Factory outlet center, mall and retail strip center REITs led the sector during the first quarter of 2003, reports Bear Stearns. On the flip side, hotels and multifamily REITs saw a decline during the same period.

Roughly $389 million flowed into dedicated REIT mutual funds in the first quarter while total assets closed the quarter at $16.1 billion — an all-time high, according to Bear Stearns. Common equity offerings slowed down a bit from the fourth quarter of 2002, but the pace of preferred issuance was still strong at $358 million.

Bear Stearns expects FFO per share for its coverage universe to fall 10.6%. "Our sense is that the market is looking through poor fundamentals and focusing on the dividend. The real question, therefore, is what happens to REITs when the economy and broader market begin to act better," says the report.

The RMS total-return index rose 1.1% in the first quarter. By comparison, the Dow and the S&P 500 fell 3.5% and 3.1% respectively, with the Nasdaq rising only 0.4%.