Digital Realty Trust, Inc.DLRNYSE

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DCF Valuation

DCF Valuation Summary

Hold

Fair Value: $166.01 per share(market-calibrated)

-9.1%

Upside to Fair Value

Current

$182.62

Pure Model

$164.06

Fair Value

$166.01

Bull Case

$229.05

Bear Case

$110.30

Market Reality Check

Model Terminal Growth

2.50%

Market-Implied Growth

3.25%

Calibrated Growth

2.61%

Fair value uses 85% model / 15% market-implied terminal growth. Pure model: $164.06.

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 3.25% is close to the model's 2.50% (only 75bps 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)72.18%

Debt Weight (D/V)27.82%

WACC Calculation

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

WACC = (72.18% × 9.67%) + (27.82% × 1.51%)

= 7.40%

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	0.807	0.700	0.607	0.490
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%

WACC7.40%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$110.6B

PV of Terminal Value$54.2B

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$62.0B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$19.0B

PV of Terminal Value$54.2B

Enterprise Value$73.2B

(-) Net Debt$20.7B

Equity Value$52.4B

Shares Outstanding343M

Price per Share$152.66

Exit Multiple Method

PV of Projected FCFs$19.0B

PV of Terminal Value$62.0B

Enterprise Value$81.0B

(-) Net Debt$20.7B

Equity Value$60.3B

Shares Outstanding343M

Price per Share$175.46

Pure Model Fair Value

$164.06

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%
5.40%	$229.39	$247.49	$271.84	$306.36	$342.49
6.40%	$183.21	$193.43	$206.27	$222.90	$245.27
7.40%	$150.05	$156.40	$164.06	$173.46	$185.26
8.40%	$124.60	$128.82	$133.75	$139.60	$146.64
9.40%	$104.19	$107.13	$110.49	$114.37	$118.91

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

$110.30

-39.6% vs current

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

Base Case

$164.06

-10.2% vs current

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

Bull Case

$229.05

25.4% 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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