Michael Schall – President and Chief Executive Officer
Thank you, (Robin) and welcome to our fourth quarter earnings conference call. Mike Dance and Erik Alexander will follow me with brief comments. John Eudy, John Burkart and John Lopez are available for Q&A. I will cover the following topics on the call: first, fourth quarter results and rent growth expectations; second, cap rates; and third, update on the state of California. So on to the first topic.
Last time, we reported FFO per share of $1.55 per share, an increase of 18% over the prior year and equal to the high end of our guidance range that was presented last quarter. I am very pleased with the focused effort in operations to the credit of Eric and his team. Eric will comment on portfolio results later in the call.
I'd like to revisit our longer term expectations for rent growth. Last quarter, I commented that we expect approximately 28% market rent growth in our target markets over the next five years. Our 2012 guidance contemplates 7.4% market rent growth, which is consistent with that five-year outlook. The following factors were important in arriving at our market rent estimates.First, we have seen a slow, but steady improvement in the state of California and Washington economies since 2010 and we do not see this progress abating. Clearly, we expect the coastal areas in California and Washington to outperform as the inland areas have greater unemployment overhang from foreclosures and related issues. Second, the West Coast was one of the last major U.S. metros to experience economic recovery. Rents fell further than in most markets and thus have greater growth potential before hitting normal resistance such as affordability. Overall, market rents in our portfolio are on average about at the same level as they were in Q3, 2008. However, personal and median household incomes in our target markets are higher now than in 2008. We estimate that current rents would need to grow by about 6.1% that are close to markets to hit the 20 year average rent to median income ratio of 20.2% and rents should grow above that average during improving economic conditions.