Grade: F — Major Red Flags (REIT-Structural)
Framework: Schilit *Financial Shenanigans* + Beneish M-Score + forensic accounting principles
Data: SEC EDGAR 10-K (Filed 2026-02-13, FY ended December 31, 2025) + Yahoo Finance
Auditor: Ernst & Young LLP — Unqualified opinion
CIK: 0000906107
One-line verdict: Equity Residential's F grade is a single-issue failure: cash of $50M covers 1% of $8.5B debt. Everything else is clean — zero goodwill, 62.9% gross margins, CFFO/NI of 1.47, FCF of $1.3B, Debt/EBITDA of 3.4x. Revenue grew 3.8% to $3.1B. Net income of $1.1B (36.2% net margin) is strong for a residential REIT. SG&A/Gross Profit of 3.4% is the lowest in this entire batch — EQR runs an exceptionally lean operation. The apartment REIT model inherently carries minimal cash, relying on revolving credit and capital markets for liquidity.
| Metric | Result |
|---|---|
| Red Flags | **1** (Cash-to-debt 1%) |
| Watch Items | **1** (Other assets +34.2%) |
| Checks Completed | **14/18** (4 N/A) |
| Beneish M-Score | N/A (insufficient data) |
| Auditor | Ernst & Young LLP — Unqualified opinion |
Residential REIT Operations
Revenue of $3,094M grew 3.8%, driven by same-store rent increases in coastal gateway markets. Net income of $1,120M at a 36.2% net margin is among the best profitability in the residential REIT sector. Per the filing, EQR attempts to "balance our objective of increasing revenue and cash flow with our desire to maintain stable and predictable occupancy rates."
CFFO of $1,647M exceeds NI by 1.47x — the ratio reflects depreciation on long-lived apartment buildings. FCF of $1,286M (CFFO less CapEx) is positive and covers the REIT dividend distribution requirement.
The D3 watch item (other assets +34.2% vs. revenue +3.8%) may reflect development activity or acquisition-related assets. EQR occasionally acquires apartment communities in target markets.
Competition includes "condominiums and single-family homes" per the filing. The risk factor section warns that "if the demand for the Company's communities is reduced or if competitors develop and/or acquire competing housing, rental rates and occupancy may decline."
The 18-Point Screening
| # | Check | Result | Detail |
|---|---|---|---|
| A1-A2 | Revenue Quality | — | Insufficient data (typical apartment REIT) |
| A3 | Revenue vs CFFO | ✅ | Revenue +3.8%, CFFO +4.8% |
| B1-B4 | Expense Quality | ✅ | 62.9% gross margin, 3.4% SG&A ratio |
| C1-C3 | Cash Flow | ✅ | CFFO/NI 1.47, FCF $1.3B, accruals -2.5% |
| C4 | Cash vs Debt | ❌ | Cash $50M = 1% of $8.5B |
| D1 | Goodwill | ✅ | Zero goodwill |
| D2 | Leverage | ✅ | Debt/EBITDA = 3.4x (healthy) |
| D3 | Soft Assets | ⚠️ | +34.2% |
| E1-E2 | Acquisition Risk | ✅ | Clean |
Summary
Grade: F is purely REIT-structural. EQR has the leanest SG&A ratio (3.4%) and one of the strongest net margins (36.2%) of any REIT in this batch. Zero goodwill, healthy leverage at 3.4x, and $1.3B in free cash flow. The F grade exists solely because of a $50M cash balance, which is a non-issue for a residential REIT with capital market access and predictable rent rolls.
**Disclaimer**: This report is based on Equity Residential's FY2025 10-K filed with SEC EDGAR on February 13, 2026. This is NOT investment advice.
Data: SEC EDGAR 10-K + Yahoo Finance
Auditor: Ernst & Young LLP (Unqualified opinion)
Fiscal year ended: December 31, 2025