Real Estate Central

Concludes Successful Hotel Repositioning Investment Separately Announces
Tender Offer for up to 11% of its Outstanding Shares Generates Significant
Liquidity

SAN CLEMENTE, Calif., June 2 /PRNewswire-FirstCall/ — Sunstone Hotel
Investors, Inc. (NYSE: SHO) announced today that it has sold its 726-room
Hyatt Regency Century Plaza to Los Angeles real estate investor Next
Century Associates, LLC for gross cash proceeds of approximately $366.5
million, which equates to approximately $505,000 per room and approximately
18.6x the hotel’s 2007 EBITDA (excluding guaranty payments).

“Shortly after I returned as interim CEO, we received an offer, which
ultimately led to today’s announcement,” said Bob Alter, Executive
Chairman. “This sale marks the conclusion of yet another highly successful
hotel investment for Sunstone through which we created significant value
for our stockholders by renovating, rebranding and repositioning an
underperforming asset. We acquired the Century Plaza hotel in October of
2005 for approximately $400,000 per room and implemented a business plan
that included conducting a major renovation, installing Hyatt as our new
manager and positioning the hotel to maximize its appeal to both group and
business travelers in light of the reemergence of Century City as the
premier entertainment business market. In addition to a complete rooms and
public space renovation, we added the successful X-Bar lounge and created a
high-end Equinox health club in an underutilized 35,000 square foot
building on the hotel grounds. During our ownership period, we implemented
a number of successful asset management initiatives aimed at unlocking new
revenue streams and achieving a strong return on our invested capital. Due
in large part to the successful execution of our plan and a strong
performance by the Hyatt team, the hotel’s annual EBITDA nearly tripled
during our ownership period. Additionally, during our ownership period we
received a total of

7 million in yield support payments from Hyatt, which
guaranteed an annual 10% return on our equity through the third quarter of
2007. The combination of a well-planned renovation, creative asset
management and meaningful yield support from Hyatt enabled Sunstone to
realize a total internal rate of return of approximately 19% upon sale.”

The Company has updated its guidance for the second quarter of 2008 as
well as full year 2008 to reflect the anticipated impact of the sale of the
Hyatt Regency Century Plaza. Updated guidance is based on the assumption
that the Company will successfully repurchase 6.2 million shares of common
stock in the second half of 2008 with approximately $130 million of the net
sale proceeds, and that the remaining net sale proceeds, totaling
approximately

30 million, will be held in cash for the remainder of 2008.
Based on these assumptions, the Company expects this transaction to result
in a 20 to 30 basis point improvement in its 2008 net debt-to-Adjusted
EBITDA ratio and to be neutral to slightly dilutive to its 2008 Adjusted
FFO per share. The Company continues to analyze alternatives for the
reinvestment of net asset sale proceeds expected to remain after the
proposed stock repurchase, which depending on market conditions, may
include hotel acquisitions, debt repayments, additional stock repurchases
and/or a special common stockholder dividend, each of which may affect
Adjusted EBITDA and/or Adjusted FFO per share in a manner not reflected in
the earnings guidance the Company is providing herein. Also, in addition to
the hotel sale announced today, and consistent with its strategic plan, the
Company is evaluating the potential divestiture of a significant portfolio
of non-core hotels, which may be completed as a portfolio sale, single
asset sales, or not at all, depending on market conditions.

The Company does not undertake to make updates to its guidance 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. Other than
the sale of the Hyatt Regency Century Plaza and the assumed stock
repurchase of 6.2 million shares, 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 may have a material effect on the Company’s results of
operations.

Disclosure regarding the non-GAAP financial measures in this release is
included on page 4. Reconciliations of non-GAAP financial measures to the
next most comparable GAAP measure for each of the periods presented are
included on pages 5 through 6 of this release.

Updated Second Quarter 2008 Guidance

For the second quarter of 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 4 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
$69.5 million to $72.3 million;
— Adjusted EBITDA is expected to be approximately $84.0 million to $86.8
million;
— Adjusted FFO available to common stockholders is expected to be
approximately $52.4 million to $55.2 million; and
— Adjusted FFO available to common stockholders per diluted share is
expected to be approximately $0.84 to $0.88.

Updated Full Year 2008 Guidance

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
$89.5 million to $103.0 million;
— Adjusted EBITDA is expected to be approximately $302.4 million to
$315.9 million;
— Adjusted FFO available to common stockholders is expected to be
approximately $172.6 million to $186.1 million; and
— Adjusted FFO available to common stockholders per diluted share is
expected to be approximately

.90 to $3.13.

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 45 hotels
comprised of 15,354 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 June 2, 2008, and the Company undertakes no obligation to
update any forward-looking statements, except as may otherwise be required
under applicable securities laws, 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. 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.

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.



For Additional Information:

Bryan Giglia
Vice President - Corporate Finance
Sunstone Hotel Investors, Inc.
(949) 369-4236


***Tables to Follow***


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 $69,500 $72,300 $89,500 $103,000
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 28,100 28,100 118,000 118,000
Interest expense 24,200 24,200 100,200 100,200
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
Discontinued operations:
Depreciation and amortization 2,000 2,000 4,000 4,000
- -
EBITDA 134,000 136,800 352,400 365,900

(Gain)/loss on sale of assets(1) (50,000) (50,000) (50,000) (50,000)

Adjusted EBITDA $84,000 $86,800 $302,400 $315,900



Reconciliation of Income Available to Common Stockholders to FFO and
Adjusted FFO


Income available to common
stockholders $69,500 $72,300 $89,500 $103,000
Series C preferred stock
dividends 1,700 1,700 6,700 6,700
(Gain)/loss on sale of assets (1) (50,000) (50,000) (50,000) (50,000)
Continuing operations:
Real estate depreciation and
amortization 27,900 27,900 117,200 117,200
Unconsolidated joint venture:
Depreciation and amortization 1,300 1,300 5,200 5,200
Discontinued operations:
Real estate depreciation and
amortization 2,000 2,000 4,000 4,000
FFO available to common
stockholders 52,400 55,200 172,600 186,100

Adjusted FFO available to common
stockholders $52,400 $55,200 $172,600 $186,100

Adjusted FFO available to common
stockholders per diluted share $0.84 $0.88

.90 $3.13

Diluted weighted average shares
outstanding (2) 62,419 62,419 59,500 59,500


(1) Gain on sale reflects current estimate and is subject to customary
post closing adjustments.
(2) Diluted weighted average shares outstanding includes the Series C
Convertible Preferred Stock on an as-converted basis. Assumes fully
executed tender of 6.2M shares on 07/01/08.



Hyatt Regency Century Plaza Reconciliation of Net Income to EBITDA


Reconciliation of Net Income Reconciliation of Net Income
to EBITDA - 2005 Ownership Period to EBITDA - Full Year 2005
(in millions) (in millions)

Net Income ($5.1) Net Income ($9.6)
Guaranty Payment 6.8 Guaranty Payment 6.8
Depreciation expense(1) 1.2 Depreciation expense(1) 5.5
Interest expense (2) 2.6 Interest expense (2) 10.9
EBITDA $5.5 EBITDA $13.6


Reconciliation of Net Income Reconciliation of Net Income
to EBITDA - Full Year 2006 to EBITDA - Full Year 2007
(in millions) (in millions)

Net Income ($10.2) Net Income

.6
Guaranty Payment 17.4 Guaranty Payment 2.8
Depreciation expense (1) 5.5 Depreciation expense(1) 7.4
Interest expense (2) 10.9 Interest expense (2) 9.7
EBITDA

3.6 EBITDA

2.5


Reconciliation of Net Income Reconciliation of Net Income
to EBITDA - 2008 Ownership Period to EBITDA - Full Year 2008 Forecast
(in millions) (3) (in millions) (3)

Net Income $5.6 Net Income $16.8
Guaranty Payment 0.0 Guaranty Payment 0.0
Depreciation expense(1) 3.3 Depreciation expense(1) 7.8
Interest expense (2) 3.4 Interest expense (2) 8.1
EBITDA $12.2 EBITDA

4.6


(1) Reflects actual depreciation for 2005, 2006, 2007. 2008 reflects
forecasted depreciation expense.
(2) Reflects first mortgage interest expense and pro rata share of
exchangeable notes post mortgage paydown.
(3) 2008 ownership period and full year reflect Q1 actual results
and company estimates for Q2 - Q4.


Reconciliation of Net Income to EBITDA, Free Cash Flow and Annual Return
on Equity

2005 (1) 2006 2007 2008 (1)

EBITDA $5.5

3.6

2.5 $12.2
Interest Expense (2) (

.6) ($10.9) ($9.7) ($3.4)
Free Cash Flow (3)

.9 $12.7 $12.8 $8.8
Acquisition Cost (

93.0)
Mortgage Debt (4) $175.0 ($175.0)
Sale Price $366.5
Capital Expenditures (5) ($0.6) (

3.7) ($12.1) ($1.8)

Total Cash Flow ($115.7) ($11.0) $0.7 $198.5

IRR 19%

Annual Return on Equity (6) 10% 9%


(1) Reflects ownership period. 2008 ownership period includes company
estimates for Q2 results.
(2) Reflects first mortgage interest expense and pro rata share of
exchangeable notes post mortgage paydown.
(3) Calculated by subtracting interest expense from EBITDA.
(4) Reflects mortgage debt and pro rata share of exchangeable notes post
mortgage paydown.
(5) Reflects actual capital expenditures.
(6) Calculated by dividing free cash flow by equity investment (including
capital investment).
2007 annual return on equity reflects the burn-off of the guaranty.
Annual return on equity is only calculated for years in which the
hotel is owned for the entire year.



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Source: Real Estate Newswire