Equity Residential Q4 Earnings Call Highlights

Core Insights - The fourth-quarter revenue for Equity Residential was driven by high physical occupancy of 96.4%, supported by solid demand and strong retention, despite negative new lease rates in most markets except San Francisco [1][4] - The rental housing industry faced challenges in 2025 due to uneven demand and elevated new supply, but management is optimistic about 2026 as competitive deliveries are expected to decline significantly [3][4] - The company anticipates blended same-store rate growth of 1.5% to 3% in 2026, with a normalized FFO midpoint of $4.08 per share, reflecting a 2.25% increase from 2025 [4][21] Market Performance - The same-store NOI for 2025 matched initial guidance, although results were less predictable than expected, with notable strength in San Francisco and New York [2][3] - The company reported record-low resident turnover and a renewal rate growth of approximately 4.5%, indicating strong portfolio fundamentals [4][5] - Management highlighted that only 7.4% of residents who moved out in 2025 cited buying a home as the reason, the lowest level in the company's history [5] Supply and Demand Outlook - A 35% decline in competitive new supply is expected in 2026, translating to about 40,000 fewer units, which is anticipated to improve market conditions [8][10] - San Francisco and New York are identified as key performance drivers for 2026, representing about 30% of NOI and having favorable supply and demand dynamics [10][11] - In Washington, D.C., new supply is projected to drop significantly, creating a more favorable market setup [11] Capital Allocation Strategy - The company plans to focus on selective development and has committed to selling lower forward-return assets to repurchase shares, viewing the stock as undervalued [13][15] - Approximately $206 million of stock was repurchased in the fourth quarter, with total repurchases for 2025 reaching $300 million [15] - The company aims to reduce concentration risk by selling older, non-core assets that require higher capital expenditures [16] Expense and Financial Outlook - For 2026, same-store expense growth is expected to be between 3% and 4%, with controllable expenses remaining stable year over year [18][19] - The bulk Wi-Fi rollout is projected to create an incremental expense impact of $6.8 million in 2026, but is expected to contribute significantly to NOI once fully implemented [20] - Significant debt maturities in 2026 include a $500 million note due in November, which is expected to be refinanced, with guidance assuming $500 million to $1 billion of debt issuance [23]