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Sunstone Hotel Investors Reports Operating Results For First Quarter 2012



  Sunstone Hotel Investors Reports Operating Results For First Quarter 2012

Announces the Acquisition of 417-room Hotel to be Rebranded the Hyatt Chicago
Magnificent Mile; and The Blackstone Group, as Seller, to Attain Approximately
5% Ownership Position in Sunstone

PR Newswire

ALISO VIEJO, Calif., May 2, 2012

ALISO VIEJO, Calif., May 2, 2012 /PRNewswire/ -- Sunstone Hotel Investors,
Inc. (the "Company") (NYSE: SHO) today announced results for the first quarter
ended March 31, 2012.

First Quarter 2012 Operational Results (as compared to First Quarter
2011)^(1):

  o Comparable Hotel RevPAR increased 5.5% to $117.45.
  o Comparable Hotel EBITDA Margin increased by 120 basis points to 24.5%.
  o Adjusted EBITDA increased by 32.9% to $43.1 million.
  o Adjusted FFO available to common stockholders per diluted share increased
    by 71.4% to $0.12.
  o Loss attributable to common stockholders was $21.0 million (vs. income
    available to common stockholders of $45.7 million in 2011).
  o Loss attributable to common stockholders per diluted share was $0.18 (vs.
    income available to common stockholders per diluted share of $0.39 in
    2011).

Ken Cruse, President and Chief Executive Officer, stated, "Our portfolio's
solid operating performance during the quarter and the earnings from recently
acquired hotels drove a 33% year-over-year improvement in Adjusted EBITDA, and
a 71% year-over-year improvement in Adjusted FFO per diluted share.  Lodging
demand trends continue to improve and industry fundamentals are very
positive.  First quarter group booking productivity for our portfolio was at
its highest level since 2006.  As a result, our 2012 group booking pace is now
up over 8% and our 2013 group pace is now up over 20% as compared to the same
time last year. Accordingly, we have increased our full-year 2012 guidance." 

Mr. Cruse continued, "We remain focused on improving our portfolio quality and
scale while gradually deleveraging our balance sheet through creatively
sourced, attractively valued transactions.  To this end, today we announced
our acquisition of the 417-room Wyndham Chicago for a net acquisition price of
$88.4 million, or $212,000 per key.  The acquisition will be funded using a
portion of our sizeable cash balance and by issuing $58.4 million of common
shares directly to the seller, an affiliate of The Blackstone Group, at a net
price of $10.71 per share. We are excited to have Blackstone as a significant
investor in Sunstone, and we look forward to deepening our relationship.  We
are also pleased to expand our relationship with Hyatt Hotels Corporation.  We
believe Hyatt is the most attractive brand for this hotel due to Hyatt's
ability to attract high-end business travel and corporate groups, including
the vast number of medical meetings generated within walking distance of the
hotel.  Given the hotel's unique upside opportunities and the mutual benefits
of the transaction, Hyatt provided us with an attractive package of franchise
and economic terms. After rebranding the hotel as the Hyatt Chicago
Magnificent Mile, and completing a comprehensive renovation and repositioning
program aimed at making the hotel one of Chicago's top business destinations,
we anticipate our all-in investment will be approximately $250,000 per key,
which we believe will lead to attractive post-renovation returns.  There will
be no debt incurred in connection with this acquisition."        

    Comparable Hotel RevPAR and Comparable Hotel EBITDA Margin information
    presented reflect the Company's Comparable 32 Hotel Portfolio, which
    includes all hotels in which the Company has interests as of March 31,
    2012. Comparable Hotel EBITDA Margin information excludes current and
(1) prior year real estate tax credits or assessments. The Comparable 32 Hotel
    Portfolio also includes prior ownership results as applicable in 2011 for
    the Doubletree Guest Suites Times Square acquired by the Company in
    January 2011, the JW Marriott New Orleans acquired by the Company in
    February 2011, and the Hilton San Diego Bayfront acquired by the Company
    in April 2011.

SELECTED FINANCIAL DATA
($ in millions, except RevPAR and per share amounts)
(unaudited)
                                            Three Months Ended March 31,
                                            2012         2011       % Change
Total Revenue                               $   205.2    $  159.1   29.0%
Comparable Hotel RevPAR                     $ 117.45     $ 111.31   5.5%
Comparable Hotel Occupancy                  73.8%        69.6%        420 bps 
Comparable Hotel ADR                        $ 159.14     $ 159.93   (0.5)%
Comparable Hotel EBITDA Margin              24.5%        23.3%      120 bps 
Income available (loss attributable) to     $    (21.0 ) $    45.7
common stockholders
Income available (loss attributable) to     $    (0.18 ) $    0.39
common stockholders per diluted share
EBITDA                                      $     41.7   $    98.1
Adjusted EBITDA                             $     43.1   $    32.4
FFO available to common stockholders        $     12.9   $    74.8
Adjusted FFO available to common            $     13.6   $      8.6
stockholders
FFO available to common stockholders per    $     0.11   $    0.64
diluted share (1)
Adjusted FFO available to common            $     0.12   $    0.07
stockholders per diluted share (1)

    Reflects the Series C convertible preferred stock on a "non-converted"
    basis. On an "as-converted" basis, FFO available to common stockholders
(1) per diluted share is $0.12 and $0.63, respectively, for the three months
    ended March 31, 2012 and 2011. On an "as-converted" basis, Adjusted FFO
    available to common stockholders per diluted share is $0.12 and $0.08,
    respectively, for the three months ended March 31, 2012 and 2011.

Disclosure regarding the non-GAAP financial measures in this release is
included on pages 5 and 6. Reconciliations of non-GAAP financial measures to
the most comparable GAAP measure for each of the periods presented are
included on pages 9 through 12 of this release. 

The Company's actual results for the quarter ended March 31, 2012 compare to
its prior guidance as follows:

                               Q1 2012       Q1 2012 Performance
Metric                         Guidance ^(1) Actual  Relative to
                                                     Midpoint
Comparable Hotel RevPAR        +3% - 5%      +5.5%   +1.5%
Net Loss ($ millions)          $(19) - $(17) ($13)   +$5.0
Adjusted EBITDA ($ millions)   $38 - $40     $43.1   +$4.1
Adjusted FFO ($ millions)      $9 - $11      $13.6   +$3.6
Adjusted FFO per diluted share $0.07 - $0.09 $0.12   +$0.04
(1) Reflects guidance presented on 02/21/2012. 

Acquisition Update

The Company has signed a purchase and sale agreement to acquire the 417-room
Wyndham Chicago from an affiliate of The Blackstone Group for a total purchase
price of $88.4 million (approximately $212,000 per key).  The hotel is well
located one block east of Michigan Avenue on the corner of North St. Claire
Street in Chicago's famed Magnificent Mile district, and is adjacent to
Northwestern Medical Hospital, Chicago's Feinberg School of Medicine, and the
new 23-story, state-of-the-art, Ann & Robert Lurie Children's Memorial
Hospital that opens in June 2012.  The hotel is subject to an 85-year building
lease.  Upon closing, the Company will rebrand the hotel the Hyatt Chicago
Magnificent Mile and will immediately embark on a $25 million renovation
program (a portion of which will be funded by Hyatt). Following the scheduled
renovation and after the hotel reaches stabilization as a Hyatt-branded hotel,
the Company anticipates that its all-in investment will be roughly $250,000
per key, which the Company estimates will equate to a below 10.0x multiple on
anticipated stabilized EBITDA.  The hotel will be funded with $30.0 million of
cash on hand and $58.4 million of the Company's common stock, which will be
issued to the seller at a price equivalent to $10.71 per share.  The hotel
will be managed by Davidson Hotels & Resorts under a franchise agreement with
an affiliate of Hyatt Hotels Corporation.  The Company expects the purchase of
the hotel to close during the second quarter of 2012.    

Jonathan D. Gray, Global Head of Real Estate of The Blackstone Group stated,
"We are excited about this transaction with Sunstone.  We believe the company
and its management are well positioned to take advantage of the continued
recovery in the lodging cycle and we look forward to building our relationship
with Sunstone."

Balance Sheet/Liquidity Update

As of March 31, 2012, the Company had approximately $198.2 million of cash and
cash equivalents, including restricted cash of $72.0 million, total assets of
$3.1 billion, including $2.8 billion of net investments in hotel properties,
total consolidated debt of $1.6 billion and stockholders' equity of $1.2
billion.

On April 26, 2012, the Company used existing cash to repay its $32.2 million
non-recourse mortgage secured by the Renaissance Long Beach, which was
scheduled to mature on July 1, 2012. After this repayment, the Company's only
near-term debt maturity is the 4.60% Exchangeable Senior Notes outstanding
balance of $58.0 million, which is likely to be retired with a portion of the
Company's unrestricted cash balance on or before January 15, 2013, the first
optional repurchase date.

John Arabia, Chief Financial Officer stated, "Following the repayment of the
mortgage on our Renaissance Long Beach and upon closing our acquisition of the
Hyatt Chicago Magnificent Mile, we will hold 13 unencumbered hotels.  Our
remaining mortgages have well-staggered maturities and, in aggregate, pay
below-market interest rates, and we have access to multiple forms of
liquidity.  While we believe Sunstone is attractively capitalized for the
current phase of the lodging cycle, we remain committed to gradually
deleveraging over the next several years while building shareholder value. Our
acquisition of the Hyatt Chicago Magnificent Mile, which will have no debt,
and our repayment of the mortgage on the Renaissance Long Beach are highly
consistent with our stated plan."

Capital Improvements

The Company invested $21.8 million in capital improvements into its portfolio
during the first quarter of 2012.

2012 Outlook

Achievement of the Company's anticipated results is subject to risks and
uncertainties, including those disclosed in the Company's filings with the
Securities and Exchange Commission.  The Company's guidance includes the
existing 32 Hotel Portfolio and does not take into account the impact of the
pending Hyatt Chicago Magnificent Mile acquisition or any future hotel
acquisitions, dispositions, re-brandings or management change transition
costs, debt repurchases or financings during 2012.  

For the second quarter of 2012, the Company expects:

                               Quarter Ended
Metric                         June 30, 2012
                               Guidance
Comparable Hotel RevPAR        +5.5% - 7.5%
Net Income ($ millions)        $8 - $11
Adjusted EBITDA ($ millions)   $65 - $68
Adjusted FFO ($ millions)      $36 - $39
Adjusted FFO per diluted share $0.30 - $0.33

For the full year 2012, the Company expects:  

Metric                          Prior 2012 FY Current 2012 FY Change to
                                Guidance ^(1) Guidance        Prior Midpoint
Comparable Hotel RevPAR         +4% - 6%      +5% - 7%        +1%
Net Income (Loss)  ($ millions) $(4) - $8     $4 - $13        $6.5
Adjusted EBITDA ($ millions)    $223 - $235   $229 - $238     $4.5
Adjusted FFO ($ millions)       $105 - $117   $113 - $122     $6.5
Adjusted FFO per diluted share  $0.90 - $1.00 $0.96 - $1.04   $0.05
(1) Reflects guidance presented on 02/21/2012.

Full-year 2012 guidance is also based on the following assumptions:

  o Capital investment of $85 to $100 million, including the $25 million
    renovation of the Renaissance Washington DC.
  o Hotel revenue renovation disruption of $3 to $5 million.
  o Comparable Hotel EBITDA Margins to increase by 75 to 125 basis points.
  o Corporate overhead expense (excluding stock amortization and one-time
    expenses related to future acquisition closing costs) of $19 to $20
    million.
  o Interest expense of approximately $81 to $83 million, including $4 million
    in amortization of deferred financing fees.
  o Preferred dividends (Series A, C and D) of approximately $30 million.

John Arabia continued, "We have increased our guidance based on our strong
first quarter operating results and our elevated confidence in business
trends.  We expect the acceleration in group bookings and healthy transient
demand, combined with very low industry-wide supply trends to drive meaningful
RevPAR and margin growth for the next several years."

Dividend Update

On May 2, 2012, the Company's Board of Directors declared a cash dividend of
$0.50 per share payable to its Series A and Series D cumulative redeemable
preferred stockholders and a cash dividend of $0.393 per share payable to its
Series C cumulative convertible redeemable preferred stockholders. The
dividends will be paid on or before July 15, 2012 to stockholders of record on
June 30, 2012.  No dividend was declared on the Company's common stock, as the
Company intends to deploy excess cash flow from operations toward internal
renovation investments and gradual deleveraging.

Subject to certain limitations, the Company intends to make dividends on its
stock in amounts equivalent to 100% of its annual taxable income, which may be
reduced through the application of net operating losses. The level of any
future dividends will be determined by the Company's Board of Directors after
considering taxable income projections, expected capital requirements, risks
affecting the Company's business and in context of the Company's
leverage-reduction initiatives.  As a result, common stock dividends may be
made in the form of cash or a combination of cash and stock consistent with
Internal Revenue Service guidelines.

Supplemental Disclosures

Contemporaneous with this release, the Company has furnished a Form 8-K with
unaudited financial information. This additional information is being provided
as a supplement to information prepared in accordance with generally accepted
accounting principles. The Company undertakes no obligation to update any of
the information provided to conform to actual results or changes in the
Company's portfolio, capital structure or future expectations.

Earnings Call

The Company will host a conference call to discuss first quarter results on
May 3, 2012, at 9:00 a.m. EDT (6:00 a.m. PDT). A live web cast of the call
will be available via the Investor Relations section of the Company's
website.  Alternatively, investors may dial 1-877-941-2333 (for domestic
callers) or 1-480-629-9724 (for international callers). A replay of the web
cast will also be archived on the website.

The following table includes information related to the Wyndham Chicago, which
will be rebranded the Hyatt Chicago Magnificent Mile:

Wyndham Chicago / Hyatt Chicago Magnificent Mile (1)  EBITDA Reconciliation
                                         Plus:            Equals:      Hotel
(In          Total                                        Hotel        EBITDA
thousands)
             Revenues        Net Income  Depreciation (2) EBITDA       Margins
             $               $           $                $          
FY 2012                                                                16.4%
                 25,600                        3,300                 
                               1,200                        4,200
Post         $               $           $                $          
Renovation                                                             26.3%
(3)              35,000                        4,000                 
                               5,200                        9,200
(1) 2012 forecast reflects anticipated prior ownership period of January - May
2012 when the hotel operated as the Wyndham Chicago, and June - December 2012
when the hotel will be re-branded the Hyatt Chicago Magnificent Mile.
 

(2) Depreciation calculated using an estimated purchase price of $88.4 million
allocated based on the hotel's 2011 property tax assessment. Post renovation
depreciation is increased to reflect capital invested.
 

(3) Reflects anticipated earnings for the subsequent twelve months following
the completion of the hotel's renovation program.

 

About Sunstone Hotel Investors, Inc.

Sunstone Hotel Investors, Inc. ("Sunstone") is a lodging real estate
investment trust ("REIT") that, as of March 31, 2012, has interests in 32
hotels comprised of 13,208 rooms.  Sunstone's hotels are primarily in the
upper upscale segment and are generally operated under nationally recognized
brands, such as Marriott, Hilton, Fairmont, Hyatt and Sheraton. For further
information, please visit Sunstone's website at www.sunstonehotels.com.

Sunstone's mission is to create meaningful value for our stockholders by
becoming the premier hotel owner.  Our values include transparency, trust,
ethical conduct, communication and discipline.  We seek to employ a balanced,
cycle-appropriate corporate strategy that encompasses the following:

  o Proactive portfolio management;
  o Intensive asset management;
  o Disciplined external growth; and
  o Measured balance sheet improvement.

This press release contains forward-looking statements within the meaning of
federal securities laws and regulations. These forward-looking statements are
identified by their use of terms and phrases such as "anticipate," "believe,"
"continue," "could," "estimate," "expect," "intend," "may," "plan," "predict,"
"project," "should," "will" and other similar terms and phrases, including
references to assumptions and forecasts of future results. Forward-looking
statements are not guarantees of future performance and involve known and
unknown risks, uncertainties and other factors that may cause the actual
results to differ materially from those anticipated at the time the
forward-looking statements are made. These risks include, but are not limited
to: volatility in the debt or equity markets affecting our ability to acquire
or sell hotel assets; national and local economic and business conditions,
including the likelihood of a prolonged U.S. recession; the ability to
maintain sufficient liquidity and our access to capital markets; potential
terrorist attacks, which would affect occupancy rates at our hotels and the
demand for hotel products and services; operating risks associated with the
hotel business; risks associated with the level of our indebtedness and our
ability to meet covenants in our debt and equity agreements; relationships
with property managers and franchisors; our ability to maintain our properties
in a first-class manner, including meeting capital expenditure requirements;
our ability to compete effectively in areas such as access, location, quality
of accommodations and room rate structures; changes in travel patterns, taxes
and government regulations, which influence or determine wages, prices,
construction procedures and costs; our ability to identify, successfully
compete for and complete acquisitions; the performance of hotels after they
are acquired; necessary capital expenditures and our ability to fund them and
complete them with minimum disruption; our ability to continue to satisfy
complex rules in order for us to qualify as a REIT for federal income tax
purposes; and other risks and uncertainties associated with our business
described in the Company's filings with the Securities and Exchange
Commission. Although the Company believes the expectations reflected in such
forward-looking statements are based upon reasonable assumptions, it can give
no assurance that the expectations will be attained or that any deviation will
not be material. All forward-looking information in this release is as of May
2, 2012, and the Company undertakes no obligation to update any
forward-looking statement to conform the statement to actual results or
changes in the Company's expectations.

This release should be read in conjunction with the consolidated financial
statements and notes thereto included in our most recent reports on Form 10-K
and Form 10-Q. Copies of these reports are available on our website at
www.sunstonehotels.com and through the SEC's Electronic Data Gathering
Analysis and Retrieval System ("EDGAR") at www.sec.gov.

Non-GAAP Financial Measures

We present the following non-GAAP financial measures that we believe are
useful to investors as key measures of our operating performance: Earnings
Before Interest Expense, Taxes, Depreciation and Amortization, or EBITDA;
Adjusted EBITDA (as defined below); Funds From Operations, or FFO; Adjusted
FFO (as defined below); and comparable hotel EBITDA and comparable hotel
EBITDA margin.

EBITDA represents net income (loss) excluding: non-controlling interests;
interest expense; provision for income taxes, including income taxes
applicable to sale of assets; and depreciation and amortization. In addition,
we have presented Adjusted EBITDA, which excludes: amortization of deferred
stock compensation; the impact of any gain or loss from asset sales;
impairment charges; and any other adjustments we have identified in this
release. We believe EBITDA and Adjusted EBITDA are useful to investors in
evaluating our operating performance because these measures help investors
evaluate and compare the results of our operations from period to period by
removing the impact of our capital structure (primarily interest expense) and
our asset base (primarily depreciation and amortization) from our operating
results. We also use EBITDA and Adjusted EBITDA as measures in determining the
value of hotel acquisitions and dispositions. A reconciliation of net income
(loss) to EBITDA and Adjusted EBITDA is set forth on page 9.  A reconciliation
and the components of comparable hotel EBITDA and comparable hotel EBITDA
margin are set forth on page 12. We believe comparable hotel EBITDA and
comparable hotel EBITDA margin are also useful to investors in evaluating our
property-level operating performance.

We compute FFO in accordance with standards established by the National
Association of Real Estate Investment Trusts, or NAREIT, an industry trade
group. The Board of Governors of NAREIT in its March 1995 White Paper (as
clarified in November 1999 and April 2002) defines FFO to mean net income
(loss) (computed in accordance with GAAP), excluding non-controlling
interests, gains and losses from sales of property, plus real estate-related
depreciation and amortization (excluding amortization of deferred financing
costs) and real estate-related impairment losses, and after adjustment for
unconsolidated partnerships and joint ventures. We also present Adjusted FFO,
which excludes penalties, written-off deferred financing costs, non-real
estate-related impairment losses and any other adjustments we have identified
in this release. We believe that the presentation of FFO and Adjusted FFO
provide useful information to investors regarding our operating performance
because they are measures of our operations without regard to specified
non-cash items such as real estate depreciation and amortization, gain or loss
on sale of assets and certain other items which we believe are not indicative
of the performance of our underlying hotel properties.  We believe that these
items are more representative of our asset base and our acquisition and
disposition activities than our ongoing operations. We also use FFO as one
measure in determining our results after taking into account the impact of our
capital structure.  A reconciliation of net income (loss) to FFO and Adjusted
FFO is set forth on page 9. 

The revenue and expense items associated with our commercial laundry facility,
BuyEfficient and other miscellaneous non-hotel items have been excluded in
presenting comparable hotel EBITDA margins. Management believes the
calculation of comparable hotel EBITDA results in a more accurate presentation
of hotel EBITDA margins of the Company's 32 comparable hotels. See page 12 for
a reconciliation of comparable hotel EBITDA to the most comparable GAAP
measure. Our 32 comparable hotels include all hotels in which the Company has
interests as of March 31, 2012, plus prior ownership results as applicable in
2011 for the Doubletree Guest Suites Times Square acquired by the Company in
January 2011, the JW Marriott New Orleans acquired by the Company in February
2011, and the Hilton San Diego Bayfront acquired by the Company in April 2011.

We caution investors that amounts presented in accordance with our definitions
of EBITDA, Adjusted EBITDA, FFO, Adjusted FFO, comparable hotel EBITDA and
comparable hotel EBITDA margin may not be comparable to similar measures
disclosed by other companies, because not all companies calculate these
non-GAAP measures in the same manner. EBITDA, Adjusted EBITDA, FFO, Adjusted
FFO, comparable hotel EBITDA and comparable hotel EBITDA margin should not be
considered as an alternative measure of our net income (loss), operating
performance, cash flow or liquidity. EBITDA, Adjusted EBITDA, FFO, Adjusted
FFO, comparable hotel EBITDA and comparable hotel EBITDA margin may include
funds that may not be available for our discretionary use due to functional
requirements to conserve funds for capital expenditures and property
acquisitions and other commitments and uncertainties. Although we believe that
EBITDA, Adjusted EBITDA, FFO, Adjusted FFO, comparable hotel EBITDA and
comparable hotel EBITDA margin can enhance an investor's understanding of our
results of operations, these non-GAAP financial measures, when viewed
individually, are not necessarily a better indicator of any trend as compared
to GAAP measures such as net income (loss) or cash flow from operations. In
addition, you should be aware that adverse economic and market conditions may
harm our cash flow.

Sunstone Hotel Investors, Inc.
Consolidated Balance Sheets
(In thousands, except share data)
                                          March 31,              December 31,
                                          2012                   2011
                                          (unaudited)
Assets
Current assets:
   Cash and cash equivalents              $            126,199   $          
                                                                  150,533
   Restricted cash                        71,991                 67,898
   Accounts receivable, net               35,275                 32,542
   Inventories                            2,638                  2,608
   Prepaid expenses                       10,336                 10,272
Total current assets                      246,439                263,853
Investment in hotel properties, net       2,761,006              2,777,826
Other real estate, net                    11,723                 11,859
Deferred financing fees, net              13,637                 14,651
Goodwill                                  13,088                 13,088
Other assets, net                         18,838                 19,963
Total assets                              $         3,064,731    $        
                                                                 3,101,240
Liabilities and Equity
Current liabilities:
   Accounts payable and accrued expenses  $              22,370  $            
                                                                  26,854
   Accrued payroll and employee benefits  16,423                 20,863
   Due to Third-Party Managers            8,436                  9,227
   Dividends payable                      7,437                  7,437
   Other current liabilities              31,164                 28,465
   Current portion of notes payable       111,346                53,935
Total current liabilities                 197,176                146,781
Notes payable, less current portion       1,449,246              1,516,542
Other liabilities                         13,284                 12,623
Total liabilities                         1,659,706              1,675,946
Commitments and contingencies             -                      -
Preferred stock, Series C Cumulative
Convertible Redeemable Preferred
   Stock, $0.01 par value, 4,102,564
   shares authorized, issued and
   outstanding at March 31, 2012 and
   December 31, 2011, liquidation
   preference of $24.375 per share        100,000                100,000
Equity:
Stockholders' equity:
   Preferred stock, $0.01 par value,
   100,000,000 shares authorized.
        8.0% Series A Cumulative
   Redeemable Preferred Stock,
             7,050,000 shares issued and
   outstanding at March 31, 2012 and
   December 31, 2011,
             stated at liquidation        176,250                176,250
   preference of $25.00 per share
        8.0% Series D Cumulative
   Redeemable Preferred Stock,
             4,600,000 shares issued and
   outstanding at March 31, 2012 and
   December 31, 2011,
             stated at liquidation        115,000                115,000
   preference of $25.00 per share
   Common stock, $0.01 par value,
   500,000,000 shares authorized,
         117,571,234 shares issued and
   outstanding at March 31, 2012 and
         117,265,090 shares issued and    1,176                  1,173
   outstanding at December 31, 2011
   Additional paid in capital             1,313,581              1,312,566
   Retained earnings                      97,052                 110,580
   Cumulative dividends                   (452,833)              (445,396)
   Accumulated other comprehensive loss   (4,916)                (4,916)
Total stockholders' equity                1,245,310              1,265,257
Non-controlling interest in consolidated  59,715                 60,037
joint ventures
Total equity                              1,305,025              1,325,294
Total liabilities and equity              $         3,064,731    $        
                                                                 3,101,240

Sunstone Hotel Investors, Inc.
Unaudited Consolidated Statements of Operations
(In thousands, except per share data)
                                              Three Months Ended March 31, 
                                             2012             2011
 Revenues 
 Room                                        $                $              
                                                 136,538          106,480
 Food and beverage                           51,837           39,285
 Other operating                             16,846           13,293
 Total revenues                              205,221          159,058
 Operating expenses 
 Room                                        37,449           29,051
 Food and beverage                           36,846           29,726
 Other operating                             6,890            5,959
 Advertising and promotion                   11,115           8,622
 Repairs and maintenance                     8,614            7,272
 Utilities                                   7,286            6,845
 Franchise costs                             6,731            5,250
 Property tax, ground lease and              16,766           13,992
insurance 
 Property general and administrative         25,247           20,020
 Corporate overhead                          5,300            7,657
 Depreciation and amortization               34,756           26,222
 Total operating expenses                    197,000          160,616
 Operating income (loss)                     8,221            (1,558)
 Equity in earnings of unconsolidated        -                21
joint ventures
 Interest and other income                   63               109
 Interest expense                            (21,503)         (17,784)
 Loss on extinguishment of debt              (191)            -
 Gain on remeasurement of equity             -                69,230
interests 
 Income (loss) from continuing               (13,410)         50,018
operations 
 Income from discontinued operations         442              1,317
 Net income (loss)                           (12,968)         51,335
 Income from consolidated joint
venture attributable to                      (560)            -
non-controlling interest 
 Distributions to non-controlling            (8)              (7)
interest 
 Preferred stock dividends                   (7,437)          (5,137)
 Undistributed income allocated to
unvested restricted stock                    -                (302)
compensation 
 Undistributed income allocated to           -                (209)
Series C preferred stock 
 Income available (loss attributable)        $                $              
to common stockholders                           (20,973)           45,680
Basic per share amounts:
        Income (loss) from continuing        $                $              
operations available (attributable) to               (0.18)             0.38
common stockholders
        Income from discontinued             -                0.01
operations
Basic income available (loss                 $                $              
attributable) to common stockholders per             (0.18)             0.39
common share
Diluted per share amounts:
        Income (loss) from continuing        $                $              
operations available (attributable) to               (0.18)             0.38
common stockholders
        Income from discontinued             -                0.01
operations
Diluted income available (loss               $                $              
attributable) to common stockholders per             (0.18)             0.39
common share
Weighted average common shares
outstanding:
       Basic                                 117,426          117,074
       Diluted                               117,426          117,074

Sunstone Hotel Investors, Inc.
Reconciliation of Net Income (Loss) to Non-GAAP Financial Measures
(Unaudited and in thousands, except per share amounts)
Reconciliation of Net Income (Loss) to EBITDA and Adjusted EBITDA
                                       Three Months Ended
                                       March 31,
                                       2012                2011
Net income (loss)                      $                   $                
                                        (12,968)            51,335
Operations held for investment:
   Depreciation and amortization       34,756              26,222
   Amortization of lease intangibles   1,035               937
   Interest expense                    20,194              16,866
   Amortization of deferred financing  967                 613
fees
   Non-cash interest related to        266                 261
discount on Senior Notes
   Non-cash interest related to loss   76                  44
on derivatives, net
Non-controlling interests:
   Income from consolidated joint
venture attributable to                (560)               -
non-controlling interest
   Depreciation and amortization       (1,419)             -
   Interest expense                    (570)               -
   Amortization of deferred financing  (56)                -
fees
   Non-cash interest related to loss   (1)                 -
on derivative
Unconsolidated joint ventures:
   Depreciation and amortization       -                   3
Discontinued operations:
   Depreciation and amortization       -                   1,693
   Interest expense                    -                   157
   Amortization of deferred financing  -                   3
fees
EBITDA                                 41,720              98,134
Operations held for investment:
   Amortization of deferred stock      946                 544
compensation
   Non-cash straightline lease expense 696                 240
   Gain on sale of assets              (11)                -
   Loss on extinguishment of debt      191                 -
   Gain on remeasurement of equity     -                   (69,230)
interests
   Lawsuit settlement reversal of      (145)               -
costs
   Closing costs - completed           -                   2,739
acquisitions
Non-controlling interests:
   Non-cash straightline lease expense (113)               -
Unconsolidated joint ventures:
   Amortization of deferred stock      -                   2
compensation
Discontinued operations:
   Gain on sale of assets              (177)               -
                                       1,387               (65,705)
Adjusted EBITDA                        $                   $                
                                        43,107              32,429
Reconciliation of Net Income (Loss) to FFO and Adjusted FFO
Net income (loss)                      $                   $                
                                        (12,968)            51,335
Preferred stock dividends              (7,437)             (5,137)
Operations held for investment:
   Real estate depreciation and        34,449              25,945
amortization
   Amortization of lease intangibles   1,035               937
   Gain on sale of assets              (11)                -
Non-controlling interests:
   Income from consolidated joint
venture attributable to                (560)               -
non-controlling interest
   Real estate depreciation and        (1,419)             -
amortization
Discontinued operations:
   Real estate depreciation and        -                   1,693
amortization
   Gain on sale of assets              (177)               -
FFO available to common stockholders   12,912              74,773
Operations held for investment:
   Non-cash straightline lease expense 696                 240
   Non-cash interest related to loss   76                  44
on derivatives, net
   Loss on extinguishment of debt      191                 -
   Gain on remeasurement of equity     -                   (69,230)
interests
   Lawsuit settlement reversal of      (145)               -
costs
   Closing costs - completed           -                   2,739
acquisitions
Non-controlling interests:
   Non-cash straightline lease expense (113)               -
   Non-cash interest related to loss   (1)                 -
on derivative
                                       704                 (66,207)
Adjusted FFO available to common       $                   $                  
stockholders                            13,616              8,566
FFO available to common stockholders   $                   $                  
per diluted share                         0.11                0.64
Adjusted FFO available to common       $                   $                  
stockholders per diluted share            0.12                0.07
Basic weighted average shares          117,426             117,074
outstanding
Shares associated with unvested        155                 137
restricted stock awards
Diluted weighted average shares        117,581             117,211
outstanding (1)

 

(1)  Diluted weighted average shares outstanding includes the Series C
convertible preferred stock on a "non-converted" basis.  On an "as-converted"
basis,
       FFO available to common stockholders per diluted share is $0.12 and
$0.63, respectively, for the three months ended March 31, 2012 and 2011.  On
an
       "as-converted" basis, Adjusted FFO available to common stockholders per
diluted share is $0.12 and $0.08, respectively, for the three months ended 
       March 31, 2012 and 2011.

Sunstone Hotel Investors, Inc.
Reconciliation of Net Income to Non-GAAP Financial Measures
Guidance for Second Quarter 2012
(Unaudited and in thousands except per share amounts)
Reconciliation of Net Income to Adjusted EBITDA
                                       Quarter Ended
                                       June 30, 2012
                                       Low                 High
Net income                             $                   $                  
                                             8,350             11,350
   Depreciation and amortization       35,000              35,000
   Amortization of lease intangibles   1,000               1,000
   Interest expense                    20,250              20,250
   Amortization of deferred financing  1,000               1,000
fees
   Non-controlling interests           (2,500)             (2,500)
   Non-cash interest related to        275                 275
discount on Senior Notes
   Amortization of deferred stock      875                 875
compensation
   Non-cash straightline lease expense 750                 750
Adjusted EBITDA                        $                   $                  
                                           65,000              68,000
Reconciliation of Net Income to Adjusted FFO
Net income                             $                   $                  
                                             8,350             11,350
   Preferred stock dividends           (7,500)             (7,500)
   Real estate depreciation and        34,750              34,750
amortization
   Non-controlling interests           (1,750)             (1,750)
   Amortization of lease intangibles   1,000               1,000
   Non-cash straightline lease expense 750                 750
Adjusted FFO available to common       $                   $                  
stockholders                               35,600              38,600
Adjusted FFO available to common       $                   $                  
stockholders per diluted share                 0.30                0.33
Diluted weighted average shares        117,600             117,600
outstanding

 

Sunstone Hotel Investors, Inc.
Reconciliation of Net Income to Non-GAAP Financial Measures
Guidance for Full Year 2012
(Unaudited and in thousands except per share amounts)
Reconciliation of Net Income to Adjusted EBITDA
                                     Year Ended
                                     December 31, 2012
                                     Low                   High
Net income                           $                     $                  
                                         4,400                 13,400
   Depreciation and amortization     140,000               140,000
   Amortization of lease intangibles 4,000                 4,000
   Interest expense                  79,000                79,000
   Amortization of deferred          4,000                 4,000
financing fees
   Non-controlling interests         (10,000)              (10,000)
   Non-cash interest related to      1,100                 1,100
discount on Senior Notes
   Amortization of deferred stock    3,500                 3,500
compensation
   Non-cash straightline lease       3,000                 3,000
expense
Adjusted EBITDA                      $                     $                  
                                     229,000                 238,000
Reconciliation of Net Income to Adjusted FFO
Net income                           $                     $                  
                                         4,400                 13,400
   Preferred stock dividends         (30,000)              (30,000)
   Real estate depreciation and      138,800               138,800
amortization
   Non-controlling interests         (7,000)               (7,000)
   Amortization of lease intangibles 4,000                 4,000
   Non-cash straightline lease       3,000                 3,000
expense
Adjusted FFO available to common     $                     $                  
stockholders                         113,200                 122,200
Adjusted FFO available to common     $                     $                  
stockholders per diluted share             0.96                    1.04
Diluted weighted average shares      117,800               117,800
outstanding

 

Sunstone Hotel Investors, Inc.
Comparable Hotel EBITDA Margins
(Unaudited and in thousands except hotels and rooms)
                   Three
                   Months       Three Months Ended March 31, 2011
                   Ended March
                   31, 2012
                                           Prior
                   Actual       Actual     Ownership    Acquired   Comparable
                   (1)          (2)        Adjustments  Hotel (4)  (5)
                                           (3)
Number of Hotels   32           31                      1          32
Number of Rooms    13,208       12,018                  1,190      13,208
Hotel EBITDA       24.7%        21.0%      16.7%        35.1%      23.1%
Margin (6)
Hotel EBITDA
Margin adjusted
for prior year     24.5%        21.2%                              23.3%
property tax
credits and
assessment ^ (7)
Hotel Revenues
     Room revenue  $            $          $   3,771    $          $        
                   136,538       106,480                 17,867    128,118
     Food and      51,837       39,285     738          9,744      49,767
beverage revenue
     Other         12,139       9,173      328          2,264      11,765
operating revenue
Total Hotel        200,514      154,938    4,837        29,875     189,650
Revenues
Hotel Expenses
     Room expense  37,605       29,285     979          4,366      34,630
     Food and      36,877       29,776     842          5,872      36,490
beverage expense
     Other hotel   53,126       44,341     1,590        6,496      52,427
expense
     General and
administrative     23,473       18,958     616          2,653      22,227
expense
Total Hotel        151,081      122,360    4,027        19,387     145,774
Expenses
Hotel EBITDA       49,433       32,578     810          10,488     43,876
Prior year
property tax       (339)        315        -            -          315
credits and
assessment
Hotel EBITDA
adjusted for prior
year property tax  49,094       32,893     810          10,488     44,191
credits and
assessment
Non-hotel          969          1,002      -            -          1,002
operating income
Amortization of    (1,035)      (937)      (140)        -          (1,077)
lease intangibles
Non-cash
straightline lease (696)        (240)      (6)          (450)      (696)
expense
Management company (394)        (82)       -            -          (82)
transition costs
Prior year
property tax       339          (315)      -            -          (315)
assessment
Corporate overhead (5,300)      (7,657)    -            -          (7,657)
Depreciation and   (34,756)     (26,222)   (523)        (4,868)    (31,613)
amortization 
Operating Income   8,221        (1,558)    141          5,170      3,753
(Loss)
Equity in earnings
of unconsolidated  -            21         -            -          21
joint ventures
Interest and other 63           109        -            -          109
income
Interest expense   (21,503)     (17,784)   (425)        (2,271)    (20,480)
Loss on
extinguishment of  (191)        -          -            -          -
debt
Gain on
remeasurement of   -            69,230     -            -          69,230
equity interests
Income from
discontinued       442          1,317      -            -          1,317
operations
Net Income (Loss)  $            $          $            $          $          
                   (12,968)        51,335   (284)         2,899      53,950

 

(1) Actual represents the Company's ownership results for the 32
hotels held for investment as of March 31, 2012. 
 

(2) Actual represents the Company's ownership results for the 31 hotels held
for investment as of March 31, 2011. Excludes the Royal Palm Miami Beach which
was sold in April 2011, and the Valley River Inn which was sold in October
2011. Room count as of March 31, 2011 has been adjusted by six additional
rooms which were added to the Courtyard by Marriott Los Angeles Airport during
the second quarter of 2011, and by two additional rooms which were added to
the JW Marriott New Orleans during the fourth quarter of 2011.
(3) Prior Ownership Adjustments represent prior ownership results for the
Doubletree Guest Suites Times Square acquired by the Company on January 14,
2011 and the JW Marriott New Orleans acquired by the Company on February 15,
2011, along with the Company's pro forma amortization of lease intangibles,
non-cash straightline lease expense, depreciation expense and interest
expense.
(4) Acquired Hotel represents prior ownership results for the Hilton San Diego
Bayfront acquired by the Company on April 15, 2011, along with the Company's
pro forma non-cash straightline lease expense, depreciation expense and
interest expense.
 

(5) Comparable represents the Company's ownership results for the 31 hotels
held for investment as of March 31, 2011, plus prior ownership results and the
Company's pro forma adjustments for the Doubletree Guest Suites Times Square
acquired by the Company on January 14, 2011, the JW Marriott New Orleans
acquired by the Company on February 15, 2011, and the Hilton San Diego
Bayfront acquired by the Company on April 15, 2011.
(6) Hotel EBITDA Margin is calculated as Hotel EBITDA divided by
total hotel revenues.
 

(7) Hotel EBITDA Margin for the three months ended March 31, 2012 includes the
benefit of $0.3 million due to prior year property tax credits. Hotel EBITDA
Margin for the three months ended March 31, 2011 includes additional expense
of $0.3 million due to a prior year property tax assessment. Without this
benefit and expense, Comparable Hotel EBITDA Margin for the three months ended
March 31, 2012 and 2011 would have been 24.5% and 23.3%, respectively.

For Additional Information:

Bryan Giglia
Senior Vice President – Corporate Finance
Sunstone Hotel Investors, Inc.
(949) 382-3036

SOURCE Sunstone Hotel Investors, Inc.
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