Sunstone Hotel Investors Reports Results of Operations for First Quarter 2008

SAN CLEMENTE, Calif., May 8 /PRNewswire-FirstCall/ -- Sunstone Hotel Investors, Inc. (the "Company") today announced results of operations for the first quarter ended March 31, 2008.

First Quarter 2008 Highlights (as compared to first quarter 2007): -- Total revenue increased by 9.4% to $248.7 million. -- Total portfolio RevPAR increased 3.1% to $116.69. -- Comparable Portfolio RevPAR increased 1.6% to $115.36. -- Total hotel operating profit margin increased 20 bps to 26.3%. -- Comparable hotel operating profit margin decreased 30 bps to 26.2%. -- Loss attributable to common stockholders per diluted share increased from $0.01 to $0.07. -- Adjusted EBITDA increased 0.8% to $61.4 million. -- Adjusted FFO available to common stockholders increased 1.0% to $30.2 million. -- Adjusted FFO available to common stockholders per diluted share was flat at $0.48.

Robert A. Alter, Executive Chairman, stated, "We are pleased to report impressive year-over-year growth in total revenue, total portfolio RevPAR, and total hotel operating profit margins. In keeping with our performance over the last four quarters, we delivered results within or above our previous guidance. We continue to benefit from the substantial capital investments made in our portfolio over the past two years as several of our largest hotels continue to ramp-up. Going forward, in spite of the challenging economic environment, we believe our portfolio is well positioned for continued growth."

SELECTED FINANCIAL DATA ($ in millions, except RevPAR and per share amounts) Three Months Ended March 31, 2008 2007 Change Total Revenue $248.7 $227.4 9.4% Total RevPAR $116.69 $113.20 3.1% Comparable RevPAR (1) $115.36 $113.55 1.6% Loss attributable to common stockholders $4.2 $0.4 1063.5% Loss attributable to common stockholders per diluted share $0.07 $0.01 600.0% FFO available to common stockholders (2) $30.2 $29.9 1.0% Adjusted FFO available to common stockholders (2) $30.2 $29.9 1.0% FFO available to common stockholders per diluted share (2) $0.48 $0.48 0.0% Adjusted FFO available to common stockholders per diluted share (2) $0.48 $0.48 0.0% EBITDA $61.4 $60.9 0.8% Adjusted EBITDA $61.4 $60.9 0.8% Total Hotel Operating Profit Margin 26.3% 26.1% 20 bps Comparable Hotel Operating Profit Margin 26.2% 26.5% (30) bps (1) Includes 43 "Comparable" hotels (including prior ownership periods). Excludes two "Non-comparable" hotels that experienced material and prolonged business interruption during the current or preceding calendar year (Renaissance Baltimore and Renaissance Orlando). Please refer to the Comparable Portfolio information on page 7. (2) Reflects series C convertible preferred stock on an "as-converted" basis.

Contemporaneously with this press release, the Company has filed its Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2008 with the Securities and Exchange Commission.

Disclosure regarding the non-GAAP financial measures in this release is included on page 6. Reconciliations of non-GAAP financial measures to the most comparable GAAP measure for each of the periods presented are included on pages 10 through 12 of this release. Disclosure regarding the Comparable Portfolio is included on page 7 of this release.

Performance Relative to Guidance

The following table reflects our guidance for the first quarter 2008 compared to our actual results.

Guidance Actual First Quarter 2008 Total Portfolio RevPAR Growth 2.0% to 4.0% 3.1 % Comparable RevPAR Growth 1.0% to 3.0% 1.6 % Adjusted EBITDA $58.5 million to $61.0 million $61.4 million Adjusted FFO available to common stockholders per diluted share $0.43 to $0.47 $0.48 Total Hotel Operating Profit Margin (25) bps to (75) bps +20 bps Comparable Hotel Operating Profit Margin (50) bps to (100) bps (30) bps

Total portfolio RevPAR increased 3.1% as compared to the first quarter of 2007, driven by an increase of 4.8% in average daily room rate offset by a decrease of 120 basis points in occupancy. Comparable RevPAR, excluding two "Non-comparable" hotels that experienced material and prolonged business interruption during the current or preceding calendar year (Renaissance Baltimore and Renaissance Orlando), increased 1.6% as compared to the first quarter of 2007, driven by an increase of 4.4% in average daily room rate offset by a decrease of 200 basis points in occupancy.

Total hotel operating profit margins for the first quarter increased 20 basis points (from 26.1% to 26.3%). Comparable hotel operating profit margins for the first quarter decreased 30 basis points (from 26.5% to 26.2%) (see page 12 for a reconciliation of hotel operating income to the comparable GAAP measure).

Acquisitions, Dispositions, Investments and Financings

On February 21, 2008, the Company announced that its Board of Directors had authorized the Company to repurchase up to $150 million of its common stock during 2008. During the first quarter of 2008, the Company repurchased 734,307 shares of its common stock at an average price of $16.11 per share (including transaction costs). The Company is currently authorized by its Board of Directors to repurchase up to an additional $138.2 million of its common stock before expiration of the repurchase program on December 31, 2008.

Balance Sheet/Liquidity Update

As of March 31, 2008, the Company had approximately $69.7 million of cash and cash equivalents (including restricted cash). As of March 31, 2008, the Company had no outstanding indebtedness under its $200 million credit facility, and had $10.8 million in outstanding irrevocable letters of credit backed by the credit facility, leaving, as of that date, $189.2 million available under the credit facility. On March 31, 2008, total assets were $3.0 billion, including $2.8 billion of net investments in hotel properties, total debt was $1.7 billion and stockholders' equity was $1.1 billion.

Hotel Renovations

During the first quarter of 2008, the Company invested $31.8 million in capital projects. Significant projects completed in the first quarter include a complete renovation of all guestrooms and the ballroom at the Marriott Boston Long Wharf, a renovation of the atrium of the Embassy Suites La Jolla; renovations of the lobby, grounds and certain meeting rooms at the Hyatt Regency Century Plaza and the addition of a new spa facility at the Renaissance Orlando.

Management Succession

On March 14, 2008, the Company announced that its Board of Directors had formed a search committee to conduct a search for a new president and chief executive officer, replacing Steven R. Goldman, who resigned in the first quarter.

Outlook

The Company is providing guidance at this time but does not undertake to make updates for any developments in its business. Achievement of the anticipated results is subject to risks and uncertainties, including those disclosed in the Company's filings with the Securities and Exchange Commission. The Company has provided guidance for the second quarter of 2008 as well as full year 2008. The Company's guidance does not take into account any additional hotel acquisitions, dispositions, stock repurchases or financings during 2008. As the level of demand for U.S. lodging is highly correlated to the overall U.S. economy, changes in U.S. economic performance could have a material effect on the Company's results of operations.

Second Quarter 2008 Outlook

For the second quarter 2008, the Company expects total portfolio RevPAR to increase approximately 4.0% to 6.0% over the second quarter of 2007 and Comparable RevPAR, excluding two "Non-comparable" hotels (the Renaissance Orlando and the Renaissance Baltimore), to increase approximately 4.0% to 6.0% over the second quarter of 2007 (see page 7 for an explanation of measures relating to comparability). Additionally, for the second quarter of 2008:

-- Income available to common stockholders is expected to be approximately $22.0 million to $24.8 million; -- Adjusted EBITDA is expected to be approximately $86.5 million to $89.3 million; -- Adjusted FFO available to common stockholders is expected to be approximately $54.9 million to $57.7 million; -- Adjusted FFO available to common stockholders per diluted share is expected to be approximately $0.88 to $0.92; -- Total hotel operating profit margins are expected to increase approximately 50 - 100 basis points compared to the second quarter of 2007; and -- Comparable hotel operating profit margins are expected to increase approximately 50 - 100 basis points from the second quarter of 2007. Full Year 2008 Outlook

For the full year 2008, the Company expects total portfolio RevPAR to increase approximately 2.0% to 5.0% over the full year 2007 and Comparable RevPAR, excluding two "Non-comparable" hotels (the Renaissance Orlando and the Renaissance Baltimore), to increase approximately 2.0% to 5.0% over the full year 2007. Additionally, for the full year 2008:

-- Income available to common stockholders is expected to be approximately $50.3 million to $63.8 million; -- Adjusted EBITDA is expected to be approximately $310.0 million to $323.5 million; -- Adjusted FFO available to common stockholders is expected to be approximately $183.4 million to $196.9 million; -- Adjusted FFO available to common stockholders per diluted share is expected to be approximately $2.93 to $3.14; -- Total hotel operating profit margins are expected to be from down approximately 25 basis points to up approximately 50 basis points compared to the prior year; and -- Comparable hotel operating profit margins are expected to be from down approximately 25 basis points to up approximately 50 basis points compared to the prior year. Dividend Update

On May 8, 2008, the Company declared a dividend of $0.35 per share payable to its common stockholders. The Company also declared a dividend of $0.50 per share payable to its Series A cumulative redeemable preferred stockholders and a dividend of $0.404 per share payable to its Series C cumulative convertible redeemable preferred stockholders. The dividends will be paid on July 15, 2008 to stockholders of record on June 30, 2008.

The level of any future quarterly dividends will be determined by the Company's Board of Directors after considering operating results, expected capital requirements and risks affecting the Company's business.

Earnings Call

The Company will host a conference call to discuss first quarter results on May 8, 2008, at 2 p.m. PDT. A live web cast of the call will be available via the Investor Relations section of the Company's website at http://www.sunstonehotels.com/. Alternatively, investors may dial 1-800-366-3964 (for domestic callers) or 303-262-2139 (for international callers). A replay of the web cast will also be archived on the website.

About Sunstone Hotel Investors, Inc.

Sunstone Hotel Investors, Inc. is a lodging real estate investment trust ("REIT") that, as of the date hereof, has interests in 46 hotels comprised of 16,080 rooms primarily in the upper-upscale segment operated under nationally recognized brands, such as Marriott, Hilton, Hyatt, Fairmont and Starwood. For further information, please visit the Company's website at http://www.sunstonehotels.com/.

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 which 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 possibility of a U.S. recession; 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 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 acquired properties 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 SEC. 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 8, 2008, 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: (1) Earnings Before Interest Expense, Taxes, Depreciation and Amortization, or EBITDA; (2) Adjusted EBITDA (as defined below); (3) Funds From Operations, or FFO; (4) Adjusted FFO (as defined below); and (5) Hotel Operating Income and Hotel Operating Profit Margin for the purpose of our operating margins.

EBITDA represents income (loss) available to common stockholders before minority interest excluding: (1) preferred stock dividends; (2) interest expense (including prepayment penalties, if any); (3) provision for income taxes, including income taxes applicable to sale of assets; and (4) depreciation and amortization. In addition, we have presented Adjusted EBITDA, which excludes: (1) the impact of any gain or loss from asset sales; (2) impairment charges; and (3) 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 preferred stock dividends) 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 income (loss) available to common stockholders to EBITDA and Adjusted EBITDA is set forth on pages 10 and 11. A reconciliation and the components of Hotel Operating Income and Hotel Operating Profit Margin are set forth on page 12. We believe Hotel Operating Income and Hotel Operating Profit 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 gains and losses from sales of property, plus real estate-related depreciation and amortization (excluding amortization of deferred financing costs), and after adjustment for unconsolidated partnerships and joint ventures. We also present Adjusted FFO, which excludes prepayment penalties, written-off deferred financing costs, impairment losses and 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 income available to common stockholders to FFO and Adjusted FFO is set forth on pages 10 and 11.

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

Comparable Portfolio Information

The Company's definition of "Comparable Portfolio" includes those hotels owned as of the reporting date which have not experienced material and prolonged business interruption due to renovations, re-branding or property damage during either the calendar year presented or the preceding calendar year. For the second quarter and full year 2008, the Comparable Portfolio is expected to exclude the Renaissance Orlando and the Renaissance Baltimore. We refer to these excluded hotels as "Non-comparable" hotels. Also, the revenue and expense items associated with the Company's two commercial laundry facilities and any guaranty payments have been shown below the hotel operating income line in presenting comparable hotel operating margins. Management believes the definition of Comparable Portfolio as well as the calculation of hotel operating income results in a more accurate presentation of the trends in RevPAR and comparable hotel operating margins of the Company's stabilized portfolio of hotels.

For Additional Information: Bryan Giglia Vice President - Corporate Finance Sunstone Hotel Investors, Inc. (949) 369-4204 Sunstone Hotel Investors, Inc. Consolidated Balance Sheets (In thousands, except share data) March 31, December 31, 2008 2007 (unaudited) Assets Current assets: Cash and cash equivalents $22,300 $67,412 Restricted cash 47,367 48,442 Accounts receivable, net 45,571 36,703 Due from affiliates 132 932 Inventories 3,287 3,190 Prepaid expenses 11,785 9,021 Total current assets 130,442 165,700 Investment in hotel properties, net 2,789,153 2,786,821 Other real estate, net 14,900 14,526 Investments in unconsolidated joint ventures 30,350 35,816 Deferred financing costs, net 12,545 12,964 Goodwill 16,251 16,251 Other assets, net 13,721 17,074 Total assets $3,007,362 $3,049,152 Liabilities and Stockholders' Equity Current liabilities: Accounts payable and accrued expenses $34,064 $28,540 Accrued payroll and employee benefits 11,753 18,133 Due to Interstate SHP 14,359 15,051 Dividends payable 25,784 25,995 Other current liabilities 37,072 39,817 Current portion of notes payable 10,839 9,815 Total current liabilities 133,871 137,351 Notes payable, less current portion 1,709,274 1,712,336 Other liabilities 6,066 6,034 Total liabilities 1,849,211 1,855,721 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, 2008 and December 31, 2007, liquidation preference of $24.375 per share 99,546 99,496 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, 2008 and December 31, 2007, stated at liquidation preference of $25.00 per share 176,250 176,250 Common stock, $0.01 par value, 500,000,000 shares authorized, 58,178,259 shares issued and outstanding at March 31, 2008 and 58,815,271 shares issued and outstanding at December 31, 2007 582 588 Additional paid in capital 976,959 987,554 Retained earnings 192,263 191,208 Cumulative dividends (287,449) (261,665) Total stockholders' equity 1,058,605 1,093,935 Total liabilities and stockholders' equity $3,007,362 $3,049,152 Sunstone Hotel Investors, Inc. Unaudited Consolidated Statements of Operations (In thousands, except per share data) Three Months Ended March 31, 2008 2007 Revenues Room $160,826 $146,383 Food and beverage 69,743 64,094 Other operating 18,178 16,936 Total revenues 248,747 227,413 Operating expenses Room 37,091 33,468 Food and beverage 52,026 46,534 Other operating 9,379 9,628 Advertising and promotion 13,862 12,784 Repairs and maintenance 9,927 9,132 Utilities 9,633 8,160 Franchise costs 8,286 7,574 Property tax, ground lease and insurance 14,903 13,672 Property general and administrative 28,897 26,268 Corporate overhead 6,758 7,331 Depreciation and amortization 31,575 26,179 Total operating expenses 222,337 200,730 Operating income 26,410 26,683 Equity in net losses of unconsolidated joint ventures (1,466) (1,351) Interest and other income 593 679 Interest expense (24,482) (22,514) Income from continuing operations 1,055 3,497 Income from discontinued operations - 1,331 Net income 1,055 4,828 Preferred stock dividends and accretion (5,232) (5,187) Loss attributable to common stockholders $(4,177) $(359) Basic and diluted per share amounts: Loss from continuing operations attributable to common stockholders $(0.07) $(0.03) Income from discontinued operations - 0.02 Basic and diluted loss attributable to common stockholders per common share $(0.07) $(0.01) Weighted average common shares outstanding: Basic and diluted 58,717 57,799 Dividends paid per common share $0.35 $0.32 Sunstone Hotel Investors, Inc. Reconciliation of Loss Attributable to Common Stockholders to Non-GAAP Financial Measures (Unaudited and in thousands except per share amounts) Reconciliation of Loss Attributable to Common Stockholders to EBITDA and Adjusted EBITDA Three Months Ended March 31, 2008 2007 Loss attributable to common stockholders $(4,177) $(359) Series A and C preferred stock dividends 5,232 5,187 Amortization of deferred stock compensation 1,049 1,245 Continuing operations: Depreciation and amortization 31,575 26,179 Interest expense 24,063 22,239 Amortization of deferred financing fees 419 275 Unconsolidated joint venture: Depreciation and amortization 1,274 1,233 Interest expense 1,521 1,917 Amortization of deferred financing fees 398 330 Discontinued operations: Depreciation and amortization - 1,407 Interest expense - 1,205 Amortization of deferred financing fees - 13 EBITDA 61,354 60,871 Adjusted EBITDA $61,354 $60,871 Reconciliation of Loss Attributable to Common Stockholders to FFO and Adjusted FFO Loss attributable to common stockholders $(4,177) $(359) Series C preferred stock dividends 1,707 1,662 Real estate depreciation and amortization - continuing operations 31,402 25,960 Real estate depreciation and amortization - unconsolidated joint venture 1,274 1,233 Real estate depreciation and amortization - discontinued operations - 1,407 FFO available to common stockholders 30,206 29,903 Adjusted FFO available to common stockholders $30,206 $29,903 FFO available to common stockholders per diluted share $0.48 $0.48 Adjusted FFO available to common stockholders per diluted share $0.48 $0.48 Diluted weighted average shares outstanding (1) 62,897 62,079 (1) Diluted weighted average shares outstanding includes the Series C Convertible Preferred Stock on an as-converted basis. Additionally, during the third quarter of 2007, the Company revised its methodology for computation of diluted earnings per share by applying the treasury stock method to unvested restricted stock awards. As a result of the revision, the unvested restricted stock awards for purposes of calculating FFO and Adjusted FFO available to common stockholders per diluted share have been decreased by 306,632 shares for the three months ended March 31, 2007. Sunstone Hotel Investors, Inc. Reconciliation of Income Available to Common Stockholders to Non-GAAP Financial Measures Guidance for the Quarter Ending June 30, 2008 and Full Year 2008 (Unaudited and in thousands except per share amounts) Reconciliation of Income Available to Common Stockholders to EBITDA and Adjusted EBITDA Quarter Ending Full Year June 30, 2008 December 31, 2008 Low End High End Low End High End of of of of Range Range Range Range Income available to common stockholders $22,000 $24,800 $50,300 $63,800 Series A preferred stock dividends 3,500 3,500 14,100 14,100 Series C preferred stock dividends 1,700 1,700 6,700 6,700 Amortization of deferred stock compensation 1,600 1,600 5,800 5,800 Continuing operations: Depreciation and amortization 30,100 30,100 122,000 122,000 Interest expense 24,200 24,200 97,000 97,000 Amortization of deferred financing fees 400 400 1,700 1,700 Unconsolidated joint venture: Depreciation and amortization 1,300 1,300 5,200 5,200 Interest expense 1,300 1,300 5,500 5,500 Amortization of deferred financing fees 400 400 1,700 1,700 EBITDA 86,500 89,300 310,000 323,500 Adjusted EBITDA $86,500 $89,300 $310,000 $323,500 Reconciliation of Income Available to Common Stockholders to FFO and Adjusted FFO Income available to common stockholders $22,000 $24,800 $50,300 $63,800 Series C preferred stock dividends 1,700 1,700 6,700 6,700 Continuing operations: Real estate depreciation and amortization 29,900 29,900 121,200 121,200 Unconsolidated joint venture: Depreciation and amortization 1,300 1,300 5,200 5,200 FFO available to common stockholders 54,900 57,700 183,400 196,900 Adjusted FFO available to common stockholders $54,900 $57,700 $183,400 $196,900 Adjusted FFO available to common stockholders per diluted share $0.88 $0.92 $2.93 $3.14 Diluted weighted average shares outstanding (1) 62,419 62,419 62,641 62,641 (1) Diluted weighted average shares outstanding includes the Series C Convertible Preferred Stock on an as-converted basis. Sunstone Hotel Investors, Inc. Comparable Hotel Operating Margins (Unaudited and in thousands except hotels and rooms) Three Months Ended March 31, 2008 Actual Non- Comparable March 31, comparable March 31, 2008 (1) Hotels (2) 2008 (3) Number of Hotels 45 (2) 43 Number of Rooms 15,620 (1,403) 14,217 Hotel operating profit margin (7) 26.3% 27.1% 26.2% Hotel Revenues Room revenue $160,826 $(15,452) $145,374 Food and beverage revenue 69,743 (9,903) 59,840 Other operating revenue 13,991 (1,334) 12,657 Total Hotel Revenues 244,560 (26,689) 217,871 Hotel Expenses Room expense 37,091 (3,216) 33,875 Food and beverage expense 52,026 (6,455) 45,571 Other hotel expense 62,727 (6,315) 56,412 General and administrative expense 28,469 (3,480) 24,989 Total Hotel Expenses 180,313 (19,466) 160,847 Hotel Operating Income 64,247 (7,223) 57,024 Hotel performance guaranty - - - Non-hotel operating income 496 - 496 Corporate overhead (6,758) 60 (6,698) Depreciation and amortization (31,575) 3,517 (28,058) Operating Income 26,410 (3,646) 22,764 Equity in net losses of unconsolidated joint ventures (1,466) - (1,466) Interest and other income 593 (22) 571 Interest expense (24,482) 1,244 (23,238) Income from discontinued operations - - - Net Income $1,055 $(2,424) $(1,369) Three Months Ended March 31, 2007 Actual Comparable March Prior Prior Non- March 31, Ownership Ownership comparable 31, 2007 Adjustments Adjustments Subtotal Hotels 2007 (4) (5) (6) (2) (3) Number of Hotels 44 1 45 (2) 43 Number of Rooms 15,156 464 15,620 (1,403) 14,217 Hotel operating profit margin (7) 26.5% 22.4% 17.8% 26.1% 22.3% 26.5% Hotel Revenues Room revenue $146,383 $3,117 $5,451 $154,951 $(13,023) $141,928 Food and beverage revenue 64,094 1,953 2,332 68,379 (8,147) 60,232 Other operating revenue 11,593 130 788 12,511 (951) 11,560 Total Hotel Revenues 222,070 5,200 8,571 235,841 (22,121) 213,720 Hotel Expenses Room expense 33,468 857 1,542 35,867 (3,074) 32,793 Food and beverage expense 46,534 1,300 1,825 49,659 (5,583) 44,076 Other hotel expense 57,857 1,189 2,495 61,541 (5,719) 55,822 General and administrative expense 25,384 691 1,182 27,257 (2,803) 24,454 Total Hotel Expenses 163,243 4,037 7,044 174,324 (17,179) 157,145 Hotel Operating Income 58,827 1,163 1,527 61,517 (4,942) 56,575 Hotel performance guaranty 955 955 - 955 Non-hotel operating income 411 411 - 411 Corporate overhead (7,331) (7,331) 13 (7,318) Depreciation and amortization (26,179) (26,179) 3,110 (23,069) Operating Income 26,683 1,163 1,527 29,373 (1,819) 27,554 Equity in net losses of unconsolidated joint ventures(1,351) (1,351) - (1,351) Interest and other income 679 679 (92) 587 Interest expense (22,514) (22,514) 1,224 (21,290) Income from discontinued operations 1,331 1,331 - 1,331 Net Income $4,828 $1,163 $1,527 $7,518 $(687) $6,831 (1) Represents our ownership results for the 45 hotels we owned as of the end of the period. (2) Represents our ownership results for the two "non-comparable" hotels that experienced material and prolonged business interruption during either the current or preceding calendar year (Renaissance Baltimore and Renaissance Orlando). (3) Represents our ownership and prior ownership results (for the 2007 period) for 43 "comparable" hotels we owned as of March 31, 2008, excluding the two "non-comparable" hotels that experienced material and prolonged business interruption during either the current or preceding calendar year (Renaissance Baltimore and Renaissance Orlando). (4) Represents our ownership results for the same 44 hotels we owned as of the end of the period. (5) Represents prior ownership results for the 1 hotel acquired subsequent to March 31, 2007. (6) Represents prior ownership results for the 2 hotels acquired during the first quarter of 2007. (7) Hotel operating profit margin is calculated as hotel operating income divided by total hotel revenues. Sunstone Hotel Investors, Inc. Comparable Portfolio Operating Statistics by Region (Unaudited) Three Months Ended March 31, 2008 Average Number Number Occupancy Daily Comparable Region of Hotels of Rooms Percentages Rate RevPAR California 18 5,529 78.3% $161.84 $126.72 Other West (1) 7 2,123 76.7% 127.52 97.81 Midwest (2) 8 2,500 60.2% 132.03 79.48 Middle Atlantic (3) 8 3,476 66.9% 206.76 138.32 South (4) 2 589 79.2% 120.58 95.50 Total Comparable Portfolio 43 14,217 72.2% $159.78 $115.36 Percent Three Months Ended March 31, 2007 Change in Occupancy Average Comparable Comparable Region Percentages Daily Rate RevPAR RevPAR California 76.9% $159.19 $122.42 3.5% Other West (1) 80.1% 117.19 93.87 4.2% Midwest (2) 64.8% 124.94 80.96 -1.8% Middle Atlantic (3) 71.6% 193.02 138.20 0.1% South (4) 81.8% 124.54 101.87 -6.3% Total Comparable Portfolio 74.2% $153.03 $113.55 1.6% (1) Includes Oregon, Utah and Texas. (2) Includes Illinois, Michigan and Minnesota. (3) Includes Maryland, Massachusetts, Virginia, District of Columbia, New York and Pennsylvania. Excludes the Renaissance Baltimore which experienced material and prolonged business interruption during either the current or preceding calendar year. (4) Includes Florida and Georgia. Excludes the Renaissance Orlando which experienced material and prolonged business interruption during either the current or preceding calendar year. Sunstone Hotel Investors, Inc. Comparable Portfolio Operating Statistics by Brand (Unaudited) Three Months Ended March 31, 2008 Average Number Number Occupancy Daily Comparable Brand of Hotels of Rooms Percentages Rate RevPAR Marriott (1) 24 7,682 72.6% $155.09 $112.60 Hilton 6 1,955 73.5% 200.58 147.43 InterContinental 3 665 55.1% 109.33 60.24 Hyatt 3 1,331 79.6% 196.95 156.77 Other Brand Affiliations (2) 4 1,385 77.0% 150.19 115.65 Independent 3 1,199 63.0% 101.02 63.64 Total Comparable Portfolio 43 14,217 72.2% $159.78 $115.36 Percent Three Months Ended March 31, 2007 Change in Occupancy Average Comparable Comparable Brand Percentages Daily Rate RevPAR RevPAR Marriott (1) 73.7% $151.21 $111.44 1.0% Hilton 76.4% 183.43 140.14 5.2% InterContinental 73.5% 107.14 78.75 -23.5% Hyatt 76.6% 189.32 145.02 8.1% Other Brand Affiliations (2) 80.5% 150.34 121.02 -4.4% Independent 63.7% 92.59 58.98 7.9% Total Comparable Portfolio 74.2% $153.03 $113.55 1.6% (1) Excludes the Renaissance Baltimore and Renaissance Orlando which experienced material and prolonged business interruption during either the current or preceding calendar year. (2) Includes a Sheraton, a Wyndham, a Fairmont and a W Hotel. Sunstone Hotel Investors, Inc. Debt Summary (Unaudited - dollars in thousands) Interest March 31, May 1, Rate/ Maturity 2008 Recent 2008 Debt Collateral Spread Date Balance Events (1) Balance Fixed Rate Debt Secured Mortgage Debt 1 hotel 5.92% 2010 $81,000 $81,000 Secured Mortgage Debt (2) 11 hotels 5.95% 2011 248,164 248,164 Secured Mortgage Debt (3) 2 hotels 4.98% 2012 65,000 65,000 Rochester Secured Mortgage laundry Debt facility 9.88% 2013 4,642 4,642 Secured Mortgage Debt (3) 10 hotels 5.34% 2015 271,714 271,714 Secured Mortgage Debt (3) 2 hotels 5.21% 2016 196,593 196,593 Secured Mortgage Debt 1 hotel 5.69% 2016 48,000 48,000 Secured Mortgage Debt 1 hotel 5.66% 2016 34,000 34,000 Secured Mortgage Debt 1 hotel 5.58% 2017 75,000 75,000 Secured Mortgage Debt 1 hotel 5.58% 2017 176,000 176,000 Secured Mortgage Debt 1 hotel 6.14% 2018 65,000 65,000 Secured Mortgage Debt 1 hotel 6.60% 2019 70,000 70,000 Secured Mortgage Debt 1 hotel 5.95% 2021 135,000 135,000 Exchangeable Senior Notes Guaranty 4.60% 2027 250,000 250,000 Total Fixed Rate Debt 1,720,113 1,720,113 Credit Facility Unsecured L + 0.90% - 1.50% 2011 - $20,000 20,000 TOTAL DEBT $1,720,113 $20,000 $1,740,113 Preferred Stock Series A cumulative redeemable preferred 8.00% perpetual $176,250 - $176,250 Series C cumulative convertible redeemable preferred 6.63% perpetual $100,000 - $100,000 Debt Statistics % Fixed Rate Debt 100.0% 98.9% % Floating Rate Debt 0.0% 1.1% Average Interest Rate (4) 5.51% 5.49% Weighted Average Maturity of Debt (includes amounts outstanding on the Credit Facility) (5) 9.01 years 8.94 years (1) Reflects additional draws on our credit facility. (2) Cross-collateralized loan with life insurance company. (3) Individual, non cross-collateralized loans. (4) Assumes LIBOR of 2.7%. (5) Assumes the exchangeable senior notes remain outstanding to maturity. If the exchangeable senior notes were redeemed upon the first call date, the weighted average maturity date would be 7.0 years.