SL Green Realty: Undervalued Despite Strong Fundamentals and Strategic Momentum

In the shadow of Manhattan's towering skyline, SL Green Realty (SLG) stands as a case study in contrarian value investing. While the stock trades at a discount to its intrinsic worth, the company's improving occupancy rates, robust leasing pipeline, and strategic assets paint a picture of resilience amid market pessimism. For investors willing to look beyond short-term setbacks, SLG offers a compelling opportunity to capitalize on a REIT poised for a rebound.

Financial Fundamentals: A Foundation for Recovery

SL Green's Q2 2025 earnings report underscored its operational strength despite a net loss of $0.16 per share. Funds from Operations (FFO) came in at $1.63 per share, and the company raised its full-year FFO guidance to a range of $5.65–$5.95 per share, reflecting confidence in its ability to navigate a challenging market. This upward revision, driven by incremental income from its debt and preferred equity portfolio, highlights SL Green's strategic agility.

Manhattan's office market, a critical component of SL Green's portfolio, is showing signs of stabilization. As of June 30, 2025, same-store occupancy stood at 91.4%, with the company projecting a rise to 93.2% by year-end. This trajectory is supported by a leasing pipeline that added 46 Manhattan office leases totaling 541,721 square feet in Q2 alone, with mark-to-market gains of 2.4% compared to prior rents. Such momentum suggests that SL Green is not only maintaining its position in a competitive market but also capturing value through re-leasing.

Strategic Assets: Pivoting for Long-Term Value

The rejection of SL Green's $5.4 billion Times Square casino bid in September 2025 was a setback, but the company's pivot to a hotel and entertainment venue demonstrates its adaptability. CEO Marc Holliday has emphasized that the 1515 Broadway property-fully leased until mid-2031-remains a high-value asset, with plans to convert it into a 992-room hotel and experiential entertainment hub. This shift aligns with broader trends in urban development, where mixed-use, experience-driven projects are gaining traction.

While the casino project incurred $13.1 million in losses, the flexibility of the asset ensures its long-term potential. Holliday's insistence that the gaming license process "still leaves room for alternative opportunities" underscores his confidence in the property's strategic value. Even if the casino license remains elusive, the building's adaptive reuse in hospitality and entertainment could unlock significant upside.

Valuation Discrepancy: Contrarian Case for Upside

SL Green's stock currently trades at a discount to analyst price targets, which average $56.67 per share-a 27.5% upside from its recent closing price of $44.45. This optimism is reflected in a narrative fair value of $56.79, though bearish voices like Goldman Sachs have cut their target to $42.00, citing ongoing risks. The divergence in analyst views highlights the uncertainty surrounding the commercial real estate sector, but it also creates a margin of safety for value investors.

The company's P/FFO ratio of approximately 9.31, based on its updated guidance midpoint of $5.80 per share, is reasonable for a REIT with SL Green's asset quality and operational track record. While trailing twelve months (TTM) FFO was negative at -$0.02 per share, the forward-looking guidance and leasing momentum suggest a path to normalization. For a company with a market cap that lags its asset value, this valuation gap represents a compelling entry point.

Risks and Resilience

Critics point to high interest costs and the uncertainty of asset sales as headwinds. However, SL Green's recent debt gains-such as the $196.6 million in net proceeds from the repayment of its 522 Fifth Avenue mortgage-demonstrate its ability to monetize assets profitably. The company's balance sheet, bolstered by a diversified portfolio of Manhattan real estate and a strong debt portfolio, provides a buffer against macroeconomic volatility.

Moreover, the withdrawal of MGM Resorts from the Yonkers casino race has left only three bidders for New York's remaining gaming licenses, creating a potential opening for SL Green if the regulatory landscape shifts. Holliday's insistence that the casino project is "not completely dead" reflects a long-term vision that transcends immediate setbacks.

Conclusion: A High-Conviction Buy

SL Green Realty's current valuation fails to account for its operational resilience, strategic flexibility, and the inherent value of its Manhattan assets. While the casino bid's rejection and mixed analyst opinions have clouded its outlook, the company's fundamentals-improving occupancy, a robust leasing pipeline, and a pivot to high-demand sectors like hospitality-position it for a rebound. For contrarian investors, SLG represents a high-conviction buy at a price that discounts its long-term potential.