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Realty Income and EastGroup Navigate High Cost of Capital with Divergent Strategies
At the 2026 REITweek conference, industry leaders converged on a shared obstacle: a climbing cost of equity that narrows the margin between acquisition cap rates and the purchase price of new assets. Among the speakers, Realty Income (O) and EastGroup Properties (EGP)—two of the country’s biggest REITs—offered contrasting solutions to the same problem.
During the early 2020s, REITs enjoyed lofty multiples; Realty Income’s shares peaked at 22× FFO in 2021. That valuation implied a cost of equity near 4.5%, enabling the firm to acquire assets with cap rates between 5.5% and 7% and lift FFO per share immediately. A shift in market sentiment in 2022 trimmed REIT multiples to 13–15× FFO—a level that has held steady for nearly four years. At a 14× multiple, the cost of equity climbs to roughly 7.1%, and the gap between equity‑financed acquisition cap rates and the cost of equity shrinks, reducing the accretive value of new purchases.
Sumit Roy, Realty Income’s chief executive, framed the challenge during his REITweek address: “The fundamentals of the business were very strong, yet the market wasn’t fully capturing that strength. Relying on a single source of capital to fund roughly two‑thirds of our acquisitions became a strategic vulnerability we needed to confront.” He underscored that Realty Income’s platform is designed to acquire $10–$15 billion of assets each year, a goal that has driven the company to issue equity steadily over the past five years, nearly tripling its share count.
To counter the compressed spread, Realty Income has pivoted its approach. The firm has launched private funds that tap capital at pricing nearer private‑equity levels, safeguarding accretive returns even as public‑market equity becomes costly. Simultaneously, it has diversified its asset mix, adding data‑center and gaming properties, and broadened its footprint into Europe. These initiatives aim to sustain acquisition momentum and position the platform for a future when REIT multiples rebound.
EastGroup Properties faces a comparable headline: its valuation fell from a high‑multiple peak in 2021 to a lower range between 2022 and 2026. Yet the firm’s industrial portfolio, which commands lower cap rates than Realty Income’s single‑tenant retail holdings, keeps EastGroup’s cost of equity below that of O’s even after 2022. Nevertheless, the spread between the cost of equity and acquisition cap rates remains tight.
Marshall Loeb, EastGroup’s chief executive, outlined the firm’s strategy during REITweek: “We’re taking a patient stance on acquisitions. Missing our acquisition budget this year, or our development starts last year, is acceptable; I’m proud of the team. Demand slowed, and that’s fine. We’ll buy only when it makes sense.” He added that a global surge in capital is fueling demand for U.S. industrial space, but when cap rates tighten, EastGroup favors development over purchase. Development yields an extra 100–150 basis points of return on invested capital, helping the firm reclaim the spread above its cost of equity.
These approaches reveal divergent philosophies. Realty Income pushes to sustain a high acquisition volume, embracing aggressive financing tools—private‑fund equity and asset‑class diversification—to keep its engine running. EastGroup, in contrast, applies trigger discipline: it hoards substantial dry powder but deploys it only when the spread is attractive, leaning on organic growth and development to lift returns.
Over the past five years, the two strategies have yielded distinct results. EastGroup’s cautious posture has translated into steadier FFO per share growth, while Realty Income’s tactics have preserved the company’s readiness for a potential upswing in public‑market multiples. With REITs trading below net asset value, EastGroup’s patient model may prove more resilient, whereas Realty Income’s platform could generate upside if valuations recover.
Today, both REITs navigate a landscape where public‑market multiples lag behind NAV. Realty Income’s private‑fund channels and asset‑class shift aim to sustain acquisition momentum, while EastGroup’s emphasis on development and selective purchases seeks to safeguard spread and return on capital. Investors will monitor how each company’s strategy unfolds as the broader REIT market continues to evolve.
During the early 2020s, REITs enjoyed lofty multiples; Realty Income’s shares peaked at 22× FFO in 2021. That valuation implied a cost of equity near 4.5%, enabling the firm to acquire assets with cap rates between 5.5% and 7% and lift FFO per share immediately. A shift in market sentiment in 2022 trimmed REIT multiples to 13–15× FFO—a level that has held steady for nearly four years. At a 14× multiple, the cost of equity climbs to roughly 7.1%, and the gap between equity‑financed acquisition cap rates and the cost of equity shrinks, reducing the accretive value of new purchases.
Sumit Roy, Realty Income’s chief executive, framed the challenge during his REITweek address: “The fundamentals of the business were very strong, yet the market wasn’t fully capturing that strength. Relying on a single source of capital to fund roughly two‑thirds of our acquisitions became a strategic vulnerability we needed to confront.” He underscored that Realty Income’s platform is designed to acquire $10–$15 billion of assets each year, a goal that has driven the company to issue equity steadily over the past five years, nearly tripling its share count.
To counter the compressed spread, Realty Income has pivoted its approach. The firm has launched private funds that tap capital at pricing nearer private‑equity levels, safeguarding accretive returns even as public‑market equity becomes costly. Simultaneously, it has diversified its asset mix, adding data‑center and gaming properties, and broadened its footprint into Europe. These initiatives aim to sustain acquisition momentum and position the platform for a future when REIT multiples rebound.
EastGroup Properties faces a comparable headline: its valuation fell from a high‑multiple peak in 2021 to a lower range between 2022 and 2026. Yet the firm’s industrial portfolio, which commands lower cap rates than Realty Income’s single‑tenant retail holdings, keeps EastGroup’s cost of equity below that of O’s even after 2022. Nevertheless, the spread between the cost of equity and acquisition cap rates remains tight.
Marshall Loeb, EastGroup’s chief executive, outlined the firm’s strategy during REITweek: “We’re taking a patient stance on acquisitions. Missing our acquisition budget this year, or our development starts last year, is acceptable; I’m proud of the team. Demand slowed, and that’s fine. We’ll buy only when it makes sense.” He added that a global surge in capital is fueling demand for U.S. industrial space, but when cap rates tighten, EastGroup favors development over purchase. Development yields an extra 100–150 basis points of return on invested capital, helping the firm reclaim the spread above its cost of equity.
These approaches reveal divergent philosophies. Realty Income pushes to sustain a high acquisition volume, embracing aggressive financing tools—private‑fund equity and asset‑class diversification—to keep its engine running. EastGroup, in contrast, applies trigger discipline: it hoards substantial dry powder but deploys it only when the spread is attractive, leaning on organic growth and development to lift returns.
Over the past five years, the two strategies have yielded distinct results. EastGroup’s cautious posture has translated into steadier FFO per share growth, while Realty Income’s tactics have preserved the company’s readiness for a potential upswing in public‑market multiples. With REITs trading below net asset value, EastGroup’s patient model may prove more resilient, whereas Realty Income’s platform could generate upside if valuations recover.
Today, both REITs navigate a landscape where public‑market multiples lag behind NAV. Realty Income’s private‑fund channels and asset‑class shift aim to sustain acquisition momentum, while EastGroup’s emphasis on development and selective purchases seeks to safeguard spread and return on capital. Investors will monitor how each company’s strategy unfolds as the broader REIT market continues to evolve.
