WASHINGTON, DC-Another quarter, another solid percentage increase in REIT earnings. For Q1 of 2011, that means a total return of 7.5% or 6.8%, depending on whether one is consulting the FTSE NAREIT All Equity REITs Index or the FTSE NAREIT All REITs Index. Either way, both compare favorably to the 5.92% the S&P 500 returned, NAREIT reports.

The quarter was a positive one despite slightly negative returns in March, when the FTSE NAREIT All Equity REITs Index dropped 1.28% and the FTSE NAREIT All REITs Index was down 1.38%. For the first time in a while, the S&P 500 outpaced REITs, with a 0.04%. Despite these occasional fluctuations, says Brad Case, NAREIT vice president of research and industry information, REITs’ general trajectory is an upward motion and is likely to remain so. “REITs are benefiting from the strengthening economy more than other investments,” he tells GlobeSt.com. 

Is that, however, necessarily a good thing? Some investment analysts are beginning to warn of an overheated sector. Case says these fears are misguided and makes the following argument to explain why: "First of all, I wouldn’t say REITs are overvalued--they are still 18% below where they were in 2007. If you look at where they are now, they are in a similar position to where they were at the end of 2008, which is when the liquidity crisis really began." REITs, in short, are fully recovered from the liquidity crisis, which hit them much harder than the rest of the equity market.Furthermore, he continues, REITs have always had better access to capital and in 2009 used that to shore up their balance sheets. Now they are tapping equity and debt markets again, but with the goal of making acquisitions. With better properties coming to market, REITs are more willing to buy, which means their earnings will be growing over a larger base of assets owned by REITs, Case says. "Multiples relative to current earnings are healthy now, yes, but that is misleading to focus on, because it is future earnings that investors are targeting."