred issue costs for non-recourse debt and senior notes. All intercompany
transactions between segments have been eliminated. (See table of business
segments on the next page.)


                                       21

   22



21. BUSINESS SEGMENTS CONTINUED

                                               1999              1998             1997
                                            ---------------------------------------------
                                                                       
RENTS AND SALES
   Shopping Centers                         $  79,412         $  97,584         $  58,284
   Apartments                                   6,079            17,056            17,835
   Office Buildings                            12,715            13,275            13,989
   Parking Facilities                          10,506             9,931             3,585
   Ventek                                       6,643             5,170             5,534
   Corporate                                    1,127             1,112             1,156
                                            ---------         ---------         ---------
                                            $ 116,482         $ 144,128         $ 100,383
LESS - OPERATING EXPENSES AND
 COSTS OF GOODS SOLD
   Shopping Centers                         $  26,475         $  32,433         $  17,182
   Apartments                                   2,349             6,182             6,729
   Office Buildings                             5,745             6,069             6,753
   Parking Facilities                             808             2,022               716
   Ventek                                       8,670             7,008             5,127
   Corporate                                      847               912               873
                                            ---------         ---------         ---------
                                            $  44,894         $  54,626         $  37,380
LESS - REAL ESTATE TAXES
   Shopping Centers                         $   6,608         $   8,918         $   6,857
   Apartments                                     339               975             1,382
   Office Buildings                             1,126               992             1,085
   Parking Facilities                           1,864             1,568               624
                                            ---------         ---------         ---------
                                            $   9,937         $  12,453         $   9,948

PROPERTY NET OPERATING INCOME (LOSS)
   Shopping Centers                         $  46,329         $  56,233         $  34,245
   Apartments                                   3,391             9,899             9,724
   Office Buildings                             5,844             6,214             6,151
   Parking Facilities                           7,834             6,341             2,245
   Ventek                                      (2,027)           (1,838)              407
   Corporate                                      280               200               283
                                            ---------         ---------         ---------
                                            $  61,651         $  77,049         $  53,055
                                            ---------         ---------         ---------

LESS - DEPRECIATION AND
    AMORTIZATION
   Shopping Centers                         $  12,675         $  15,880         $  10,414
   Apartments                                   1,011             2,751             2,952
   Office Buildings                             5,071             4,282             3,963
   Parking Facilities                           1,812             1,561               247
   Ventek                                          83                46                34
   Corporate                                    4,679             3,083             1,177
                                            ---------         ---------         ---------
                                            $  25,331         $  27,603         $  18,787

LESS - INTEREST EXPENSE
   Shopping Centers                         $  22,649         $  23,832         $  11,224
   Apartments                                   1,006             2,819             3,406
   Office Buildings                             1,377                 -                15
   Parking Facilities                           3,231             2,381               784
   Ventek                                           8                23                16
   Corporate                                   10,171            19,142            12,303
                                            ---------         ---------         ---------
                                            $  38,442         $  48,197         $  27,748



                                       22

   23



                                                    1999             1998              1997
                                                ---------------------------------------------
                                                                           
MORTGAGE INVESTMENT INCOME                      $     463         $   1,211         $   2,907

CORPORATE INCOME (EXPENSE)
   Short-term investment income                 $   2,649         $   1,337         $   1,525
   Other income                                     1,180             1,386             5,724
   General and administrative                     (14,664)          (28,104)           (9,398)
   Litigation and proxy costs                           -            (4,848)                -
   Loss on carrying value of real estate
     and impaired assets                           (9,800)          (36,000)                -
   Loss from discontinued operations               (6,836)          (27,696)           (2,844)
                                                ---------         ---------         ---------
INCOME (LOSS) BEFORE CAPITAL GAIN
  AND EXTRAORDINARY LOSS                        $ (29,130)        $ (91,465)        $   4,434
                                                =========         =========         =========
CAPITAL EXPENDITURES
   Shopping Centers                             $   6,497         $  12,585         $   9,381
   Apartments                                         262             2,081             1,497
   Office Buildings                                 3,337             8,045             9,741
   Parking Facilities                               1,392               392             1,035
                                                ---------         ---------         ---------
                                                $  11,488         $  23,103         $  21,654
                                                =========         =========         =========

IDENTIFIABLE ASSETS
   Shopping Centers                             $ 154,202         $ 471,996         $ 498,238
   Apartments                                           -            79,011            79,386
   Office Buildings                                40,782            45,404            45,412
   Parking Facilities                              69,065            72,434             7,988
   Mortgages                                        5,426             5,508            30,686
   Ventek                                           5,247             4,476             5,206
   Corporate                                      160,909            35,916            29,723
   Net Assets of Discontinued Operations           25,821            27,878            38,345
                                                ---------         ---------         ---------
Total Assets                                    $ 461,452         $ 742,623         $ 734,984
                                                =========         =========         =========


22. MINIMUM RENTS
    The future minimum lease payments that are scheduled to be received under
noncancellable operating leases are as follows (amounts in thousands):

                       2000                   $  30,442
                       2001                      27,438
                       2002                      25,793
                       2003                      23,793
                       2004                      20,617
                       Thereafter                62,318
                                              ---------
                                              $ 190,401
                                              =========

                                       23

   24

23. RELATED PARTY TRANSACTIONS
    The Company has engaged a law firm, that has a partner who is a Trustee, to
advise it on strategic matters regarding Impark. As of December 31, 1999,
approximately $.3 million has been paid to this firm.
    The Company leases four of its parking facilities to a third party which is
partially owned by an affiliate of a Trust shareholder, Apollo Real Estate
Investment Fund II, L.P. and Apollo Real Estate Advisors. In 1999, the Trust
received approximately $4 million in rent from this third party.
    In connection with a $90.0 million note payable, the Trust paid interest and
fees of $1.2 million to Gotham Partners, L.P. and Gotham Partners III, L.P.
("Gotham").
    Additionally, the Trust paid $1.8 million to Gotham for a stand-by
commitment fee in connection with the May 1999 share rights offering which
raised $46.5 million in net proceeds. Gotham owned 13.75% of the shares of
beneficial interest of the Trust as of December 31, 1999.
    The Trust in 1999 engaged a company to provide mortgage brokerage services.
A member of the immediate family of a Trustee is a principal of that company and
the Trustee is also a principal of Gotham. In 1999, fees of $.6 million were
paid to this company.

24. SEVERANCE ACCRUAL
    During 1999 and 1998, the Trust recorded $2.2 million and $3.7 million,
respectively, in severance expense. The 1999 severance expense of $2.2 million
is a result of staff reductions made in 1999 and for employees who have been
notified that their employment with the Trust will be terminated in the first
half of 2000 due to the closing of the Cleveland, OH headquarters. The 1998
severance expense of $3.7 million was recorded for change in control agreements
and compensation arrangements for continuation of employment. The Trust
recognizes continuation of employment expense over the period that employees are
required to remain in employment of the Trust. The severance accrual for the
years ended December 31, 1999 and 1998 was as follows (amounts in thousands):

                                                        1999        1998
                                                     ----------------------

                 Beginning balance                   $  2,742
                 Expense                                2,219     $  3,742
                 Payments                              (3,730)      (1,000)
                                                     --------     --------
                 Balance at end of year              $  1,231     $  2,742
                                                     ========     ========
25. CONTINGENCIES
    The Trust, in exchange for a fee from Impark, has provided performance
guarantees for the manufacturing and installation of transit ticket vending
equipment. The guarantees of $5.3 million and $6.2 million expire in February
2001 and 2002, respectively. As of December 31, 1999, no amounts have been drawn
against these guarantees.


                                       24

   25

26. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
    The following is an unaudited condensed summary of the combined results of
operations by quarter for the years ended December 31, 1999 and 1998. In the
opinion of the Trust and Company, all adjustments (consisting of normal
recurring accruals) necessary to present fairly such interim combined results in
conformity with generally accepted accounting principles have been included.
    Impark and the Trust's Canadian real estate have been classified as
discontinued operations for 1999 and 1998.
    The first three quarters of 1999 have been restated to reflect the adoption
of the use of a 20- year life for the amortization of Impark's goodwill in
October 1999, retroactive to January 1, 1999. Previously, the amortization life
was 40 years.




                                                                                 Quarters Ended
                                                       -------------------------------------------------------------------
                                                         Restated           Restated           Restated
                                                         March 31           June 30           September 30    December 31
                                                       -------------------------------------------------------------------
                                                                                                  
(In thousands, except per share data and footnotes)

1999
Revenues                                                $   34,694         $  30,891           $  25,863       $  29,326
                                                        ----------         ---------           ---------       ---------
Income (loss) before preferred dividend,
  extraordinary loss from early
  extinguishment of debt and loss
  from discontinued operations                              (3,099)           15,726              (1,401)         (5,186)
Extraordinary loss from early
  extinguishment of debt                                                                                          (5,508)
Income (loss) from discontinued operations                  (1,793)              184                (154)         (5,073)
                                                        ----------         ---------           ---------       ---------
Net income (loss) before preferred dividend                 (4,892)           15,910              (1,555)        (15,767)
                                                        ----------         ---------           ---------       ---------
Net loss applicable to shares
  of beneficial interest                                $   (5,600)        $  15,202(1),(2)    $  (2,263)      $ (16,476)(3)
                                                        ==========         =========           =========       =========
Comprehensive net income (loss)                         $   (5,461)        $  15,194           $  (2,233)      $ (14,520)
                                                        ==========         =========           =========       =========
Per share
  Income (loss) applicable to shares of
    beneficial interest before extraordinary
    loss and loss from discontinued operations          $     (.12)        $     .40           $    (.05)      $     (.14)
  Extraordinary loss from early
    extinguishment of debt                                                                                           (.13)
  Loss from discontinued operations                     $     (.06)        $       -           $       -       $     (.12)
                                                        ----------         ---------           ---------       ---------
  Net income (loss) applicable to shares of
    beneficial interest, basic and diluted              $     (.18)        $     .40           $    (.05)      $     (.39)
                                                        ==========         =========           =========       ==========

      As previously reported:
        Net income (loss) previously disclosed          $   (5,371)        $  15,430           $   (2,033)
          Change in amortization expense                      (229)             (228)                (230)
                                                        ----------         ---------           ---------
        Net income (loss) as restated                   $   (5,600)        $  15,202           $   (2,263)
                                                        ==========         =========           ==========
        Net income (loss) per share as
          previously disclosed, basic
          and diluted                                   $     (.17)        $     .41           $     (.05)
        Net loss per share as restated,
          basic and diluted                                   (.18)              .40                 (.05)


(1) Includes capital gains of $8.7 million for the sale of eight apartment
    complexes and $19.4 million for the sale of seven shopping malls.
(2) Includes a $9 million loss on the carrying value of assets held for sale.
(3) Includes an accrual of $5.1 million for professional fees, the operating
    loss for the discontinued operations for the first quarter of 2000 and the
    recognition of foreign currency losses from the discontinued operations.
    Also includes a $5.5 million penalty from the prepayment of a mortgage loan
    and $1.8 million of asset write-downs of Ventek.


                                       25

   26
26. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) CONTINUED



                                                                              Quarters Ended
                                                      --------------------------------------------------------------------
                                                      March 31           June 30           September 30        December 31
                                                      --------------------------------------------------------------------
                                                                                                     
(In thousands, except per share data and footnotes)

1998
Revenues                                              $ 35,551            $ 36,260            $ 35,385            $ 40,866
                                                      --------            --------            --------            --------
Loss before preferred dividend,
  extraordinary loss from early
  extinguishment of debt and loss
  from discontinued operations                          (1,699)             (7,192)             (5,519)            (39,013)
Extraordinary loss from early
  extinguishment of debt                                                                        (1,633)               (766)
Loss from discontinued operations                       (1,880)             (3,884)             (3,079)            (18,853)
                                                      --------            --------            --------            --------
Net loss before preferred dividend                      (3,579)            (11,076)            (10,231)            (58,632)
                                                      --------            --------            --------            --------
Net loss applicable to shares
  of beneficial interest                              $ (4,454)(1)        $(11,784)(2)        $(10,939)(3)        $(59,340)(4)
                                                      ========            ========            ========            ========
Comprehensive net loss                                $ (4,450)           $(12,073)           $(11,276)           $(59,957)
                                                      ========            ========            ========            ========
Per share
  Loss applicable to shares of
    beneficial interest before extraordinary
    loss and loss from discontinued operations        $   (.09)           $   (.25)           $   (.20)           $  (1.13)
  Extraordinary loss from early
    extinguishment of debt                                                                        (.05)               (.02)
  Loss from discontinued operations                       (.06)               (.13)               (.10)               (.60)
                                                      --------            --------            --------            --------
  Net loss applicable to shares of
    beneficial interest, basic and diluted            $   (.15)           $   (.38)           $   (.35)           $  (1.75)
                                                      ========            ========            ========            ========

(1) Included $.9 million loss from Ventek and $.9 million in proxy and
    litigation expenses.

(2) Included $3.4 million expense for the termination of the former chairman,
    president and chief executive officer, $3.9 million in proxy and litigation
    expenses, $4.7 million expense for the vesting of restricted shares, $2.2
    million loss of a property acquisition deposit due to the Trust terminating
    the deal, $1.5 million in professional fees to avoid a change in the
    composition of the Trust's Board, $1.0 million in bank loan waiver fees, a
    $.4 million loss for the termination of a systems project and $1.5 million
    in foreign currency translation loss.

(3) Included $1.7 million severance accrual, $.8 million in expense for
    terminations of former employees, $1.6 million in legal fees for possible
    corporate and financial transactions of the Trust, $1.1 million in foreign
    currency translation loss for marking an intercompany receivable to the spot
    rate, the reduction in the accrual of percentage rent of $1.5 million due to
    the adoption of EITF 98-9 and a $1.6 million extraordinary loss from the
    repayment of $87.5 million of senior notes prior to their maturity.

(4) Included $1.1 million in expense for various services provided to the Trust
    by a third party and warrants issued in connection therewith, $.8 million in
    legal fees for a rights offering and potential acquisitions and sales, $.5
    million in professional fees resulting from an unsuccessful effort to
    refinance the Trust's bridge and bank loans, $.8 million extraordinary loss
    resulting from amendments to the Trust's bank credit facility and $90
    million note payable, $4.4 million severance accrual offset by $1.5 million
    in additional percentage rent accrued due to the prospective adoption of
    EITF 98-9. Also included a $51 million loss on carrying value of assets
    identified for disposition and impaired.



                                       26

   27

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

TO THE SECURITYHOLDERS AND TRUSTEES OF FIRST UNION REAL ESTATE EQUITY AND
MORTGAGE INVESTMENTS:

    We have audited the accompanying consolidated balance sheets of First Union
Real Estate Equity and Mortgage Investments (an unincorporated Ohio business
trust, also known as First Union Real Estate Investments) and First Union
Management, Inc. (a Delaware corporation) and its subsidiaries as of December
31, 1999 and 1998, and the related combined statements of operations,
comprehensive income, shareholders' equity and changes in cash for each of the
three years in the period ended December 31, 1999. These financial statements
are the responsibility of management. Our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit the
financial statements of First Union Management, Inc.'s Parking Business (also
known as FUMI Parking Business), comprised primarily of Imperial Parking Limited
and Impark Services Ltd., for the year ended December 31, 1999, which statements
reflect total assets and total revenues of approximately 12 percent and
approximately 39 percent of the related consolidated totals. Those statements
were audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to the amounts included for those entities, is
based solely on the report of the other auditors.

    We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of the other
auditors provide a reasonable basis for our opinion.

    In our opinion, based on our audits and the report of other auditors for
1999, the financial statements referred to above present fairly, in all material
respects, the combined financial position of First Union Real Estate Equity and
Mortgage Investments and First Union Management, Inc. and its subsidiaries as of
December 31, 1999 and 1998, and the results of their operations and their
changes in cash for each of the three years in the period ended December 31,
1999, in conformity with accounting principles generally accepted in the United
States.

Cleveland, Ohio,
March 1, 2000.                                               Arthur Andersen LLP


                                       27

   28

                       MANAGEMENT 'S DISCUSSION & ANALYSIS
                 OF FINANCIAL CONDITION & RESULTS OF OPERATIONS

FINANCIAL CONDITION
    During 1999, the Trust sold 27 properties, obtained non-recourse mortgage
loans on three properties, and sold shares under a stock rights offering to
raise capital which was used primarily to repay debt and generate cash.
    In summary, the 27 properties were sold for $404.7 million. Proceeds of
$213.2 million were used to repay mortgage debt related to the properties or the
mortgage loans were transferred with the properties as part of the
consideration. The net proceeds of $172.2 million after transaction costs,
prorations and mortgage debt were used to partially repay a note payable for
$49.8 million, partially repay bank debt of $86 million, and the remaining $36.4
million was held as cash. The proceeds from the property sales and use of the
proceeds are shown by property in the following table.



(amounts in millions)
- ----------------------------------------------------------------------------------------------
                                                                       NET
                                                                     PROCEEDS      MORTGAGE
                                        MONTH                     (AFTER COSTS   DEBT REPAID
                                       SOLD IN         GROSS           AND            OR
PROPERTY                                1999         PROCEEDS      PRORATIONS)   TRANSFERRED
- ----------------------------------------------------------------------------------------------
                                                                     
WOODLAND COMMONS                       FEBRUARY      $   21.6       $   20.8      $   11.5
  SHOPPING CENTER
BECK BUILDING (OFFICE)                 MARCH              2.2            1.8
SUTTER BUTTES (OFFICE)                 APRIL              3.8            3.6
NORTHWEST MALLS                        MAY               37.4           36.1
  Valley
  Valley North
  Mall 205
  Plaza 205
APARTMENT PORTFOLIO                    MAY               86.0           84.2          37.5
  Somerset Lakes
  Steeplechase
  Briarwood
  Hunters Creek
  Beech Lake
  Woodfield Gardens
  Windgate Place
  Walden Village
MAGIC MILE                             MAY                2.0            1.9
  PARKING LOT
TWO-MALL PACKAGE                       JUNE              22.1           21.7
  Crossroads, Ft. Dodge
  Kandi
FINGERLAKES MALL                       JUNE               2.3            2.2
MOUNTAINEER MALL                       JULY              11.0           10.2           3.6
FAIRGROUNDS SQUARE                     JULY              24.8           24.0
SOUTHWESTERN MALLS                     DECEMBER         191.5          178.9         160.6
  Alexandria
  Brazos
  Killeen
  Mesilla Valley
  Shawnee
  Villa Linda
                                                       ------         ------        ------
SUBTOTALS                                               404.7          385.4         213.2
ADJUSTMENTS TO AGREE TO STATEMENT
  OF CHANGES IN CASH
  Mortgage prepayment penalties                                          5.8
  Mortgage debt transferred
    to purchasers                                                     (163.7)      (163.7)
                                                     --------       --------     --------
                                                     $  404.7       $  227.5     $   49.5
                                                     ========       ========     ========






(amounts in millions)
- -----------------------------------------------------------------------------------------
                                            Net               Use of Net Proceeds
                                          Proceeds      ---------------------------------
                                          (after        Repaid       Repaid
                                          mortgage       Note         Bank      Available
Property                                    debt)       Payable       Loan        Cash
- -----------------------------------------------------------------------------------------
                                                                   
WOODLAND COMMONS                         $    9.3      $    9.3
  SHOPPING CENTER
BECK BUILDING (OFFICE)                        1.8           1.8
SUTTER BUTTES (OFFICE)                        3.6           3.6
NORTHWEST MALLS                              36.1           2.7      $33.4
  Valley
  Valley North
  Mall 205
  Plaza 205
APARTMENT PORTFOLIO                          46.7          15.7       31.0
  Somerset Lakes
  Steeplechase
  Briarwood
  Hunters Creek
  Beech Lake
  Woodfield Gardens
  Windgate Place
  Walden Village
MAGIC MILE                                    1.9           1.9
  PARKING LOT
TWO-MALL PACKAGE                             21.7           0.1       21.6
  Crossroads, Ft. Dodge
  Kandi
FINGERLAKES MALL                              2.2           2.2
MOUNTAINEER MALL                              6.6           6.6
FAIRGROUNDS SQUARE                           24.0           5.9                   $18.1
SOUTHWESTERN MALLS                           18.3                                  18.3
  Alexandria
  Brazos
  Killeen
  Mesilla Valley
  Shawnee
  Villa Linda
                                           ------        ------     ------        -----
SUBTOTALS                                   172.2          49.8       86.0         36.4
ADJUSTMENTS TO AGREE TO STATEMENT
  OF CHANGES IN CASH
  Mortgage prepayment penalties
  Mortgage debt transferred
    to purchasers
                                         --------      --------   --------     --------
                                         $  172.2      $   49.8   $   86.0     $   36.4
                                         ========      ========   ========     ========



                                       28

   29

    Mortgage loans were obtained on three properties for a total of $66.7
million and the net proceeds of $62.9 million were held as cash.



(amounts in millions)
- -------------------------------------------------------------------------------------------------------------------------------
                                                                                                                 NET PROCEEDS
                                            MONTH OF          LOAN                                            (AFTER COSTS AND
PROPERTY                                  LOAN IN 1999       AMOUNT        INTEREST RATE        MATURITY          PRORATIONS)
- -------------------------------------------------------------------------------------------------------------------------------
                                                                                                  
55 Public Square                             August         $ 21.1          LIBOR + 325           2002             $  18.8
(Office and Garage)                                                         basis points
North Valley Tech Center (Office)            August           16.0          LIBOR + 295           2002                14.7
                                                                            basis points
Crossroads Center, St. Cloud                 October          29.6          15%                   2000                29.4
Second mortgage loan; lender has
option to purchase the mall, and the
Trust has a right to put the mall to the
lender, in April 2000 for $2.0 million
plus the first and second mortgages.                        ------                                                 -------
                                                            $ 66.7                                                 $  62.9
                                                            ======                                                 =======


    In May 1999, the Trust distributed approximately 12.5 million rights to its
shareholders to purchase shares of beneficial interest of the Trust at $4.00 per
share, raising approximately $46.5 million, net of offering costs. The Trust
used the net proceeds of the rights offering to repay $37.5 million of its note
payable and $9 million of its bank loan.

    Unrestricted and restricted cash and cash equivalents of $57.8 million at
December 31, 1999 represented an increase of $12.7 million compared to the end
of 1998. The major items contributing to this increase were as follows:



(amounts in millions)
- ------------------------------------------------------------------------------------------------------
CASH WAS GENERATED FROM
                                                                                     
  Net proceeds of property sales, after debt transferred to purchasers                  $  227.5
  Net proceeds of mortgage loans                                                            62.9
  Stock rights offering                                                                     46.5
  Operations                                                                                 9.4
  Proceeds from note payable (used to purchase a $99 million U.S. Treasury bill)            49.0
                                                                                        --------
                                                                                        $  395.3
                                                                                        --------

CASH WAS USED TO
  Repay note payable                                                                    $   90.0
  Repay bank loan                                                                          101.0
  Repay mortgage loans                                                                      49.5
  Mortgage prepayment penalties                                                              5.8
  Repurchase the Trust's common shares                                                       8.0
  Fund tenant and building improvements                                                     11.5
  Pay preferred and common dividends                                                         9.4
  Provide collateral on Imperial Parking's credit agreement                                  5.0
  Purchase a U.S. Treasury bill                                                             99.0
  Other, net                                                                                 3.4
                                                                                        --------
                                                                                        $  382.6
                                                                                        --------
Increase in unrestricted and restricted cash and cash equivalents                       $   12.7
                                                                                        ========


    The Trust purchased a $99 million Treasury bill in December 1999 using $50
million of cash on hand and borrowing $49 million with the U.S. Treasury bill as
collateral. The $49 million is classified as a note payable in the December 31,
1999 Combined Balance Sheet. Additionally, in September 1999, the Trust
purchased a $5 million U.S. Treasury bill. The $5 million U.S. Treasury bill is
pledged as collateral for Impark's bank borrowings. Both Treasury bills are
classified as held to maturity.


                                       29

   30


LIQUIDITY AND CAPITAL RESOURCES
    Net cash provided by operations was $9.4 million in 1999 compared to $5.9
million in 1998. The increase is primarily attributed to a reduction in the loss
before capital gains, extraordinary loss and loss from discontinued operations
when comparing 1999 to 1998.
    As shown in a table above, the Trust sold 27 properties for $404.7 million
and received net proceeds of $172.2 million after costs of the transactions,
prorations and repayment or transfer of the mortgage debt. Net proceeds of $46.5
million were generated from the May 1999 stock rights offering. Additionally,
the Trust received net proceeds of $62.9 million from three mortgage loans
obtained in 1999, also shown in a table above.
    During 1999, the Trust invested $11.5 million in capital and tenant
improvements. The investment was made primarily for tenant improvements to
continue to tenant the former retail center in Denver, CO, which has been
converted into an office technology center, and to build an anchor tenant store
in Abilene, TX.
    The Trust repaid approximately $101 million of bank loans by using
approximately $86 million from proceeds of property sales, $9 million from the
sale of shares of beneficial interest from the rights offering and $6 million
from funds generated from operations.
    In 1999, the Trust used $49.8 million of cash from property sales, $37.5
million from the rights offering and $2.7 million from operating cash to repay
its $90 million note payable. The $90 million note payable originated in August
1998 when the Trust repaid $87.5 million of its 8-7/8% senior notes pursuant to
a tender offer that the Trust initiated in July 1998.
    The Trust during the third quarter of 1999 repurchased 1.5 million shares of
beneficial interest for $7.8 million.
    The Trust did not pay a dividend to common shareholders of beneficial
interest in the first nine months of 1999, but did declare a $0.155 per share
dividend to common shareholders and disbursed the $6.6 million in October 1999.
Additionally, the Trust declared a $0.155 per share dividend to common
shareholders in December 1999 payable in January 2000.
    In January 2000, the Trust repaid a $10.6 million deferred obligation plus a
prepayment fee of $3.1 million.
    In the first quarter of 2000, the Trust announced that it intended to spin
off Imperial Parking Corporation to the holders of the Trust's common shares. As
part of the spin-off, the Trust will repay Imperial Parking's bank credit
facility of approximately $22 million, contribute $7 million of cash and its 14
Canadian parking properties, and fund up to $6 million of cash for a parking
development which will be leased to and operated by Imperial Parking. The Trust
will also provide a secured line of credit for $8 million to Imperial Parking.
Trust shareholders will receive one share of Imperial Parking Corporation common
stock for every 20 First Union common shares of beneficial interest held as of
March 20, 2000, expected to be distributed on March 27, subject to the SEC
declaring the registration statement effective. Imperial Parking has applied to
have its common stock listed on the American Stock Exchange under the symbol
"IPK."

RESULTS OF OPERATIONS -1999 VERSUS 1998
    Net loss applicable to common shares before discontinued operations for 1999
was $2.3 million as compared to a net loss before discontinued operations of
$58.8 million for 1998. Net loss before discontinued operations for 1999
included $28.3 million of capital gains compared to $10.3 million in 1998.
Capital gains for 1999 included $8.7 million from the sale of eight apartment
complexes, $19.4 million from the sale of six shopping malls and one shopping
center and $.2 million from the sale of six shopping malls in December 1999. In
1998, capital gains included the sale of land in Cleveland, OH for $1.7 million,
recognition of a $7.7 million capital gain which had been deferred from a sale
in 1982 when the Trust received a mortgage note as part of the sale
consideration which was repaid in May 1998, and $.8 million from the sale of a
forward exchange agreement.


                                       30

   31

    Net loss before discontinued operations for 1999 included a $9 million
impairment loss which was recorded because the Trust entered into a contract in
July 1999 to sell six shopping malls at a sales price that was less than net
book value at June 30, 1999. The six malls were sold in December 1999. An
additional $.8 million impairment loss was recorded in December 1999 for an
asset expected to be sold within the next 12 to 18 months. Net loss before
discontinued operations for 1998 included a $36 million impairment loss for
impaired assets and assets held for sale.
    Net loss before discontinued operations for 1998 included a $2.2 million
loss for a forfeited deposit for a property acquisition which was terminated, a
$4.2 million expense due to lifting of restrictions on restricted shares which
vested upon the change in the majority of the Board of Trustees in June 1998, a
$3.4 million payment to the Trust's former chairman, president and chief
executive officer, $3.7 million of severance expense, $4.8 million in proxy and
litigation expenses, and $1.5 million in professional fees incurred to avoid a
change in the composition of the Board of Trustees.
    The loss from discontinued operations for 1999 included a $1.7 million loss
from Impark, the recognition of $1.8 million of unrealized currency losses from
Impark because it is being reclassified as a discontinued operation and $3.3
million for the estimated net loss of Impark prior to the proposed spin-off in
the first quarter of 2000 and estimated professional fees to accomplish the
spin-off.
    Mortgage loan investment income declined when comparing 1999 to 1998. The
decline in interest income was caused by the repayment of two mortgage
investments in 1998.
    Short-term investment income increased during 1999 as compared to 1998. The
increase is primarily from investing the net proceeds from the $62.9 million
mortgage loans obtained in the third and fourth quarters of 1999 and
approximately $18 million from the sale of a mall in Reading, PA, which was sold
in July 1999.
    Property net operating income, which is defined as rent less operating
expenses and real estate taxes, for 1999 decreased by $15.4 million when
compared to the previous year. The decrease was primarily due to the sale of 27
properties in 1999 resulting in decreased property net operating income of $18.2
million. Property net operating income for properties in the portfolio in 1999
and 1998 increased by $2.2 million. The increase was attributed to the increased
occupancy at the North Valley Tech Center and Westgate Town Center and increased
results from parking properties due to a new contract with third-party
operators. Additionally, four parking garages acquired during 1998 produced an
additional $1 million in property net operating income on a non-comparable
basis. Ventek, the Company's equipment manufacturing subsidiary, had a decrease
in net operating income of $.2 million in 1999 compared to 1998. This was due
primarily to the write-off of accounts receivable and inventory of $2 million
for a contract canceled in the fourth quarter of 1999, which was partially
offset by approximately $1.8 million of costs incurred in 1998 to increase
production capabilities for anticipated equipment contract sales which did not
occur.
    Notes payable interest expense increased while senior note interest
decreased when comparing 1999 to 1998 because the Trust, in August 1998, repaid
$87.5 million of 8-7/8% senior notes with a $90 million note payable. As noted
previously, the $90 million note payable was repaid during the first seven
months of 1999. The average note payable balance in 1998 was $90 million as
compared to $53.1 in 1999. The average rate on the note was 9.875% per annum in
1998 and 13.5% per annum in 1999.
    Bank loan interest expense decreased when comparing 1999 to 1998. The
decrease was primarily due to repayment of the Trust's bank facility in the
second quarter of 1999 from property sales proceeds and a portion of the rights
offering proceeds. Additionally, in June 1998 the Trust recorded $.6 million of
bank covenant waiver fees as interest expense.


                                       31

   32

    General and administrative expenses declined $13.4 million when comparing
1999 to 1998. The decline is primarily the result of expenses recorded in 1998
that did not recur in 1999. These expenses included:
    - $3.4 million payment to the Trust's former chairman, president and chief
      executive officer due to his termination.

    - $4.2 million for the vesting of restricted shares upon the change in the
      majority of the Board of Trustees.

    - $2.2 million for a forfeited deposit for a property acquisition which was
      terminated.

    General and administrative expenses also declined due to reduced salary
expense of $1.9 million when comparing 1999 to 1998 primarily as the result of
staff reductions. The Trust in 1999 recorded $2.3 million of severance expense
as compared to $3.7 million in 1998. Additionally, legal expense declined by
$1.3 million when comparing 1999 to 1998 primarily as the result of completing
the repayment of bank loans and the $90 million note payable in mid-1999. These
decreases were offset by a $.7 million expense to record compensation expense
for variable stock options in 1999.
    Depreciation and amortization expense for 1999 declined by $2.3 million when
compared to 1998. The properties sold in 1999 resulted in reduced depreciation
expense of $5.3 million when compared to 1998. This decrease is partially offset
by increased depreciation expense of $1.3 million from improvements made
primarily to the North Valley Tech Center and Westgate Town Center, $.2 million
of amortization from mortgage loan costs for mortgages obtained in 1999, and
$1.5 million in expense from the write-off of the unamortized computer system
and home office equipment since the Trust outsourced its in-house accounting and
property management functions effective January 1, 2000.

YEAR 2000
    During 1999 the Trust and Impark completed the process of reviewing
potential system and operation problems for the year 2000. This process involved
identifying and remediating data recognition problems in computer systems,
software and other operating equipment, working with third parties to address
year 2000 issues as they pertain to the Trust and Impark, and developing
contingency plans to address potential risks in the event of year 2000 failures.
To date, the Trust and Impark have successfully managed this transition.
    Although considered unlikely, unanticipated problems in the Trust and
Impark's core business process, including problems associated with non-compliant
third parties and disruptions to the economy in general, could still occur
despite efforts to date to remediate affected systems and develop contingency
plans. The Trust and Impark will continue to monitor all business processes,
including interaction with the Trust and Impark's customers, vendors and other
third parties, throughout 2000 to address any issues and ensure all processes
continue to function properly.

QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK

INTEREST RATE RISK
    The Trust and Impark have entered into certain financing arrangements that
require interest payments based on variable interest rates. As such, the
combined financial statements are subject to changes in the market rate of
interest. To reduce the exposure to changes in the market rate of interest, the
Trust has interest rate caps for a portion of its floating rate financing
arrangements. The Trust does not enter into rate guarantee contracts for trading
purposes.


                                       32

   33

    The table below provides information about the Trust and Impark's financial
instruments that are sensitive to changes in interest rates. Weighted average
variable rates are based on the rates in effect at December 31, 1999. No
assumptions have been made about future interest rates. The Canadian dollar
denominated obligation is presented in U.S. dollar equivalents, which is the
Trust's reporting currency.



                                                        AS OF DECEMBER 31, 1999 (AMOUNTS IN MILLIONS)
                          --------------------------------------------------------------------------------------------------------
                                                                     EXPECTED MATURITY DATES
                          ---------------------------------------------------------------------------
                             2000        2001        2002        2003          2004        THEREAFTER      TOTAL        FAIR VALUE
                          --------------------------------------------------------------------------------------------------------
                                                                                              
BANK LOANS AT
  VARIABLE RATES
  Impark ($US)            $    22.5                                                                       $   22.5      $   22.5
  Weighted average
     interest rate              6.9%

MORTGAGE LOANS
  Fixed rate              $     1.8     $   1.9     $  46.4     $   2.0       $  31.1       $  40.8       $  124.0      $  129.4
  Average interest rate        10.7%       10.7%       10.7%       12.8%         11.5%         11.5%
  Variable rate
     (based on LIBOR)                   $  34.0     $  37.1                                               $   71.1      $   71.1
  Weighted average
     interest rate                          8.2%        9.6%

SENIOR NOTES
  Fixed rate                                                    $  12.5                                   $   12.5      $   12.3
  Interest rate                                                   8.875%


INTEREST RATE DERIVATIVES

    The Trust owns two interest rate caps that protect it from increases in
LIBOR. The interest rate caps have notional amounts of $16 million and $21.1
million covering the variable rate loans maturing in 2002. The net book value of
these interest rate caps is $.2 million as of December 31, 1999.

EXCHANGE RATE RISK

    Impark operates internationally and enters into transactions denominated
mainly in Canadian currency. As a result, the Trust and Company are subject to
the variability that arises from exchange rate movements. The Trust and Company
do not hedge risks in foreign currency exchange rate movements and do not intend
to do so in the foreseeable future.
    The only Canadian denominated debt obligation that is sensitive to foreign
currency exchange rates is the Impark bank loan. The table above presents the
principal amount, weighted average interest rate and maturity date for this bank
loan. The weighted average variable rate is based on the rate in effect at
December 31, 1999.

RESULTS OF OPERATIONS - 1998 VERSUS 1997

    Net loss applicable to shares of beneficial interest before discontinued
operations for 1998 was $58.8 million as compared to net income before
discontinued operations of $3.7 million for 1997. The net loss for 1998 included
a $2.2 million loss on a property acquisition deposit that was approved prior to
the change in the majority of the Board of Trustees in June 1998, and which was
offset by $200,000 later in 1998 by assigning the contract to a third party, a
$3.4 million payment to the Trust's former chairman and chief executive officer,
a $4.2 million expense due to lifting of restrictions on restricted shares which
followed the change in the majority of the Trust's Board of Trustees, $1.5
million in other professional fees to avoid a change in the composition of the
Trust's Board, $4.8 million in proxy and litigation expenses and a $36 million
noncash charge to recognize


                                       33

   34

the loss on the carrying value of assets held for sale and impaired assets.
Additionally, the Trust incurred $3.7 million in accrued severance expenses for
change in control agreements and for employee terminations and $2.6 million in
legal fees.
    In February 1998, 951,000 preferred shares of beneficial interest were
converted into common shares of beneficial interest resulting in a decreased
preferred dividend when comparing 1998 to 1997.
    Net loss before discontinued operations for 1998 included $10.3 million of
capital gains. The Trust sold its land beneath a building in Cleveland, OH,
resulting in a capital gain of $1.7 million. An additional capital gain of $7.7
million was recognized when a mortgage investment was repaid. This capital gain
had been deferred from a property sale in 1982 since the Trust received the
mortgage note as purchase consideration. The Trust also realized a capital gain
from the sale of a forward exchange contract of $.8 million in the second
quarter of 1998. In December 1998, the Trust sold a land parcel in Monroe, LA,
resulting in a $.1 million capital gain. Additionally, the net loss for 1998
before discontinued operations included $1.6 million of unamortized senior note
issue costs and professional fees which were expensed in the third quarter of
1998 when the Trust repaid approximately $87.5 million of the senior notes prior
to their maturity and $.8 million of deferred costs which were expensed when the
Trust renegotiated its bank agreement and a $90 million note payable.
    The loss from discontinued operations includes the loss from operations of
Impark of $28.1 million, the net income from the Trust's Canadian parking
facilities of $.5 million and accrual for Canadian taxes of $.1 million.
Impark's net loss in 1998 included a $15 million U.S. reduction of goodwill, a
$2.4 million severance accrual, and approximately $2.5 million of expansion
costs into U.S. markets.
    Mortgage loan interest income declined by $1.7 million, when comparing 1998
to 1997. The decline in interest income when comparing 1998 to 1997 was caused
by the repayment of a mortgage investment secured by a shopping mall in
Fairmont, WV in January 1998 and the repayment of a mortgage investment secured
by an office building in Cleveland, OH in May 1998.
    The Trust had approximately $11.5 million invested in U.S. Treasury bills
and approximately $2.1 million invested in the stock of another REIT for the
first five months of 1998. The U.S. Treasury bills were purchased in April 1997
to secure the Trust's obligation under an agreement with the former owners of
Impark to collateralize the $10.5 million in non-voting stock and accrued
interest which the former owners of Impark received when the Trust's affiliated
management company purchased voting control of Impark in April 1997. The REIT
stock was acquired in the third and fourth quarters of 1997 as a long-term
investment. After the Trust purchased the non-voting common stock of Impark in
June 1998, it sold the U.S. Treasury bills. The Trust also sold its holdings in
the REIT stock as a result of its change in investment strategy.
    In September 1996, the Trust invested in a joint venture that owned eight
shopping malls and 50% of another mall. The Trust, in September 1997, purchased
the interests of its joint venture partners. Consequently, the Trust's
investment income and management fees for the Trust's affiliated management
company declined when comparing 1998 to 1997.
    Property net operating income for 1998 increased $23.9 million from 1997 on
a non-comparable basis. The acquisition of the former joint venture properties
in September 1997 and five parking facilities in the first three months of 1998
produced $21.8 million and $3.7 million, respectively, of increased property net
operating income when comparing 1998 to the same period of 1997. These increases
were offset by the decrease in property net operating income of $1.5 million
resulting from the sale of an office building and an apartment complex in the
last four months of 1997 and a $2.3 million decrease in property net operating
income from the Company's equipment subsidiary primarily due to increased
expenses of $1.8 million for anticipated sales which did not occur. Property net
operating income increased by $2.2 million for the comparable portfolio when
comparing 1998 to 1997. The increase was attributable to the continued lease-up
of the North Valley Tech Center and increased rental rates in the apartment
portfolio.


                                       34

   35

    Mortgage interest expense increased when comparing 1998 to that of 1997
primarily due to the $203 million in mortgage debt assumed in September 1997 in
conjunction with the purchase of the remaining interest in the Trust's joint
venture and a $30 million mortgage obtained in May 1998.
    Bank loan interest expense increased when comparing 1998 to the prior year
due to increased borrowing, exclusive of the bank debt assumed in the April 1997
acquisition of Impark. The average balance for 1998 outstanding was $90 million.
The average balance outstanding for 1997 was approximately $19 million. The bank
loans increased when comparing 1998 to 1997 primarily due to borrowings to fund
the parking garage acquisitions and a development site, partially fund the
Trust's purchase of its partners' interest in the joint venture and to fund
tenant and capital improvements during 1998 and 1997. Additionally, the bank
covenant waiver fees of $.6 million for the second quarter covenant waivers were
recorded as bank loan interest expense in 1998. Offsetting the increase in the
bank credit facilities were the proceeds from property sales during the last
four months of 1997 and in May 1998, the repayment of mortgage investments in
the first and third quarters of 1998 and a $30 million mortgage obtained in May
1998.
    Depreciation and amortization expense for 1998 increased over 1997 primarily
due to the depreciation from the eight shopping malls acquired in September 1997
when the Trust acquired its joint venture partners' interest in the malls and
the depreciation from the four parking facilities which were acquired in the
first quarter of 1998.
    General and administrative expenses increased when comparing 1998 to 1997
primarily related to several charges as a result of the proxy contest and the
change in the majority of the Board of Trustees. The charges in the second
quarter of 1998 included $4.8 million in proxy and litigation expenses, $3.4
million resulting from the termination of the former chairman, president and
chief executive officer, $4.2 million for the vesting of restricted shares which
occurred upon the change in the majority of the Board of Trustees, and $1.5
million in additional professional fees to avoid a change in the composition of
the Trust's Board. Additionally, in the third and fourth quarters of 1998, the
Trust accrued $3.9 million of severance expense for employee termination, change
in control and continuation of employment agreements. During the last six months
of 1998, the Trust incurred approximately $2.6 million in legal fees for
negotiation of the $90 million note payable and credit facilities, potential
sales of properties and corporate acquisitions, and corporate due diligence and
preparation of a rights offering. In November 1998, the Trust issued 500,000
ten-year warrants to purchase 500,000 shares of beneficial interest at $10 per
share to Enterprise Asset Management Inc. The Trust also paid Enterprise
$750,000 for consulting services during the summer of 1998 when the Trust was
evaluating its retail portfolio and marketing the properties for sale. The Trust
recognized a total expense of $1.1 million for the fee paid to Enterprise and
the fair value of the warrants based on the Black-Scholes model. The Trust
expensed $.5 million in fees for an unsuccessful effort to refinance its current
debt in December 1998. The Trust also recorded a $2.2 million expense when it
did not close on the purchase of a parking facility because the Board of
Trustees believed that the contract, which was approved prior to the change in
the majority of the Board in June 1998, was on disadvantageous terms. The Trust
partially offset this loss by assigning the contract to a third party for
$200,000.


                                       35

EX-23.A

   1



                                                                      EXHIBIT 23

                    CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

         As independent public accountants, we hereby consent to the
incorporation of our reports included and incorporated by reference in this Form
10-K, into the registrant's previously filed Registration Statements on Form S-3
(Registration Nos. 2-88719, 33-2818, 33-11524, 33-19812, 33-26758, 33-33279,
33-38754, 33-45355, 33-57756, 333-953 and 333-63547).



Cleveland, Ohio,                                            Arthur Andersen LLP
March 30, 2000.

EX-23.B

   1
                                                                    Exhibit 23.1
                         INDEPENDENT AUDITORS' CONSENT




The Board of Directors
First Union Management, Inc.

We consent to the incorporation by reference in the registration statements Nos.
2-88719, 33-2818, 33-11524, 33-19812, 33-26758, 33-38754, 33-45355, 33-57756,
333-953 and 333-63547 on Form S-3 of First Union Real Estate Equity and Mortgage
Investments of our report dated February 4, 2000, with respect to the combined
balance sheet of FUMI Parking Business as of December 31, 1999, and the related
combined statements of operations, owner's deficiency and cash flows for the
year ended December 31, 1999, which report appears in the December 31, 1999
annual report on Form 10-K of First Union Real Estate Equity and Mortgage
Investments.



(SIGNED) KPMG LLP

Chartered Accountants

Vancouver, Canada
March 29, 2000

EX-24

   1


                                                                      EXHIBIT 24



             FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
             -------------------------------------------------------

                           ANNUAL REPORT ON FORM 10-K
                      FOR THE YEAR ENDED DECEMBER 31, 1999
                      ------------------------------------

                   Power of Attorney of Officers and Trustees
                   ------------------------------------------

         The undersigned, an Officer or Trustee or both an Officer and Trustee
of First Union Real Estate Equity and Mortgage Investments, an Ohio business
trust (the "Trust") which anticipates filing with the Securities and Exchange
Commission, Washington, D.C., under the provisions of the Securities Exchange
Act of 1934, an Annual Report on Form 10-K for the year ended December 31, 1999
(hereinafter called the "Form 10-K"), does hereby constitute and appoint Daniel
P. Friedman with full power of substitution and resubstitution, as attorney to
sign for him and in his name the Form 10-K and any and all amendments and
exhibits thereto, and any and all other documents to be filed with the
Securities and Exchange Commission pertaining to the Form 10-K, with full power
and authority to do and perform any and all acts and things whatsoever required
or necessary to be done in the premises, as fully to all intents and purposes as
he could do if personally present, hereby ratifying and approving the acts of
said attorneys and any of them and any such substitute.

         IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 28
day of March, 2000.


/s/  William A. Ackman
- ------------------------
/s/  Daniel J. Altobello
- ------------------------
/s/  David P. Berkowitz
- ------------------------
/s/  Daniel P. Friedman
- ------------------------
/s/  Stephen J. Garchik
- ------------------------
/s/  David S. Klafter
- ------------------------
/s/  William Scully
- ------------------------
/s/  Stephen S. Snider
- ------------------------
/s/  Mary Ann Tighe
- ------------------------
/s/  James A. Williams
- ------------------------



   2



                                                                      EXHIBIT 24
                                                                      ----------




             FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
             -------------------------------------------------------

                           ANNUAL REPORT ON FORM 10-K
                      FOR THE YEAR ENDED DECEMBER 31, 1999
                      ------------------------------------

                   Power of Attorney of Officers and Trustees
                   ------------------------------------------


         The undersigned, an Officer or Trustee or both an Officer and Trustee
of First Union Real Estate Equity and Mortgage Investments, an Ohio business
trust (the "Trust") which anticipates filing with the Securities and Exchange
Commission, Washington, D.C., under the provisions of the Securities Exchange
Act of 1934, as amended, an Annual Report on Form 10-K for the year ended
December 31, 1999 (hereinafter called the "Form 10-K"), does hereby constitute
and appoint Daniel P. Friedman with full power of substitution and
resubstitution, as attorneys or attorney to sign for him and in his name the
Form 10-K and any and all amendments and exhibits thereto, and any and all other
documents to be filed with the Securities and Exchange Commission pertaining to
the Form 10-K, with full power and authority to do and perform any and all acts
and things whatsoever required or necessary to be done in the premises, as fully
to all intents and purposes as he could do if personally present, hereby
ratifying and approving the acts of said attorneys and any of them and any such
substitute.

         IN WITNESS WHEREOF, the undersigned has hereunto set his hand this ___
day of _____, 2000.







____________________

EX-27.A

 

<ARTICLE> 5
<CIK> 0000037008
<NAME> FIRST UNION REAL ESTATE EQUITY AND MORTAGE INVESTMENTS

                             
<PERIOD-TYPE>                   12-MOS
<FISCAL-YEAR-END>                          DEC-31-1999
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EX-27.B

 

<ARTICLE> 5

<CIK> 0000037008
<NAME> FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS

                             
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