Realty Income presented various interesting modeling challenges for an analyst that had always worked on operating companies. There are various changes to this model compared to our normal models:
- We converted all operational terms into per-share amounts and valued a single share of the company.
- We used a discount rate of 7% rather than 10% to account for the return generated by dividends.
- We valued only the dividend stream using a dividend discount model rather than our usual discounted cash flow model and ignored cash outflows due to the acquisitions of new property.
- We used a structural growth rate of only 2% – significantly lower than our assumptions for nominal GDP growth (which we normally use as a structural growth assumption).
Happy to field questions about this model during Office Hours! Many thanks to Robert Ruggirello of Brave Eagle Wealth Management for his advice and experience in the REIT field!
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