Realty Income’s European Expansion: A Bold Bet on Higher Returns

While numerous real estate investment trusts navigate turbulent market conditions, Realty Income is charting a distinctly different path. The American property giant is pursuing an aggressive European expansion strategy that's generating substantial shareholder returns and capturing market attention. This unconventional approach raises a critical question: can the company's transatlantic ambitions justify its premium valuation?

Realty Income's European offensive gained significant momentum in the second quarter of 2025, with the company deploying $1.2 billion into new property acquisitions. What's particularly noteworthy is the geographical distribution—a commanding 76% of this investment capital flowed into European markets. The driving force behind this strategic shift is clear: substantially higher yields. The company's weighted average yield on new European investments reaches an attractive 7.2%, presenting a compelling return profile compared to domestic opportunities.

The company benefits from two structural advantages in European markets: a fragmented competitive landscape and comparatively lower financing costs. This favorable combination enables Realty Income to achieve significantly better investment spreads than those available in its mature home market.

Valuation Presents a Complex Picture

Financial metrics reveal a nuanced valuation story. Realty Income trades at a price-to-FFO multiple of 13.75, positioning it below the sector average of 15.32 and suggesting reasonable valuation relative to other retail REITs. However, the price-to-earnings ratio tells a different story—at 60.4, it more than doubles the industry average of 27.1. This disparity indicates investors are paying a substantial premium for anticipated future growth.

Should investors sell immediately? Or is it worth buying Realty Income?

Operational Excellence Supports Bullish Thesis

The company's fundamental performance provides strong support for optimistic projections. Realty Income maintains an impressive 98.6% portfolio occupancy rate, demonstrating remarkable operational stability. This solid foundation not only facilitates consistent growth but also sustains a generous dividend yield exceeding 5.3%.

Management confidence appears well-founded, with the company raising its 2025 investment guidance to approximately $5.0 billion. Simultaneously, Realty Income increased its AFFO per share forecast to a range between $4.24 and $4.28, signaling continued conviction in its growth trajectory.

The critical question remains whether Realty Income can successfully execute its European growth strategy or if current premium valuations will face a reality check. Market participants await forthcoming quarterly results for clearer indications of whether this transatlantic expansion can deliver on its promising potential.