European Market Uncertain About Convergence

Gareth Lewis, director of finance with the European Public Real Estate Association (EPRA), sat down with REIT.com at REITWise 2012: NAREIT's Law, Accounting and Finance Conference in Hollywood, Fla., last month to discuss the impact of global financial standards on the European market.

He said that while the European market supports the general principles of convergence, there is some concern as to whether it will be a convergence to quality financial standards. Lewis said the market is generally concerned that the International Accounting Standards Boards (IASB) and Financial Accounting Standards Boards (FASB) are taking on too much and it could affect the quality of what they come up with.

"But I think the more specific concerns around particular financial standards that are being developed is coming from FASB, rather than the IASB," Lewis said. "That includes the development of the new leasing standard, investment property entities and the investment company standards."

When it comes to the treatment of REITs and property companies as operating businesses as opposed to funds, Lewis said it's a topical issue for the European market.

"If you look at what the term REIT actually means, it's a very confusing picture. That's certainly the case in Europe when you look at the number of the different types of REIT legislation that exist," he said. "So there really isn't a concept of a European REIT in that sense."

However, Lewis added that the most successful and largest REIT regimes in Europe, along with those that recently emerged, tend to follow the United States' equity REIT model.

"We very much see those as operating businesses, and that's consistent with NAREIT's model," he said. "But the tide seems to be going in a different direction for us, particularly when you look at the U.S. developments.

The leasing rules are a more positive story for the European market, according to Lewis. He said more than 95 percent of their members report their property at fair value. As a result, he said, those companies were assured by the IASB that they'll be excluded from the new leasing rules.