KGI Securities has initiated "outperform" on UD1U with a target price of S$0.69, saying that the proposed Decathlon acquisition will likely provide the real estate investment trust (Reit) with further reduction of its tenant and geographical concentration risk, while potentially achieving both distribution per unit and yield accretion.

In its report on Friday, the brokerage said the acquisition will expose the Reit to the resilient French economy and its sporting goods industry, which they expect will rebound strongly with forecasted turnover growth of 13 per cent for 2021, although KGI excluded the acquisition from its valuation as impact on capital structure remains undecided.

IReit's "fairly aggressive expansion strategy" will likely also gain from lower interest rates in Europe, KGI said, as it expects the European economy to recover on EU funding, monetary and fiscal policy stances and strengthening external demand.

KGI further added that above-average inflation rates in Europe could benefit IReit as it can lock in earlier-than-expected rent increases with tenants, since most of its properties depend on the country's consumer price index as the guideline for rental step-up.

It also noted that IReit's vacancy rate in its key markets in Berlin, Munich, Madrid and Barcelona remained lower than its rates in 2015 despite the weak office market environment, while its headline rents have largely remained stable.

Additionally, while the Covid-19 pandemic has pushed investors to demand for higher dividend yield premiums from foreign office and commercial Reits than its local counterparts, stabilising foreign office markets will likely compress yield premiums and benefit IReit, the brokerage said.

A NEWSLETTER FOR YOU

Tuesday, 12 pm

Property Insights

Get an exclusive analysis of real estate and property news in Singapore and beyond.

Sign Up

In May, DBS Group Research also initiated coverage on IReit with a "buy" call as an enlarged and more diversified portfolio would allow the Reit to reap gains.

Units of IReit Global closed flat at S$0.65 on Friday.