Digital Realty Trust (DLR)

Total return at 5 years: 7.3%/year = 4.6% appreciation + 2.7% dividend. The target price ($226) is ex-dividend; the $27 in dividends collected over 5 years are added separately.

By both methods, the value today (DCF $181 · Multiples $205) exceeds the market price ($180).

Today — fairly valued: at $180 trades ~12.0% below its value discounted to today (~$205); the discount is positive but does not reach the margin of safety we require (≥38%).

At 5 years — En valor: the target price ($226) plus dividends yield between the 4% floor and the 10% average return — a reasonable return, though without the margin of a great investment.

The bridge: the return at 5 years exceeds the risk-free rate (4.5%) — but the discount does not reach the required margin of safety (≥38%). To require a 15% annual return, it would need to be bought at ~$130.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($180) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The implied growth (9.9%/year) is in line with our base case (10.0%/year) → the price is consistent with the projection.

That growth implies ~$3.7 bn of owner earnings in year 5 (vs ~$3.7 bn of our base case). It recalculates if the DCF assumptions are edited.

A REIT is valued on price/Core-FFO (not P/E: the accounting depreciation of the property is not an economic cost). ⚠️ The real cash is AFFO (owner earnings), substantially lower than Core FFO —it subtracts recurring capex and non-cash straight-line rent—, and the dividend consumes almost all of the AFFO. It returns capital via dividend; it may issue equity to fund development. Total return adds the dividend collected along the way. In edit mode, the metric, shares, dividend, and exit multiple can be adjusted.

A REIT is valued on P/Core-FFO (not P/E: property depreciation is not economic). Year-0 (TTM, as of Jun-2026) takes the Core FFO the company publishes quarter by quarter in its release — $2.13 + $2.04 + $1.86 + $1.89 per share — and excludes the US$187.9M net promote-fee income from the second quarter of 2026, which does not appear in any of the four prior quarters: that is US$2,790M over 360.6 million diluted shares and units, or ~$7.74/share. Warning: the trap is that strict AFFO (subtracting recurring capex of US$343.9M and non-cash straight-line rent of US$119.7M, both from fiscal year 2025) is ~$5.82, and the current dividend consumes ~84% of that AFFO (vs. ~63% of Core FFO). AFFO was deliberately not re-anchored to the quarter: the figure the company publishes ($7.49) uses a broader definition and also includes that promote fee, so mixing it with a Core FFO that excludes it would produce a meaningless ratio. Core FFO/share grows +12% in year 1 (below FY2025's +13.4%) decelerating to +6% by year 5, with equity-issuance dilution moderating from ~4.5% to ~2%/year; the multiple compresses toward ~19x (disciplined within the archetype's 15-20x band, though the market pays more today). The development pipeline (770 MW, 64% pre-leased) and the power-capacity constraint are the swing factors.

Today's multiple compresses on its own going forward as the metric per share grows. The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—. Total return adds the dividend collected; the required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $226 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $180, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $226 in 5 years plus $27 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $205. Against the current market price ($180), the margin of safety is 12.0% (trades below the maximum → there is margin) and the total return at that price would be 7.3% annually.

• Multiple vs the peer group. 23× TTM Core FFO (even more on strict AFFO) — far above the reference band (15-20×). It is the richest valuation among the REITs in the library.
• Growth vs multiple. Growth (Core FFO/share +12% in year 1) is strong and partly justifies the premium, but does not fully offset it — the multiple compresses from 23× to ~19× in the base, and at a fixed price that leaves little return.
• Margin of safety. Modest base return (+5%/year price, +7% with dividend); the discount to today is scant — the price already incorporates much of the expected growth from the AI pipeline.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✕ ROIC exceeds the cost of capital (~10%)
• ✕ High incremental ROIC (compounding)
• ✓ CFROIC backs up the ROIC (326%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Balance sheet quality. 92.2% of debt at fixed rates, debt/enterprise value 25.1%, available liquidity ~$5.8bn — conservative profile, net debt/EBITDA ~5.6x close to its own stated target (~5.5x).
• Value creation (incremental ROIC). ⚠️ Incremental ROIC (~0.8%) is well below the 10% bar: much of the capital added since 2022 ($7.9bn in assets) has not yet translated into EBIT — a malinvestment test to watch, though consistent with a business in an intensive development phase.
• Cash quality (AFFO vs Core FFO). Strict AFFO (~$5.82) is ~75% of Core FFO ($7.74) — recurring capex and non-cash straight-line rent subtract a material portion; reported FCF for the period is negative due to the pace of development (funded with debt/equity).

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

DLR's driver is volume × price: square feet/megawatts leased in data centers × rent per unit, measured in two categories — stabilized (rent already in run-rate) and non-stabilized (recent development in the process of being leased, the faster growth engine as new capacity stabilizes) — plus a management-fees line for administering third-party capital in joint ventures. Dividends paid remain stable while capital is reinvested in the development pipeline.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (30-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Real, not nominal. Growth is real: megawatts/square feet leased plus rents rising on renewals. It is not monetary or inflationary growth.
• Growth engine. Non-stabilized capacity (recent development in lease-up, +16.6%) grows more than double the stabilized rate (+6.1%) — the engine is the conversion of pipeline to run-rate rent.
• Sustainability. Depends on AI/hyperscale demand holding up and on power capacity constraints not slowing the pace of pipeline conversion (770 MW, 64% pre-leased).

• Relevant in 10 years (recurrence). Cloud and artificial-intelligence infrastructure is structural; long contracts (up to 10+ years in hyperscale) give high recurrence. Demand today exceeds the capacity DLR can build.
• Pricing power. Yes: renewal rents rise strongly (+4.6% on small contracts, +27% on contracts >1 MW) — capacity scarcity (power + location) gives it real pricing power.
• Moat and its direction. Wide moat (interconnection + scale + switching costs), reinforced by AI demand. Power capacity constraints are the structural threat, not a weakness of the moat itself.
• Cyclicality / sensitivity. Sensitive to interest rates (like any REIT) and to power capacity constraints, which limit the pace at which demand converts into rent — the bottleneck is not demand, it's power infrastructure.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• ✕Leverage (LTV)LTV 70% · 5.6x debt/EBITDA
• !Credit quality (unencumbered + fixed rate)92% fixed rate · liquidity $5.8 bn
• ✕Portfolio quality (occupancy + same-store NOI)Occupancy 82.6%
• ✓Dividend coverage (payout over AFFO)84% of AFFO

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Leverage. Debt/enterprise value 25.1%, net debt/EBITDA ~5.6x — in line with the stated target (~5.5x) and backed by long-lived critical infrastructure assets.
• Credit quality. 92.2% of debt at fixed rates protects against a rise in rates; available liquidity of ~$5.8bn (revolver + cash) provides room to maneuver against maturities.
• Payout on AFFO (the real-cash view). The current dividend is ~84% of AFFO — tighter than on Core FFO (~68%), but with somewhat more cushion than the ~97% of other REITs in the library (PLD).
• Rate sensitivity. A REIT's value moves with the cost of debt and rate expectations; the mostly fixed-rate structure cushions the short term, but does not eliminate exposure.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• Skin in the game. No controlling shareholder; directors and executives own less than 1% of the capital. CEO and Chairman roles separated — good governance practice, though without significant management ownership.
• Capital allocation. Finances growth with equity issuance (dilution ~4.9% in 2025) more than with additional debt; Core FFO per share grew faster than dilution (+13.4% vs +4.9%) — a positive signal, though reliance on share issuance is material.
• Integrity / candor. Standard disclosure for a large REIT; no negative signals were identified in this extraction, though compensation-plan detail is not available in this light synthesis.

• It is not cheap — it trades at 23× TTM Core FFO (and even more on strict AFFO), a marked premium over a REIT's reference band (15-20× P/Core-FFO).
• The re-rating responds to a real theme: non-stabilized revenue grew +16.6% in 2025 and the development pipeline (770 MW) is 64% pre-leased — it isn't panic or forced selling, it's the opposite: the market pays upfront for growth that AI/cloud demand is already confirming.
• Accounting profitability on capital remains low (incremental ROIC ~0.8%): much of the $7.9bn in assets added since 2022 has not yet matured into operating income — the market is betting that the stabilization of new capacity will eventually close that gap.

This is the inverse case of 'careful, it isn't cheap': the price already reflects (or exceeds) the business's quality and demand. There is no identifiable source of discount (missing buyers or forced selling) — on the contrary, there is a premium paid for expected growth that has not yet translated into return on capital. Without that discount, the margin of safety is not present at today's price.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at ~0%/year (+1% total): the margin of safety protects the downside. The bull (+11%/year, +71% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Power capacity constraints. Available power shrinks as existing clients grow; at certain centers the maximum contractual obligation could exceed physical capacity — the bottleneck is power, not demand.
• Sustained dilution. Growth is largely financed with share issuance (~4.9% in 2025); if Core FFO per share stops outpacing dilution, value per share stalls.
• Weak return on incremental capital. ~0.8% vs the 10% bar — much of the capital added since 2022 has not yet paid off; it depends on non-stabilized capacity maturing in the coming years.
• Client and geographic concentration. The top 20 clients are ~51% of ARR and 20 of 310 centers are single-tenant; Northern Virginia concentrates 21.4% of annualized rent.
• Demanding valuation. At 23× TTM Core FFO the price already discounts much of the expected growth from the AI pipeline — little margin of safety if demand moderates.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  Fails the quality gate: ROIC 1% does not clear the 10% bar.

• Peter Lynch Growth at a reasonable price (GARP)

  A fast grower growing 10% at a multiple/growth of 2.3 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Not applicable — the Magic Formula excludes financials and regulated businesses (EBIT/EV does not capture the operating leverage).

• Howard Marks Perception vs reality + cycle

  The price discounts 10%, in line with our 10%: perception and reality aligned.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -3%/yr, bull-scenario ceiling +9%/yr over 5y → capital protected, asymmetry in your favor.

• Pat Dorsey Moat strength (Five Rules)

  A wide moat, stable; sources: network effects, efficient scale, cost advantage, switching costs, intangibles → passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting 10%, within what we project (10%) — the story squares with the numbers.