What Does SL Green’s Higher EV/EBITDA Multiple Mean to Investors?



SL Green Realty’s higher multiple

A closer look at SL Green Realty’s (SLG) EV/EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple shows that it is in line with its historical valuation. Over the last six years, SL Green’s EV/EBITDA multiple has ranged between 11.8x and 24.3x, and its current EV/EBITDA multiple is around 21.2x. SL Green recorded its highest EV/EBITDA multiple in January 2015, while its lowest multiple was recorded in June 2009. The current industry average EV/EBITDA multiple is 20.2x.

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The EV/EBITDA multiple is widely used for the valuation of real estate companies. EV (enterprise value) is the market value of equity and debt less cash and cash equivalents. The EV/EBITDA multiple values the worth of the entire company and not just the equity portion.

Why is EV/EBITDA preferred?

A company that raises debt to fund operations will have a lower PE (price-to-earnings) multiple than a company that raises a similar amount of equity, even if the two companies have equivalent enterprise values. The company with the lower PE multiple looks cheaper than the company with the higher multiple. A company with a substantial amount of debt looks cheaper, while a company with less debt and higher equity looks pricey. REITs are capital-intensive businesses and most raise a lot of debt to fund their operations. Therefore, EV/EBITDA becomes an additional tool to value REITs, along with the price-to-FFO (funds from operations) multiple.

Peer group comparison

SL Green’s EV/EBITDA multiple is in line with its close competitors and higher than that of some others. Kilroy Realty (KRC) trades at an EV/EBITDA multiple of 22.2x, followed by Boston Properties (BXP) at 19.9x, and Douglas Emmett (DEI) at 20.2x. Highwoods Properties (HIW) trades at a lower EV/EBITDA multiple, with 16.3x. The iShares Cohen & Steers REIT ETF (ICF) invests ~2.8% of its portfolio in SL Green Realty. Next, we’ll wrap up this series by analyzing investments in SL Green Realty through ETFs.


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