Realty Income CorporationONYSE

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DCF Valuation

⚠️Model Warnings

•Revenue projections show 17% decline from peak. Analyst estimates may reflect secular headwinds or transition period.

DCF Valuation Summary

Strong Sell

Fair Value: $45.73 per share(market-calibrated)

-30.8%

Upside to Fair Value

Current

$66.05

Pure Model

$44.41

Fair Value

$45.73

Bull Case

$45.04

Bear Case

$41.86

Market Reality Check

Model Terminal Growth

2.50%

Market-Implied Growth

2.99%

Calibrated Growth

2.62%

Fair value uses 75% model / 25% market-implied terminal growth. Pure model: $44.41.

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.

⚠

Analyst growth decelerates sharply

Revenue growth drops from -2.10% in Year 1 to -16.85% 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.

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $53.99/share (34.2x terminal FCF) while exit multiple gives $34.83/share (23.3x terminal FCF). The base case averages both methods.

✓

Model and market roughly agree

Market-implied terminal growth of 2.99% is close to the model's 2.50% (only 49bps 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 $2.7B 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)64.53%

Debt Weight (D/V)35.47%

WACC Calculation

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

WACC = (64.53% × 7.98%) + (35.47% × 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	$6.5B	$5.5B	$4.4B	$4.2B
EBIT	$2.1B	$2.4B	$2.0B	$1.6B	$1.5B
Tax	$103M	$119M	$101M	$80M	$76M
NOPAT	$1.9B	$2.3B	$1.9B	$1.5B	$1.5B
+ Depreciation	$1.8B	$2.1B	$1.8B	$1.4B	$1.4B
- Capex	$85M	$99M	$84M	$67M	$64M
- Δ NWC	-$30M	$137M	-$279M	-$109M	$25M
Free Cash Flow	$3.7B	$4.2B	$3.9B	$3.0B	$2.7B
Discount Factor	0.948	0.852	0.765	0.687	0.585
Present Value	$3.5B	$3.5B	$3.0B	$2.1B	$1.6B

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

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$2.7B

Terminal Growth Rate2.50%

WACC5.50%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$93.4B

PV of Terminal Value$54.7B

Exit Multiple Method

Year 10 EBITDA$2.9B

Exit Multiple (EV/EBITDA)22.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$63.8B

PV of Terminal Value$37.3B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$26.6B

PV of Terminal Value$54.7B

Enterprise Value$81.3B

(-) Net Debt$32.4B

Equity Value$48.9B

Shares Outstanding905M

Price per Share$53.99

Exit Multiple Method

PV of Projected FCFs$26.6B

PV of Terminal Value$37.3B

Enterprise Value$63.9B

(-) Net Debt$32.4B

Equity Value$31.5B

Shares Outstanding905M

Price per Share$34.83

Pure Model Fair Value

$44.41

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%	$75.69	$71.48	$67.46	$63.62	$59.96
4.50%	$50.52	$57.30	$67.46	$63.62	$59.96
5.50%	$36.64	$39.97	$44.41	$50.63	$59.96
6.50%	$27.42	$29.32	$31.70	$34.76	$38.84
7.50%	$20.63	$21.82	$23.25	$25.00	$27.19

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

$41.86

-36.6% vs current

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

Base Case

$44.41

-32.8% vs current

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

Bull Case

$45.04

-31.8% 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-2.10%

Year 3 Revenue Growth9.21%

Year 5 Revenue Growth-16.85%

Year 7 Revenue Growth-9.11%

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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