Europe Fuels Realty Income's Strategy: Is the Upside Sustainable?

Realty Income’s O expansion in Europe has become a cornerstone of its global growth strategy, with the region accounting for 76% of the second-quarter 2025 investment volume at a 7.3% weighted average initial cash yield. Since entering the U.K. in 2019, the company has grown into eight European countries, and Europe now contributes 17% of the annualized base rent. Management highlights the fragmented competitive landscape, larger addressable market and structurally lower borrowing costs as advantages that support continued capital deployment across the continent.

Poland has been a key new market, where Realty Income completed sale-leaseback transactions with Eko-Okna, a leading regional manufacturer. Poland’s strong economic fundamentals, including the second-fastest GDP growth in Europe, make it an attractive market for long-term investments. Industrial and distribution assets have been a focus, reflecting the company’s disciplined underwriting and preference for stable cash flows tied to essential industries.

In the U.K. and Ireland, Realty Income has also built scale in retail parks, becoming the largest owner in the region. These assets benefit from improving leasing conditions, as concession rents fade and vacancies decline. 

A key financial advantage is Realty Income’s ability to tap euro-denominated debt markets. A €1.25 billion issuance carried an all-in cost of 3.69%. Lower funding costs, combined with favorable FX dynamics, enhance acquisition spreads and provide natural hedging.

With nearly half of its volume being sourced from Europe, the region is expected to be a key engine of future acquisitions and rental income, reinforced by the company’s strong market presence and ability to secure unique transaction opportunities.

Where Do Other Retail REITs See Growth Opportunities?

Simon Property Group SPG is expanding its portfolio through development, redevelopment and acquisitions. Simon Property Group acquired its partner's interest in Brickell City Centre, and its $512 million investment comprises retail and parking components, a premier mixed-use property in Miami, FL. By quarter-end, SPG managed $1 billion in active projects at a 9% blended yield, with 40% allocated to mixed-use developments.

Kimco Realty KIM is driving growth through redevelopments, selective acquisitions and asset recycling. For 2025, Kimco plans $100-$125 million in net acquisitions, funded partly by $100-$150 million in dispositions of low-growth assets, with redevelopment yields up to 17% and Kimco’s structured investments yielding 9-10%.

O’s Price Performance, Valuation and Estimates

Shares of Realty Income have risen 13.1% year to date against the industry’s decline of 4.1%.

From a valuation standpoint, O trades at a forward 12-month price-to-FFO of 13.84, below the industry. It carries a Value Score of D.

The Zacks Consensus Estimate for O’s 2025 and 2026 funds from operations per share has been revised marginally downward over the past 60 days.

At present, Realty Income carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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This article originally published on Zacks Investment Research (zacks.com).

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