Digital Realty Trust, Inc.DLRNYSE

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DCF Valuation

DCF Valuation Summary

Hold

Fair Value: $167.08 per share(market-calibrated)

-6.2%

Upside to Fair Value

Current

$178.13

Pure Model

$165.51

Fair Value

$167.08

Bull Case

$231.16

Bear Case

$111.35

Market Reality Check

Model Terminal Growth

2.50%

Market-Implied Growth

3.10%

Calibrated Growth

2.59%

Fair value uses 85% model / 15% market-implied terminal growth. Pure model: $165.51.

What's Driving This Ratingfor DLR

↓

CapEx normalizing toward maintenance

Historical CapEx is 37.70% of revenue (heavy investment phase). Model fades this to 2.50% by Year 10, freeing up ~$3.6B in annual FCF. This is the biggest driver of long-term cash flow improvement.

↑

Margin expansion modeled

Current EBIT margin is 27.41% — below the sector mature average of 30.00%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $3.0B (29.15% margin).

⚠

Analyst growth decelerates sharply

Revenue growth drops from 9.44% in Year 1 to 1.10% by Year 5 (per analyst consensus). That's below the 2.50% terminal rate, so growth re-accelerates in Years 6-10 — a generous assumption. This growth deceleration is a key reason the model may undervalue the stock if growth re-accelerates.

✓

Model and market roughly agree

Market-implied terminal growth of 3.10% is close to the model's 2.50% (only 60bps apart). The DCF assumptions are well-aligned with how the market is pricing this stock.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 91.82% indicates efficient cash generation. FCF reaches $5.3B by Year 10 (52.08% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.15

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)9.67%

Cost of Debt

Pre-tax Cost of Debt1.59%

Tax Rate5.00%

After-tax Cost of Debt1.51%

Equity Weight (E/V)71.67%

Debt Weight (D/V)28.33%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (71.67% × 9.67%) + (28.33% × 1.51%)

= 7.36%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$6.7B	$8.1B	$9.2B	$9.5B	$10.1B
EBIT	$1.8B	$2.2B	$2.5B	$2.7B	$3.0B
Tax	$92M	$111M	$126M	$135M	$148M
NOPAT	$1.7B	$2.1B	$2.4B	$2.6B	$2.8B
+ Depreciation	$1.8B	$2.2B	$2.5B	$2.6B	$2.8B
- Capex	$2.5B	$2.4B	$2.0B	$1.4B	$254M
- Δ NWC	$161M	$199M	$28M	$43M	$69M
Free Cash Flow	$903M	$1.7B	$2.9B	$3.8B	$5.3B
Discount Factor	0.931	0.808	0.701	0.608	0.492
Present Value	$841M	$1.4B	$2.0B	$2.3B	$2.6B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$5.3B

Terminal Growth Rate2.50%

WACC7.36%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$111.5B

PV of Terminal Value$54.8B

Exit Multiple Method

Year 10 EBITDA$5.8B

Exit Multiple (EV/EBITDA)22.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$126.6B

PV of Terminal Value$62.2B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$19.0B

PV of Terminal Value$54.8B

Enterprise Value$73.9B

(-) Net Debt$20.7B

Equity Value$53.1B

Shares Outstanding343M

Price per Share$154.73

Exit Multiple Method

PV of Projected FCFs$19.0B

PV of Terminal Value$62.2B

Enterprise Value$81.3B

(-) Net Debt$20.7B

Equity Value$60.6B

Shares Outstanding343M

Price per Share$176.29

Pure Model Fair Value

$165.51

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	1.50%	2.00%	2.50%	3.00%	3.50%
5.36%	$231.70	$250.28	$275.37	$311.12	$342.49
6.36%	$184.79	$195.23	$208.38	$225.45	$248.50
7.36%	$151.23	$157.70	$165.51	$175.11	$187.20
8.36%	$125.53	$129.82	$134.83	$140.79	$147.97
9.36%	$104.95	$107.93	$111.34	$115.28	$119.90

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$111.35

-37.5% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 1.43

Base Case

$165.51

-7.1% vs current

• Analyst consensus
• Terminal growth: 2.5%
• Beta: 1.15

Bull Case

$231.16

29.8% vs current

• +25% vs analyst consensus
• Terminal growth: 3.0%
• Beta: 0.98

Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Real Estate Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth9.44%

Year 3 Revenue Growth9.63%

Year 5 Revenue Growth1.10%

Year 7 Revenue Growth1.66%

Year 10 Revenue Growth2.50%

Terminal Growth Rate2.50%

Margin & Efficiency

Current EBIT Margin27.41%

Terminal EBIT Margin30.00%

Tax Rate5.00%

Historical Capex / Rev37.70%

Terminal Capex / Rev2.50%

NWC / Revenue27.95%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 22x EV/EBITDA (Real Estate sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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