Sunstone Hotel Investors to Sell Four Rochester Hotels and a Laundry Facility for $230 Million, Retires Remaining $58 Million of

Sunstone Hotel Investors to Sell Four Rochester Hotels and a Laundry Facility
for $230 Million, Retires Remaining $58 Million of Senior Exchangeable Notes,
                and Provides Preliminary 2012 Earnings Results

PR Newswire

ALISO VIEJO, Calif., Jan. 25, 2013

ALISO VIEJO, Calif., Jan. 25, 2013 /PRNewswire/ --Sunstone Hotel Investors,
Inc. (the "Company") (NYSE: SHO) announced today that it has entered into
agreements to sell a four-hotel, 1,222-room portfolio and commercial laundry
facility (collectively, the "Rochester Portfolio") in Rochester, Minnesota for
a gross price of $230 million.The four hotels include the 660-room Kahler
Grand, the 271-room Kahler Inn & Suites, the 202-room Marriott Rochester and
the 89-room Residence Inn by Marriott Rochester. Concurrent with the Rochester
Portfolio sale, the Company will defease the outstanding $26.7 million
mortgage secured by the 660-room Kahler Grand hotel for a total cost of
approximately $30 million, and has prepaid the $0.4 million loan secured by
the laundry facility.The Company expects to retain a $25 million, 11%
dividend yield preferred equity investment in the four hotels.

The anticipated gross sale price represents an 11.9x multiple on 2012 EBITDA
of $19.4 million and a 7.3% capitalization rate on 2012 net operating income.
Net of $20 million allocated to the commercial laundry facility, the $210
million gross sale price allocated to the four hotels equates to $172,000 per
key, a 12.8x multiple on 2012 EBITDA and a capitalization rate of 6.9% on 2012
net operating income.

The Company expects to receive initialnet proceeds of approximately $165
million, subject to final closing costs, from the sale of the Rochester
Portfolio.The Company intends to use the net proceeds from the sale of the
Rochester Portfolio for general corporate purposes, which may include hotel
acquisitions, renovations of our existing hotels, reduction of our debt or
preferred securities or other corporate purposes.

Sale of the Rochester Portfolio is expected to close in January 2013, subject
to customary closing conditions. As such, the Company can offer no assurances
that the sale will close on the terms described herein, or at all.

Ken Cruse, President and CEO, stated, "The Sunstone team continues to make
solid progress against our plan to improve our portfolio quality while
strengthening our balance sheet. For full-year 2012, the Rochester Portfolio
generated RevPAR of approximately $80 and EBITDA per key of approximately
$13,400, both of which are more than 30% below our portfolio average. By
selling the Rochester hotels at a sub-7% cap rate on 2012 operating income, we
will improve our portfolio RevPAR by over $5.50 (or by 4%), while increasing
our Hotel EBITDA per key by approximately $625 (or by 3%), to over $20,000 on
a pro forma basis for 2012. Additionally, this sale will reduce our overall
indebtedness by approximately $27 million. Upon completion of the Rochester
Portfolio sale, our total debt will havebeen reducedby $85 million thus
farin 2013 when combined with the redemption of the remaining $58 million of
our exchangeable senior notes. Following these transactions, our pro forma
cash position will exceed $250 million and we will maintain full access to our
$150 million credit facility, enhancing our ability to capitalize on a wide
range of opportunities consistent with our stated business objectives."

Mr. Cruse continued, "Today we also provided preliminary fourth quarter and
full-year 2012 RevPAR, EBITDA and FFO results. Our preliminary results
exceeded the high end of prior guidance. Continued strength in business trends
throughout our portfolio, especially among the hotels we recently renovated,
is driving meaningful growth in hotel revenues and profitability. Looking
ahead, fundamentals for Sunstone's portfolio are compelling: we now hold
focused investments in key growth markets and we continue to improve our
portfolio's competitiveness through high-quality renovations. With the U.S.
demand-to-supply ratio well above historical norms and our portfolio running
at nearly 80% occupancy, our pricing power continues to improve."

Retirement of Exchangeable Notes

The Company's operating partnership, Sunstone Hotel Partnership, LLC (the
"Operating Partnership"), has retired the outstanding $58 million aggregate
principal amount of 4.60% Exchangeable Senior Notes due 2027 (the "Notes").
Pursuant to a Tender Offer Statement on Schedule TO originally filed with the
Securities and Exchange Commission on December17, 2012, $42 million of Notes
were validly tendered, accepted and repurchased on January 17, 2013. On
January 22, 2013, the remaining $16 million of Notes were redeemed. The
Operating Partnershippaid for all of the$58 million in Notes with available
cash.

2012 Preliminary Earnings Results

The Company has provided preliminary fourth-quarter and year-ended 2012
results. The results provided are subject to adjustments that may result from
the completion of the Company's annual audit process. The Company's results
include the Company's ownership period for all 2012 acquisitions and
dispositions, and reflect the application of net operating loss carryforwards
to reduce taxable income in 2012. The Company treats any state and federal
taxes associated with the application of net operating loss carryforwards as a
one-time expense and adds them back to Adjusted EBITDA and Adjusted FFO.

For the fourth quarter of 2012, the Company expects:

                                  Prior Q4 2012 Preliminary Q4 Change to Prior
Metric (unaudited)                Guidance (1)  2012 Results   Guidance
                                                               Midpoint
Comparable Hotel RevPAR          +1.5% - 3.0%  +3.2 - 3.4%    1.05%
Net Income (Loss)                 $(1) - $4     $10 - $11      $9
($ millions)(2)
Adjusted EBITDA ($ millions)      $58 - $63     $67 - $68      $7
Adjusted FFO ($ millions)         $31 - $36     $40 - $41      $7
Adjusted FFO per diluted share    $0.23 - $0.27 $0.30          $0.05
Diluted Weighted Average Shares   135,700,000   135,600,000    (100,000)
Outstanding

(1) Reflects guidance presented on November 2, 2012.
(2) Reflects net income (loss) adjusted for the impact of income tax expense
associated with the application ofnet operating loss carryforwards.

For the full year 2012, the Company expects:

Metric (unaudited)            Prior 2012 FY Preliminary 2012 Change to Prior
                              Guidance (1)  FY Results       Guidance Midpoint
Comparable Hotel RevPAR      +4.5% - 5.0%  +5.2 - 5.4%      0.55%
Net Income ($ millions) (2)   $45 - $50     $49 - $50        $2
Adjusted EBITDA ($ millions)  $232 - $237   $242 - $243      $7
Adjusted FFO ($ millions)     $118 - $123   $128 - $129      $7
Adjusted FFO per diluted      $0.93 - $0.97 $1.00 - $1.01    $0.05
share
Diluted Weighted Average      127,500,000   127,300,000      (200,000)
Shares Outstanding

(1) Reflects guidance presented on November 2, 2012.
(2) Reflects net income adjusted for the impact of income tax expense
associated with the application ofnet operating loss carryforwards.

About Sunstone Hotel Investors:
Sunstone Hotel Investors, Inc. ("Sunstone") is a lodging real estate
investment trust ("REIT") that, adjusted for the transactions noted herein,
has interests in 26 hotels comprised of 11,632 rooms. Sunstone's hotels are
primarily in the upper upscale segment and are generally operated under
nationally recognized brands, such as Marriott, Hilton, Hyatt, Fairmont, 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 investment company. Our values include
transparency, trust, ethical conduct, communication and discipline. We seek to
employ a balanced, cycle-appropriate corporate strategy that encompasses the
following:

  oProactive portfolio management;
  oIntensive asset management;
  oDisciplined external growth; and
  oMeasured 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; international, 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 January 25, 2013, 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.

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 hotel EBITDA.

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. We believe hotel EBITDA is 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.

We caution investors that amounts presented in accordance with our definitions
of EBITDA, Adjusted EBITDA, FFO, Adjusted FFO, and hotel EBITDA 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, and hotel EBITDA 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, and hotel
EBITDA 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, and hotel EBITDA 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.



Property-Level EBITDA Reconciliation
2011-2012
Four Hotels (1)
                                                 Equals: Hotel           Equals:
           Total    Net    Plus:        Plus:                   Less:              FFO
(In        Revenues Income              Interest Hotel   EBITDA FF&E     Hotel Net Contribution
thousands) (4)      (4)    Depreciation Expense                 Reserve            (5)
                                                 EBITDA  Margin          Operating
                                                                         Income
FY 2011    $ 46,436 $      $ 6,965     $       $       33.4%  $        $ 13,639 $ 13,968
                    7,003               1,528    15,496        (1,857)
2011
EBITDA                                           13.6x                   6.5%
Multiple /
Cap Rate
FY 2012    $        $      $ 7,523     $ 1,493 $       34.3%  $        $ 14,506 $ 14,930
           47,928  7,407                       16,423         (1,917)
2012
EBITDA                                           12.8x                   6.9%
Multiple /
Cap Rate
Commercial Laundry Facility (2)
                                                 Equals: Hotel           Equals:
           Total    Net    Plus:        Plus:                   Less:              FFO
(In                 Income                       Hotel   EBITDA FF&E     Hotel Net
thousands) Revenues (4)    Depreciation Interest                Reserve            Contribution
           (4)                          Expense  EBITDA  Margin          Operating (5)
                                                                         Income
FY 2011    $        $      $ 748       $ 201   $       20.1%  $ (554) $ 2,232  $ 2,585
           13,857  1,837                       2,786
2011
EBITDA                                           7.2x                    11.2%
Multiple /
Cap Rate
FY 2012    $        $      $ 989       $ 103   $       20.5%  $ (581) $ 2,397  $ 2,875
           14,532  1,886                       2,978
2012
EBITDA                                           6.7x                    12.0%
Multiple /
Cap Rate
Four Hotels and Commercial Laundry Facility (3)
                                                 Equals: Hotel           Equals:
           Total    Net    Plus:        Plus:                   Less:              FFO
(In                 Income                       Hotel   EBITDA          Hotel Net
thousands) Revenues (4)    Depreciation Interest                FF&E               Contribution
           (4)                          Expense  EBITDA  Margin Reserve  Operating (5)
                                                                         Income
FY 2011    $        $      $ 7,713     $ 1,729 $       30.3%  $        $ 15,871 $ 16,553
           60,293  8,840                       18,282        (2,411)
2011
EBITDA                                           12.6x                   6.9%
Multiple /
Cap Rate
FY 2012    $        $      $ 8,512     $ 1,596 $       31.1%  $        $ 16,903 $ 17,805
           62,460  9,293                       19,401        (2,498)
2012
EBITDA                                           11.9x                   7.3%
Multiple /
Cap Rate

    Four Hotels include the Kahler Grand, the Kahler Inn & Suites, the
(1) Marriott Rochester and the Residence Inn by Marriott Rochester, which are
    all located in Rochester, Minnesota, andwhichare expected to besold by
    the Company in January 2013.
    Commercial Laundry Facility represents theTextile Care Serviceslocated
(2) in Rochester, Minnesota, which is expected to be sold by the Company in
    January 2013.
    Four Hotels and Commercial Laundry Facility include the Kahler Grand, the
(3) Kahler Inn & Suites, the Marriott Rochester, the Residence Inn by Marriott
    Rochester and the Textile Care Services, which are expected to be sold by
    the Company in January 2013.
    Total Revenues and Net Income do not include the effects of intercompany
(4) elimination between laundry expenses incurred by the hotels and laundry
    revenue reported by the commercial laundry facility.
(5) FFO Contribution calculated as Hotel EBITDA less Interest Expense.



The Company's 2012 and 2011 operating statistics are as follows:

30 Hotels (1)
ADR                       Occupancy             RevPAR
2012    2011    Variance  2012  2011  Variance  2012     2011    Variance
$172.44 $169.21 1.9%      77.5% 74.9% 3.5%      $133.64  $126.74 5.4%
Four Hotels (2)
ADR                       Occupancy             RevPAR
2012    2011    Variance  2012  2011  Variance  2012     2011    Variance
$131.45 $128.64 2.2%      61.0% 60.8% 0.3%      $ 80.18 $78.21  2.5%
26 Hotels (3)
ADR                       Occupancy             RevPAR
2012    2011    Variance  2012  2011  Variance  2012     2011    Variance
$175.78 $172.63 1.8%      79.2% 76.4% 3.7%      $139.22  $131.89 5.6%

          30 Hotels include the Company's ownership results and prior
(1)       ownership results as applicable for the 30 hotels in which the
          Company has interests as of December 31, 2012.
          Four Hotels include the Kahler Grand, the Kahler Inn & Suites, the
(2)       Marriott Rochester and the Residence Inn by Marriott Rochester,
          which are expected to be sold by the Company in January 2013.
          26 Hotels include the Company's ownership results and prior
          ownership results as applicable for the 30 hotels in which the
(3)       Company has interests as of December 31, 2012, minus the Kahler
          Grand, the Kahler Inn & Suites, the Marriott Rochester and the
          Residence Inn by Marriott Rochester, which are expected to be sold
          by the Company in January 2013.

Sale Price Allocation
(in thousands)
Four Hotel Portfolio                                      $      210,000
Laundry                                                          20,000
Gross Sale Price                                                 230,000
Preferred EquityInvestment                                      (25,000)
Mortgage Loan Repayments                                         (27,100)
Estimated Closing Costs ^(1)                                     (9,000)
Working Capital Advances ^(2)                                    (3,700)
Estimated Net Proceeds                                    $      165,200
(1) Includes defeasance expense.
(2) Includes a $3.7 million working cash advance to the buyer of the Rochester
Portfolio that will be repaid to the Company from the Rochester Portfolio's
available cash flow.

Reconciliation of Net Income to Adjusted EBITDA
(Unaudited and in thousands)
                             Quarter Ended           Year Ended
                             December 31, 2012       December 31, 2012
                             Low         High        Low           High
Net income (1)               $  10,300  $  11,300  $   48,650  $ 49,650
 Depreciation and          36,500      36,500      144,000       144,000
amortization
 Amortization of lease     1,150       1,150       4,300         4,300
intangibles
 Interest expense          17,700      17,700      78,100        78,100
 Amortization of deferred  900         900         3,800         3,800
financing fees
 Non-controlling interests (2,100)     (2,100)     (10,600)      (10,600)
 Non-cash interest related 300         300         1,100         1,100
to discount on Senior Notes
 Amortization of deferred  800         800         3,500         3,500
stock compensation
 Income tax provision      1,150       1,150       1,150         1,150
 Capital lease obligation  (400)       (400)       (800)         (800)
interest - cash ground rent
 Gain on sale of assets    -           -           (38,000)      (38,000)
 Closing costs - completed -           -           2,000         2,000
acquisitions
 Prior year property tax   -           -           600           600
and CAM adjustments, net
 Lawsuit settlement costs, -           -           100           100
net
 Hotel laundry closing     200         200         600           600
costs
 Non-cash straightline     700         700         3,000         3,000
lease expense
Adjusted EBITDA              $  67,200  $  68,200  $  241,500   $ 242,500
Reconciliation of Net Income to Adjusted FFO
(Unaudited and in thousands except per share amounts)
Net income (1)               $  10,300  $  11,300  $   48,650  $  49,650
 Preferred stock dividends (7,500)     (7,500)     (30,000)      (30,000)
 Real estate depreciation  36,200      36,200      142,800       142,800
and amortization
 Non-controlling interests (1,650)     (1,650)     (8,100)       (8,100)
 Amortization of lease     1,150       1,150       4,300         4,300
intangibles
 Income tax provision      1,150       1,150       1,150         1,150
 Non-cash interest related
to (gain) loss on            (200)       (200)       400           400
derivatives
 Gain on sale of assets    -           -           (38,000)      (38,000)
 Closing costs - completed -           -           2,000         2,000
acquisitions
 Prior year property tax   -           -           600           600
and CAM adjustments, net
 Lawsuit settlement costs, -           -           100           100
net
 Hotel laundry closing     200         200         600           600
costs
 Non-cash straightline     600         600         3,000         3,000
lease expense
Adjusted FFO                 $  40,250  $  41,250  $  127,500   $ 128,500
Adjusted FFO per diluted     $        $        $         $   
share                        0.30        0.30        1.00          1.01
Diluted weighted average     135,600     135,600     127,300       127,300
shares outstanding

(1)    Reflects net income adjusted for the impact of income tax expense
       associated with the application of net operating loss carryforwards.



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

SOURCE Sunstone Hotel Investors, Inc.

Website: http://www.sunstonehotels.com
 
Press spacebar to pause and continue. Press esc to stop.