SL Green Realty Corp Valuation – August 2016 $SLG
Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – August 2016. By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how SL Group Realty Corp (SLG) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): SL Green Realty Corp. is a self-managed real estate investment trust, with in-house capabilities in property management, acquisitions and dispositions, financing, development and redevelopment, construction and leasing. The Company acquires, owns, repositions, manages and leases commercial office, retail and multifamily properties in the New York Metropolitan area. It operates through two segments: real estate, and debt and preferred equity investments. It owns or holds interests in approximately 30 consolidated and over five unconsolidated commercial office buildings encompassing approximately 21.0 million rentable square feet and approximately 3.0 million rentable square feet, for a total of over 24.0 million rentable square feet, located primarily in midtown Manhattan. It invests in well-collateralized debt and preferred equity investments. It manages an office building owned by a third-party encompassing over 336,000 square feet and holds debt and preferred equity investments.
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Downloadable PDF version of this valuation:
ModernGraham Valuation of SLG – August 2016
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
What kind of Intelligent Investor are you?
| Defensive Investor; must pass 6 out of the following 7 tests. | ||||
| 1. Adequate Size of the Enterprise | Market Cap > $2Bil | $11,693,396,500 | Pass | |
| 2. Sufficiently Strong Financial Condition | Current Ratio > 2 | 2.21 | Pass | |
| 3. Earnings Stability | Positive EPS for 10 years prior | Pass | ||
| 4. Dividend Record | Dividend Payments for 10 years prior | Pass | ||
| 5. Earnings Growth | Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end | -29.51% | Fail | |
| 6. Moderate PEmg Ratio | PEmg < 20 | 32.91 | Fail | |
| 7. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 1.65 | Pass | |
| Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor. | ||||
| 1. Sufficiently Strong Financial Condition | Current Ratio > 1.5 | 2.21 | Pass | |
| 2. Sufficiently Strong Financial Condition | Debt to NCA < 1.1 | 14.03 | Fail | |
| 3. Earnings Stability | Positive EPS for 5 years prior | Pass | ||
| 4. Dividend Record | Currently Pays Dividend | Pass | ||
| 5. Earnings Growth | EPSmg greater than 5 years ago | Fail | ||
Stage 2: Determination of Intrinsic Value
| EPSmg | $3.50 |
| MG Growth Estimate | -0.84% |
| MG Value | $23.88 |
| Opinion | Overvalued |
| MG Grade | D+ |
| MG Value based on 3% Growth | $50.78 |
| MG Value based on 0% Growth | $29.77 |
| Market Implied Growth Rate | 12.20% |
| Current Price | $115.25 |
| % of Intrinsic Value | 482.69% |
SL Green Realty Corp does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings growth over the last ten years, and the high PEmg ratio. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, and the lack of earnings growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.
As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $3.71 in 2012 to an estimated $3.5 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 12.2% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.
At the time of valuation, further research into SL Green Realty Corp revealed the company was trading above its Graham Number of $83.97. The company pays a dividend of $2.76 per share, for a yield of 2.4%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 32.91, which was below the industry average of 34.03, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-87.69.
SL Green Realty Corp scores quite poorly in the ModernGraham grading system, with an overall grade of D+.
Stage 3: Information for Further Research
| Net Current Asset Value (NCAV) | -$87.69 |
| Graham Number | $83.97 |
| PEmg | 32.91 |
| Current Ratio | 2.21 |
| PB Ratio | 1.65 |
| Current Dividend | $2.76 |
| Dividend Yield | 2.39% |
| Number of Consecutive Years of Dividend Growth | 6 |
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Useful Links:
| ModernGraham tagged articles | Morningstar |
| Google Finance | MSN Money |
| Yahoo Finance | Seeking Alpha |
| GuruFocus | SEC Filings |
Most Recent Balance Sheet Figures
| Balance Sheet Information | 6/1/2016 |
| Total Current Assets | $1,036,703,000 |
| Total Current Liabilities | $469,079,000 |
| Long-Term Debt | $7,962,220,000 |
| Total Assets | $17,544,223,000 |
| Intangible Assets | $0 |
| Total Liabilities | $10,225,933,000 |
| Shares Outstanding (Diluted Average) | 104,792,000 |
Earnings Per Share History
| Next Fiscal Year Estimate | $4.42 |
| Dec2015 | $2.70 |
| Dec2014 | $5.23 |
| Dec2013 | $1.10 |
| Dec2012 | $1.74 |
| Dec2011 | $7.33 |
| Dec2010 | $3.45 |
| Dec2009 | $0.54 |
| Dec2008 | $6.20 |
| Dec2007 | $10.78 |
| Dec2006 | $4.38 |
| Dec2005 | $3.20 |
| Dec2004 | $4.75 |
| Dec2003 | $2.66 |
| Dec2002 | $2.09 |
| Dec2001 | $1.94 |
| Dec2000 | $2.93 |
| Dec1999 | $1.37 |
| Dec1998 | $1.19 |
| Dec1997 | $2.22 |
Earnings Per Share – ModernGraham History
| Next Fiscal Year Estimate | $3.50 |
| Dec2015 | $3.24 |
| Dec2014 | $3.59 |
| Dec2013 | $2.79 |
| Dec2012 | $3.71 |
| Dec2011 | $5.02 |
| Dec2010 | $4.26 |
| Dec2009 | $4.79 |
| Dec2008 | $6.56 |
| Dec2007 | $6.21 |
| Dec2006 | $3.76 |
| Dec2005 | $3.27 |
| Dec2004 | $3.16 |
| Dec2003 | $2.31 |
| Dec2002 | $2.06 |
| Dec2001 | $2.01 |
| Dec2000 | $1.88 |
Recommended Reading:
Other ModernGraham posts about the company
SL Green Realty Corp Analysis – Initial Coverage $SLG
Other ModernGraham posts about related companies
Disclaimer:
The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.
