"We expect a year-over-year FFO per share decline of 9.6% for our coverage universe in Q1 '03," writes managing director Ross L. Smotrich.

Neither does it look like smooth sailing for the REIT sector through the rest of the year, and Smotrich is forecasting a decline in per share FFO of 2.5%. "The economy has yet to recover," he writes, "and therefore, neither have real estate fundamentals. We do not expect significant improvement until late-2003, at the soonest.

"Since estimates likely include the benefit of a modest recovery in late 2003," he continues, "it is conceivable that if a recovery fails to materialize, results may disappoint and estimates could be ratcheted down further." For the full year, FFOs for office will shrink by 7.3%, while industrial slips by 1.1% and apartments sink by 10.2%. Not surprisingly, the biggest hit will come in hotels, which will feel the effects of a 17% FFO drop.

If there is any good news, it comes from the retail and finance REITs that Bear Stearns covers. According to Smotrich, full-year FFO growth "by the major property types" break down with malls gaining 7.2% and shopping centers up by 4.7%. "In the smaller specialty finance sector, in which we cover two stocks, positive growth in 2003 is also expected," he concludes.