Equity Residential (EQR) Q4 2025 earnings review
Growth Peaked in Q3; FY26 Guidance Signals Slowdown
Equity Residential closed 2025 with Normalized FFO of $1.03 per share, beating the prior year by 3%. However, the accelerating momentum seen throughout the year hit a wall in Q4. Same Store Revenue growth slipped to 2.5% (from 3.0% in Q3) and NOI growth decelerated to 2.3%. While the CEO speaks of 'improving operating momentum,' the data suggests otherwise: FY26 guidance forecasts Same Store NOI growth of just 1.5% at the midpoint—a meaningful deceleration from the 2.2% achieved in FY25. The bright spot remains aggressive capital recycling, with management selling lower-growth assets to repurchase undervalued stock.
🐂 Bull Case
Management believes the stock is a bargain. EQR repurchased $300M in shares in FY25 and has authorized up to 13M more shares. Funding buybacks by selling assets at a 5.6% yield creates immediate accretion if the stock trades at a higher implied cap rate.
The core markets are holding the line. New York and San Francisco delivered solid Q4 NOI growth of 4.2% and 3.6% respectively, driven by high occupancy and limited new supply. These markets comprise the bulk of the portfolio.
🐻 Bear Case
The diversification strategy is backfiring in the short term. Expansion markets are hemorrhaging NOI: Denver plunged 7.1% and Other Expansion Markets fell 1.4% in Q4. New supply in the Sunbelt continues to crush pricing power.
Operating leverage is thinning. Same Store Expenses rose 2.9% in Q4, outpacing Revenue growth (2.5%). Utilities surged 8.1%, posing a risk to margins if inflation in controllable expenses persists.
⚖️ Verdict: ⚪
Neutral. The company is managing a difficult cycle well through buybacks and coastal strength, but the rapid deterioration in expansion markets and decelerating guidance for 2026 cap the upside. The growth story has paused.
Key Themes
Bifurcation: Expansion Markets are a Dead Weight
The divide between Established and Expansion markets has widened significantly. While Established markets grew NOI by 2.9% in Q4, Expansion markets contracted by 2.2%. Denver is particularly alarming, with Revenue down 5.8% and NOI collapsing 7.1%. The 'New Lease Change' metric in Expansion markets plunged 14.8%, signaling that the bottom is not yet in.
Utility Costs Spiking
Expense management was a highlight earlier in the year, but Q4 showed cracks. Utilities expense jumped 8.1% YoY, significantly higher than the 3.7% full-year average. Management attributed YTD increases to commodity prices and higher usage in SoCal, but the Q4 acceleration suggests this headwind is strengthening right as revenue growth slows.
Capital Recycling into Buybacks
EQR is actively arbitraging its own valuation. In Q4, they sold six properties (yield 5.6%) to fund buybacks (approx. $205.7M purchased). With 13 million shares reauthorized for repurchase and $200M of excess 2025 disposition proceeds earmarked for H1 2026 buybacks, this provides a hard floor for the stock price and accretive FFO growth.
Occupancy Remains Sticky
Despite pricing pressure in the Sunbelt, physical occupancy remains a bright spot, ending Q4 at 96.2% (up 20bps YoY). Turnover dropped 90bps to 8.3%. This suggests demand exists, but the company is having to sacrifice pricing (New Lease Change -4.7%) to maintain bodies in beds.
Bad Debt Normalizing
Bad debt as a percentage of revenue improved to 1.0% in Q4 from 1.1% a year ago. While improvement is good, the company noted that government rental assistance payments are fading ($215k received in Q4 vs $358k prior year), meaning organic collections are stabilizing.
Other KPIs
Stable/Positive. Beat Q4 2024 ($1.00) by 3%. The growth was driven by SS NOI (+$0.03) and lease-up NOI (+$0.01), offset slightly by transaction dilution. This demonstrates the core portfolio's ability to grind out growth despite headwinds.
Decelerating. This metric deteriorated from -1.0% in Q3 2025. It is a leading indicator for future revenue growth and signals that pricing power is evaporating, particularly in Expansion markets where new lease rates plummeted 14.8%.
Improving. Down from 4.41x at Q3 end. The balance sheet remains pristine, giving management ample dry powder for the authorized share repurchases or opportunistic acquisitions if distress eventually hits the private market.
Guidance
Decelerating. The midpoint ($4.08) implies 2.3% growth over FY25 ($3.99). This is slightly slower than the 2.6% growth seen in FY25. The growth is primarily driven by NOI (+$0.08) and share repurchases (+$0.07), but weighed down by lower transaction gains and interest expense.
Decelerating. The midpoint of 1.5% is significantly lower than the 2.2% achieved in FY25. This confirms that the company expects expense growth (3.5% mid) to outpace revenue growth (2.2% mid) in several scenarios, compressing margins.
Decelerating sequentially. The midpoint ($0.96) is a steep drop from the $1.03 reported in Q4 25. Management attributes this to higher corporate overhead and seasonal NOI patterns, but the magnitude of the drop sets a low bar for the start of the year.
Key Questions
Expansion Market Capitulation
With Expansion Market NOI down 2.2% and New Lease rates down nearly 15%, do you see a path to positive NOI in these regions in FY26, or is this a multi-year drag?
Expense vs. Revenue Inversion
FY26 guidance midpoint implies Revenue +2.2% and Expenses +3.5%. What specific line items (Insurance? Taxes?) are driving this negative operating leverage, and when do you expect them to normalize?
Capital Allocation Speed
You have $200M earmarked for buybacks in H1 2026. Given the stock price is viewed as a 'bargain', why not accelerate dispositions to be more aggressive with repurchases while the valuation disconnect persists?