Realty Income (NYSE:O) highlighted its expanding private-capital strategy, international growth opportunities and selective investments in newer property categories during Bank of America’s 2026 Global Real Estate Conference.
Jonathan Pong, the company’s chief financial officer and treasurer, said Realty Income has grown to approximately $90 billion in enterprise value and operates as the largest net lease company globally, according to the company. Its portfolio includes 15,600 properties across all 50 U.S. states and nine countries outside the U.S., primarily in Western Europe. Retail properties account for nearly 80% of annual base rent, with Dollar General and 7-Eleven among its largest tenants.
Private Capital Expands Funding Options
Realty Income recently announced a joint venture with KKR, following a joint venture announced with Apollo in March. Pong said the initiatives are part of a private-capital strategy developed over the past two years to diversify equity sources beyond public markets.
“This is a very capital-intensive business,” Pong said, adding that the joint ventures provide access to institutional capital pools seeking income-oriented investments.
The company has also announced a development joint venture with GIC, closed a $1.7 billion cornerstone equity raise for its U.S. Core Plus Fund in March, and formed the Apollo and KKR ventures. The KKR arrangement is denominated in euros, which Pong said demonstrates the company’s ability to extend the strategy across borders.
Pong said the company intends to structure its private-capital products around different investor needs, including differing return profiles, currencies, property types and investment products. Realty Income remains a co-investor in each strategy, he said.
He cited the $2 billion Apollo joint venture as an example of the targeted approach. The venture included 500 individual U.S. retail properties, averaging roughly $4 million per property, and carries a 6.875% cost of long-term equity, according to Pong. Meanwhile, Realty Income has directed stabilized industrial investments with contractual growth into its Core Plus Fund, where investors may place greater emphasis on long-term internal rates of return than first-year yield.
Investment Framework and European Opportunity
Realty Income evaluates investments using both long-term unlevered returns and near-term per-share earnings accretion, Pong said. The company underwrites investments over the initial lease term against a long-term unlevered weighted average cost of capital in the 8% range.
The company considers a blended debt cost across U.S. dollars, euros and sterling, while also accounting for the cost of public equity, free cash flow and private capital. Pong said Realty Income has about $1 billion of annual free cash flow, $1.2 billion of unsettled forward equity as of the end of the second quarter, and recently raised $1 billion through a convertible debt offering at a 3.75% rate.
Pong said Europe remains an area of particular opportunity because of lower competition in net lease compared with the U.S. The company has built an international platform over the past seven years, including a London team approaching 70 employees and a global workforce of about 580 people.
“We do feel as though there’s significantly less competition” in Europe, Pong said, describing the region as complicated and resource-intensive for competitors to enter.
He added that Realty Income is also finding strategic debt investment opportunities in the higher-rate environment. These investments are tied to tenants or partners where the company would potentially want to own the underlying real estate and could eventually convert the investment into common equity ownership.
Investment cap rates had remained relatively stable as of June 30, Pong said, although he said it remained uncertain how quickly yields and cap rates could adjust following an increase in longer-term interest rates. If long-term rates remain elevated, he said lower transaction activity would have the greatest effect on the sector’s earnings.
Data Center Strategy Focuses on Partners and Land Value
Realty Income also discussed its recently announced $6 billion data center joint venture with Cloud Capital. Pong said the transaction is not the company’s first data center investment, noting that Realty Income entered a joint venture with Digital Realty in 2023.
The Cloud Capital venture includes a 45% Realty Income equity interest, another institutional investor and retained ownership by Cloud Capital. The assets are located in Northern Virginia and include one stabilized asset and two development build-to-suit projects leased or pre-leased to hyperscalers, according to Pong.
Pong said Realty Income is taking a methodical approach to the data center market, emphasizing the importance of residual value and land in key data center locations. He described Northern Virginia land with established connectivity, power infrastructure and user activity as comparable to “beachfront real estate” for data centers.
While equipment within data centers can face obsolescence risk, Pong said the company’s exposure is primarily to the building shell and the underlying real estate. He said the company seeks acceptable initial yields, healthy fixed lease escalators and confidence in long-term land values before committing capital.
Credit Watch List Declines
Alex Waters, Realty Income’s vice president of investor relations, said the company’s credit watch list declined slightly from the prior quarter to approximately 5.8% to 5.9% of annual base rent. The list includes exposure to casual dining, home furnishings and car washes, but it is broadly diversified across roughly 130 to 150 clients, with median annual base rent exposure of about 2 basis points per client.
Realty Income continues to expect credit losses of roughly 40 basis points for 2026, down from about 50 basis points expected entering the year. Waters said roughly three-fourths of the current assumption has been identified, with the remaining amount reserved conservatively for the second half of the year.
Looking ahead, Pong said third-party capital will “clearly” become a more important growth source for public REITs than balance-sheet capital over the next three years. He also said he expects 2027 same-store net operating income growth for the sector to be higher than in 2026.
About Realty Income (NYSE:O)
Realty Income Corporation is a real estate investment trust (REIT) that owns and manages a diversified portfolio of commercial properties. The company primarily uses long-term, single-tenant, net lease agreements, under which tenants generally assume responsibility for property-level expenses such as maintenance, insurance and taxes.
Its portfolio includes retail, industrial, distribution, office, gaming and other commercial properties. Realty Income serves a broad range of tenants, including convenience stores, grocery stores, pharmacies, home improvement retailers, restaurants, logistics operators and other established businesses.
