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    O · NYQ · Real Estate

    Realty Income Corporation

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 46.38

    Market price

    USD 56.66

    Implied upside

    -18.1%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    AdjustedReported capital expenditure averages just 0.00% of revenue, which is too low to be the company's real investment - property trusts and similar structures invest through lines that are not reported as capex. Capex has been set to 46.44% of revenue so the forecast is not handed free growth. The accounts do not separate depreciation from amortisation, so the combined charge is used - if a large part of it is amortisation of an acquisition, the reported capex is probably right and this substitution is not. Override it if the reported figure is right.

    Value Per Share

    Perpetuity growth
    USD 46.38-18.1%
    Exit multiple
    USD 147.49+160.3%
    Market price
    USD 56.66

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn3bn6bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 6.9bnUSD 8.3bnUSD 9.9bnUSD 11.8bnUSD 14.2bn+19.8%
    EBITUSD 2.9bnUSD 3.5bnUSD 4.2bnUSD 5.0bnUSD 6.0bn+19.8%
    NOPATUSD 2.7bnUSD 3.3bnUSD 3.9bnUSD 4.7bnUSD 5.7bn+19.8%
    Add depreciation & amortisationUSD 3.2bnUSD 3.8bnUSD 4.6bnUSD 5.5bnUSD 6.6bn+19.8%
    Less capital expenditureUSD -3.2bnUSD -3.8bnUSD -4.6bnUSD -5.5bnUSD -6.6bn+19.8%
    Less increase in working capitalUSD 185.3mUSD 222.0mUSD 266.0mUSD 318.7mUSD 381.8m-19.8%
    Free cashflow to firmUSD 2.9bnUSD 3.5bnUSD 4.2bnUSD 5.0bnUSD 6.0bn+19.8%
    Discount factor0.96330.89400.82970.77000.7146-
    Present valueUSD 2.8bnUSD 3.1bnUSD 3.5bnUSD 3.9bnUSD 4.3bn+11.2%
    Present Value Of The ForecastUSD 17.7bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta0.807Reported 0.712, pulled toward 1.0 (Blume)
    Cost of equity9.44%Risk-free + beta x equity risk premium
    Cost of debt5.00%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationUSD 53.6bn64.6% of capital
    Total debtUSD 29.3bn35.4% of capital, book value as a proxy
    Tax rate6.4%Effective, capped at statutory
    WACC7.75%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 46.38

    75% of EV

    Forecast FCFF, final year
    USD 6.0bn
    Capex at depreciation, working capital in reinvestment
    USD 5.7bn
    Less reinvestment at g/ROIC (32.2% of NOPAT)
    USD -1.8bn
    Capitalised
    USD 3.8bn
    ROIC (WACC floor)
    7.8%
    Terminal value, undiscounted
    USD 74.9bn
    Terminal value, discounted
    USD 53.5bn
    Enterprise value
    USD 71.2bn
    Less net debt
    USD 28.9bn
    Equity value
    USD 42.3bn

    Exit at 16.1x EBITDA

    Value per shareUSD 147.49

    89% of EV

    Terminal value, undiscounted
    USD 203.8bn
    Terminal value, discounted
    USD 145.6bn
    Enterprise value
    USD 163.3bn
    Less net debt
    USD 28.9bn
    Equity value
    USD 134.4bn

    Spread between methods: 104%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    5.75%73.9374.3574.7775.1975.61
    6.75%57.7758.1258.4658.8059.15
    7.75%45.8146.0946.3846.6746.95
    8.75%36.5936.8337.0837.3237.56
    9.75%29.2729.4829.6929.9030.11

    Outlined: this model. Green text: above today's price of 56.66. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year19.8%23.0%+3.2pp
    EBIT margin42.6%48.3%+5.7pp
    Discount rate7.8%6.9%-0.9pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.