WASHINGTON, DC-Another quarter, another solid percentageincrease in REIT earnings. For Q1 of 2011, that means a totalreturn of 7.5% or 6.8%, depending on whether one is consulting theFTSE NAREIT All Equity REITs Index or the FTSE NAREIT All REITsIndex. Either way, both compare favorably to the 5.92% the S&P500 returned, NAREIT reports.

The quarter was a positive one despite slightly negative returnsin 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 firsttime in a while, the S&P 500 outpaced REITs, with a 0.04%.Despite these occasional fluctuations, says Brad Case, NAREIT vicepresident of research and industry information, REITs’ generaltrajectory is an upward motion and is likely to remain so. “REITsare benefiting from the strengthening economy more than otherinvestments,” he tells GlobeSt.com.

Is that, however, necessarily a good thing? Some investmentanalysts are beginning to warn of an overheated sector. Case saysthese fears are misguided and makes the following argument toexplain why: "First of all, I wouldn’t say REITs areovervalued--they are still 18% below where they were in 2007. Ifyou look at where they are now, they are in a similar position towhere they were at the end of 2008, which is when the liquiditycrisis really began." REITs, in short, are fully recovered from theliquidity crisis, which hit them much harder than the rest of theequity market.Furthermore, he continues, REITs have always hadbetter access to capital and in 2009 used that to shore up theirbalance sheets. Now they are tapping equity and debt markets again,but with the goal of making acquisitions. With better propertiescoming to market, REITs are more willing to buy, which means theirearnings will be growing over a larger base of assets owned byREITs, Case says. "Multiples relative to current earnings arehealthy now, yes, but that is misleading to focus on, because it isfuture earnings that investors are targeting."

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Erika Morphy

Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.