GLOBAL - European Reits are being formulated to appeal to the "wrong audience", according to Europroperty Consulting.

Speaking at the annual IPD/IPF annual conference last week, principal Alec Emmott said the "European fixation" Reits should be listed "is in itself adding an extra constraint to the tax jacket" which was "not included in the original design".

In the United States, where the first Reits were established, the tax transparency afforded through a Reit structure can be applied to corporations regardless of whether they are listed or unlisted.

At the end of 2006, there were only 183 Reits listed with the SEC compared with approximately 800 vehicles not traded on a recognised exchange.

"The success of the US Reit industry has been to produce a product which appeal to the Mamma and Poppa saver through their 401k savings plan," Emmott said.

"This is based on dividend yields significantly higher than other equities on average, and the creation of a steady stream of income throughout the cycle. I fear that we're trying to produce a listed Reit model which is looking to appeal to the wrong audience - we're wearing the wrong trousers with the jacket," he continued.

The traditional Reit model is aimed at producing beta, but Emmott said European capital markets, "though the professional and traditional sector managers and analysts, are telling us to produce alpha".

He added: "There is a real disconnect here which needs to be addressed, since the only current way to produce the required dividend yield is to value listed Reits at a discount to their net asset value - not a sustainable situation."

In order to maintain success in the listed markets, a Reit will need to identify and play to shareholders who can provide what Emmott calls "sticky capital" which enables a corporation to plan and execute a long-term business plan.

"Reits need, in order to build their long-term operating platform, more of those shareholders who are not currently listening to them."

Emmott argues that if this scenario continues, European Reits will continue to miss out on capital being diverted to the non-listed sector, where a number of alternative tax-transparent vehicles are developing. One example is France's new unlisted tax-transparent open-ended vehicle, the OPCI.

According to Emmott, these paricular structures will boast the same benefits as French Reits and "are likely to be successful".

If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email