Realty Income CorporationONYSE

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DCF Valuation

⚠️Model Warnings

•Revenue projections show 12% decline from peak. Analyst estimates may reflect secular headwinds or transition period.

DCF Valuation Summary

Hold

Fair Value: $69.59 per share(market-calibrated)

+4.6%

Upside to Fair Value

Current

$66.56

Pure Model

$71.31

Fair Value

$69.59

Bull Case

$81.61

Bear Case

$59.61

Market Reality Check

Model Terminal Growth

2.50%

Market-Implied Growth

1.72%

Calibrated Growth

2.38%

Fair value uses 85% model / 15% market-implied terminal growth. Pure model: $71.31.

What's Driving This Ratingfor O

✓

CapEx already efficient

CapEx at 1.52% of revenue is already at or below sector maintenance level. No normalization needed — cash conversion is already strong.

✓

Premium margins already priced in

EBIT margin of 36.44% is already well above sector average. The model holds this level — there's limited room for margin expansion to drive upside. Valuation depends primarily on revenue growth.

→

Moderate revenue growth

Analyst consensus projects -2.67% revenue growth, fading to 2.50% by Year 10. Revenue reaches $6.2B (vs $5.7B today).

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $85.50/share (34.2x terminal FCF) while exit multiple gives $57.12/share (23.3x terminal FCF). The base case averages both methods.

✓

Model and market roughly agree

Market-implied terminal growth of 1.72% is close to the model's 2.50% (only 78bps 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 94.29% indicates efficient cash generation. FCF reaches $4.0B by Year 10 (65.13% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)0.77

Market Risk Premium4.50%

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

Cost of Equity (Re)7.98%

Cost of Debt

Pre-tax Cost of Debt0.00%

Tax Rate5.00%

After-tax Cost of Debt0.00%

Equity Weight (E/V)64.70%

Debt Weight (D/V)35.30%

WACC Calculation

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

WACC = (64.70% × 7.98%) + (35.30% × 0.00%)

= 5.50%

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	$5.6B	$6.3B	$5.5B	$5.8B	$6.2B
EBIT	$2.0B	$2.3B	$2.0B	$2.1B	$2.3B
Tax	$102M	$115M	$101M	$105M	$113M
NOPAT	$1.9B	$2.2B	$1.9B	$2.0B	$2.2B
+ Depreciation	$1.8B	$2.1B	$1.8B	$1.9B	$2.0B
- Capex	$85M	$95M	$84M	$88M	$94M
- Δ NWC	-$38M	$90M	$28M	$32M	$38M
Free Cash Flow	$3.7B	$4.0B	$3.6B	$3.8B	$4.0B
Discount Factor	0.948	0.852	0.765	0.687	0.585
Present Value	$3.5B	$3.4B	$2.8B	$2.6B	$2.4B

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

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$4.0B

Terminal Growth Rate2.50%

WACC5.50%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$138.3B

PV of Terminal Value$81.0B

Exit Multiple Method

Year 10 EBITDA$4.3B

Exit Multiple (EV/EBITDA)22.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$94.5B

PV of Terminal Value$55.3B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$28.8B

PV of Terminal Value$81.0B

Enterprise Value$109.8B

(-) Net Debt$32.4B

Equity Value$77.4B

Shares Outstanding905M

Price per Share$85.50

Exit Multiple Method

PV of Projected FCFs$28.8B

PV of Terminal Value$55.3B

Enterprise Value$84.1B

(-) Net Debt$32.4B

Equity Value$51.7B

Shares Outstanding905M

Price per Share$57.12

Pure Model Fair Value

$71.31

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%
3.50%	$116.81	$110.79	$105.04	$99.57	$94.34
4.50%	$79.95	$89.99	$105.04	$99.57	$94.34
5.50%	$59.80	$64.73	$71.31	$80.53	$94.34
6.50%	$46.52	$49.34	$52.87	$57.40	$63.45
7.50%	$36.83	$38.60	$40.72	$43.31	$46.56

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

$59.61

-10.4% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 0.97

Base Case

$71.31

7.1% vs current

• Analyst consensus
• Terminal growth: 2.5%
• Beta: 0.77

Bull Case

$81.61

22.6% vs current

• +25% vs analyst consensus
• Terminal growth: 3.0%
• Beta: 0.66

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

Growth Assumptions (Select Years)

Year 1 Revenue Growth-2.67%

Year 3 Revenue Growth6.12%

Year 5 Revenue Growth2.09%

Year 7 Revenue Growth2.25%

Year 10 Revenue Growth2.50%

Terminal Growth Rate2.50%

Margin & Efficiency

Current EBIT Margin36.44%

Tax Rate5.00%

Historical Capex / Rev1.52%

NWC / Revenue24.89%

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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