Sunstone Hotel Investors Reports Operating Results for Fourth Quarter and Full Year 2011

Submitted by HBN on Wed, 02/22/2012 - 7:34pm

ALISO VIEJO, Calif., Feb. 21, 2012 (www.hospitalitybusinessnews.com) -- Sunstone Hotel Investors, Inc. today announced results for the fourth quarter and year ended December 31, 2011.

Full Year 2011 Operational Results (as compared to Full Year 2010) (1):

Comparable Hotel RevPAR increased 7.2% to $123.91.
Comparable Hotel EBITDA Margin increased by 130 basis points to 27.8%.
Adjusted EBITDA increased by 33.8% to $212.5 million.
Adjusted FFO available to common stockholders per diluted share increased by 52.6% to $0.87.
Income available to common stockholders was $53.0 million (vs. $17.8 million in 2010).
Income available to common stockholders per diluted share was $0.45 (vs. $0.18 in 2010).

Fourth Quarter 2011 Operational Results (as compared to Fourth Quarter 2010) (1):

Comparable Hotel RevPAR increased 5.9% to $123.36.
Comparable Hotel EBITDA Margin increased by 90 basis points to 28.7%.
Adjusted EBITDA increased by 42.7% to $63.9 million.
Adjusted FFO available to common stockholders per diluted share increased by 45.0% to $0.29.
Income available to common stockholders was $43,000 (vs. $30.4 million in 2010).
Income available to common stockholders per diluted share was zero (vs. $0.28 in 2010).

Ken Cruse, President and Chief Executive Officer, stated, "During 2011 we established a new leadership team, improved our corporate governance structure and redefined our long-term strategy around three fundamentals: enhanced hotel profitability through aggressive asset management and capital investment; disciplined growth through selective acquisitions and capital recycling; and measured improvement of our cost of capital by methodically reducing our financial leverage. We continued our focus on enhanced hotel profitability by strengthening our asset management team, which helped drive a solid 130 basis point improvement in hotel EBITDA margins on a 7.2% increase in RevPAR. Additionally, we invested over $100 million renovating our existing portfolio, which is now well positioned to capitalize on the lodging recovery. Our focus on disciplined growth led to the acquisition of three high-quality hotels during 2011: the 1,190-room Hilton San Diego Bayfront; the 460-room Doubletree Guest Suites Times Square; and the 496-room JW Marriott New Orleans. Finally, we focused on measured reductions in our financial leverage by refinancing our only 2011 debt maturity, partially with cash on hand, while taking steps to improve liquidity through the sale of non-core assets. Furthermore, we improved our transparency and accountability by implementing a stockholder-friendly supplemental disclosure package. Looking ahead, we believe the combination of positive industry fundamentals, our highly focused and experienced team, strong liquidity, and our high-quality, recently renovated portfolio represent a compelling formula for growth and the creation of shareholder value."

(1)	Comparable Hotel RevPAR and Comparable Hotel EBITDA Margin information presented reflect the Company's Comparable 32 Hotel Portfolio, which includes all hotels held for investment by the Company as of December 31, 2011. Comparable Hotel EBITDA Margin information excludes current and prior year real estate tax credits or charges. The Comparable 32 Hotel Portfolio also includes prior ownership results 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, for all periods presented. The Comparable 32 Hotel Portfolio for the year ended December 31, 2010 also includes results for the Renaissance Westchester during the period it was held in receivership prior to the Company's reacquisition of the hotel in June 2010.

SELECTED FINANCIAL DATA
($ in millions, except RevPAR and per share amounts)
(unaudited)

	Three Months Ended December 31,			Year Ended December 31,
	2011	2010	% Change	2011	2010	% Change

Total Revenue	$ 245.1	$ 176.9	38.6%	$ 834.7	$ 624.5	33.7%
Comparable Hotel RevPAR	$ 123.36	$ 116.52	5.9%	$ 123.91	$ 115.54	7.2%

Comparable Hotel EBITDA Margin	28.7%	27.8%	90 bps	27.8%	26.5%	130 bps

Income available to common stockholders	$ 0.0	$ 30.4		$ 53.0	$ 17.8
Income available to common stockholders per diluted share	$ 0.00	$ 0.28		$ 0.45	$ 0.18
EBITDA	$ 63.7	$ 79.8		$ 292.7	$ 227.8
Adjusted EBITDA	$ 63.9	$ 44.8		$ 212.5	$ 158.8
FFO available to common stockholders	$ 33.3	$ 55.8		$ 167.4	$ 120.9
Adjusted FFO available to common stockholders	$ 34.6	$ 21.2		$ 102.1	$ 57.5
FFO available to common stockholders per diluted share (1)	$ 0.28	$ 0.52		$ 1.43	$ 1.21
Adjusted FFO available to common stockholders per diluted share (1)	$ 0.29	$ 0.20		$ 0.87	$ 0.57

(1)	Reflects 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 $0.30 and $0.51, respectively, for the three months ended December 31, 2011 and 2010, and $1.43 and $1.22, respectively, for the years ended December 31, 2011 and 2010. On an "as-converted" basis, Adjusted FFO available to common stockholders per diluted share is $0.31 and $0.20, respectively, for the three months ended December 31, 2011 and 2010, and $0.89 and $0.61, respectively, for the years ended December 31, 2011 and 2010.

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 13 of this release.

The Company's actual results for the year ended December 31, 2011 compare to its 2011 guidance as follows:

Metric	FY 2011 Prior Guidance (1)	FY 2011 Actual	Performance Relative to Prior Midpoint
Comparable Hotel RevPAR	+6% - 8%	+7.2%	+0.2%
Net Income ($ millions)	$76 - $81	$81.3	+$2.8
Adjusted EBITDA ($ millions)	$204 - $209	$212.5	+$6.0
Adjusted FFO ($ millions)	$93 - $98	$102.1	+$6.6
Adjusted FFO per diluted share	$0.79 - $0.84	$0.87	+$0.06

(1)	Reflects guidance presented on 11/07/2011. The net loss included in the prior guidance has been adjusted to include gains on the sales of the Royal Palm Miami Beach and the Valley River Inn ($14.9M), gain on the remeasurement of equity interests ($69.2M), gain on the extinguishment of debt related to discontinued operations ($18.1M) and impairment loss on the Royal Palm note ($10.9M).

Balance Sheet/Liquidity Update

As of December 31, 2011, the Company had approximately $218.4 million of cash and cash equivalents, including restricted cash of $67.9 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 $1.3 billion.

On February 8, 2012, the Company repurchased $4.5 million of its 4.60% Exchangeable Senior Notes (the "Senior Notes") for a price of $4.57 million plus accrued interest of approximately $13,000. Subsequent to the repurchase, there are $58.0 million of the Senior Notes outstanding. The Company's only near-term debt maturities include the $32.0 million mortgage secured by the Renaissance Long Beach and the Senior Notes, both of which are likely to be retired with a portion of the Company's unrestricted cash balance of $150.5 million when they mature or are put to the Company in July 2012 and January 2013, respectively.

Capital Improvements

The Company invested $18.0 million in capital improvements into its portfolio during the fourth quarter of 2011, and $100.4 million during the year ended December 31, 2011. In 2011, the Company renovated 3,267 hotel rooms (25% of total rooms) and refurbished the common area, meeting space and/or restaurants at 13 hotels.

2012 Outlook

The Company is providing guidance at this time but does not undertake to make updates for any developments in its business or changes in the operating environment. 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's guidance does not take into account any future hotel acquisitions, dispositions, debt repurchases or financings during 2012.

For the first quarter of 2012, the Company expects:


Metric	Quarter Ended March 31, 2012 Guidance
Comparable Hotel RevPAR	+3% - 5%
Net Loss ($ millions)	$(19) - $(17)
Adjusted EBITDA ($ millions)	$38 - $40
Adjusted FFO ($ millions)	$9 - $11
Adjusted FFO per diluted share	$0.07 - $0.09

For the full year 2012, the Company expects:

Metric	2012 FY Guidance
Comparable Hotel RevPAR	+4% - 6%
Net Income (Loss) ($ millions)	$(4) - $8
Adjusted EBITDA ($ millions)	$223 - $235
Adjusted FFO ($ millions)	$105 - $117
Adjusted FFO per diluted share	$0.90 - $1.00

Full year 2012 guidance includes the following assumptions:

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

Mr. Cruse continued, "Our leading indicators – strong group bookings, increases in negotiated account rates and higher government per-diems – imply continued growth in 2012 and beyond. Despite well telegraphed instances of softness in certain markets such as Washington DC, we expect mid-single digit RevPAR growth, margin expansion and continued growth in Adjusted FFO per diluted share in 2012."

Dividend Update

For income tax reporting purposes, the Company paid cash dividends of $2.50 and $1.472222 per share to its Series A and Series D cumulative redeemable preferred stockholders, respectively, and $1.965 per share to its Series C cumulative convertible redeemable preferred stockholders for the tax year ended December 31, 2011. All of the 2011 preferred dividends are taxed as ordinary income. Dividends paid to the Series A, Series C and Series D preferred stockholders satisfied the Company's 2011 taxable distribution requirements.

On February 16, 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 April 15, 2012 to stockholders of record on March 31, 2012. No dividend was declared on the Company's common stock.

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.

Sunstone Hotel Investors, Inc.
Consolidated Balance Sheets
*(In thousands, except share data)*


		December 31,	December 31,
		2011	2010

Assets
Current assets:
	Cash and cash equivalents	$ 150,533	$ 276,034
	Restricted cash	67,898	54,954
	Accounts receivable, net	32,536	17,285
	Due from affiliates	6	44
	Inventories	2,608	2,101
	Prepaid expenses	10,272	7,808
	Investment in hotel properties of discontinued operations, net	-	131,404
	Investment in other real estate of discontinued operations, net	-	896
	Other current assets of discontinued operations, net	-	5,128
Total current assets		263,853	495,654

Investment in hotel properties, net		2,777,826	1,902,819
Other real estate, net		11,859	11,116
Investments in unconsolidated joint ventures		-	246
Deferred financing fees, net		14,651	8,855
Interest rate cap derivative agreements		386	-
Goodwill		13,088	4,673
Other assets, net		19,577	12,743

Total assets		$ 3,101,240	$ 2,436,106

Liabilities and Equity
Current liabilities:
	Accounts payable and accrued expenses	$ 26,854	$ 20,889
	Accrued payroll and employee benefits	20,863	12,674
	Due to Third-Party Managers	9,227	7,573
	Dividends payable	7,437	5,137
	Other current liabilities	28,465	16,907
	Current portion of notes payable	53,935	16,196
	Note payable of discontinued operations	-	11,773
	Other current liabilities of discontinued operations, net	-	21,600
Total current liabilities		146,781	112,749

Notes payable, less current portion		1,516,542	1,115,334
Interest rate swap derivative agreement		1,567	-
Other liabilities		11,056	8,724
Total liabilities		1,675,946	1,236,807

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 December 31, 2011 and 2010, 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 December 31, 2011 and 2010,
	stated at liquidation preference of $25.00 per share	176,250	176,250
	8.0% Series D Cumulative Redeemable Preferred Stock,
	4,600,000 shares issued and outstanding at December 31, 2011 and zero issued
	and outstanding at December 31, 2010, stated at liquidation preference of
	$25.00 per share	115,000	-
	Common stock, $0.01 par value, 500,000,000 shares authorized,
	117,265,090 shares issued and outstanding at December 31, 2011 and
	116,950,504 shares issued and outstanding at December 31, 2010	1,173	1,170
	Additional paid in capital	1,312,566	1,313,498
	Retained earnings	110,580	29,593
	Cumulative dividends	(445,396)	(418,075)
	Accumulated other comprehensive loss	(4,916)	(3,137)
Total stockholders' equity		1,265,257	1,099,299
Non-controlling interest in consolidated joint ventures		60,037	-
Total equity		1,325,294	1,099,299

Total liabilities and equity		$ 3,101,240	$ 2,436,106

Sunstone Hotel Investors, Inc.
Consolidated Statements of Operations
*(In thousands, except per share data)*


	Three Months Ended December 31,		Year Ended December 31,
	2011	2010	2011	2010

Revenues
Room	$ 164,945	$ 116,910	$ 572,289	$ 418,943
Food and beverage	62,043	48,159	196,524	159,365
Other operating	18,095	11,821	65,916	46,236
Total revenues	245,083	176,890	834,729	624,544
Operating expenses
Room	41,552	30,410	144,334	107,788
Food and beverage	42,406	34,088	143,120	116,856
Other operating	7,033	6,152	26,092	23,265
Advertising and promotion	12,627	9,443	41,952	32,225
Repairs and maintenance	9,896	7,914	33,766	27,161
Utilities	8,496	6,777	31,014	24,527
Franchise costs	8,439	5,596	29,115	21,474
Property tax, ground lease and insurance	17,661	9,626	63,423	40,980
Property general and administrative	28,629	21,336	98,642	74,535
Corporate overhead	4,830	7,461	25,746	21,971
Depreciation and amortization	34,888	23,110	127,945	92,374
Impairment loss	-	-	10,862	1,943
Total operating expenses	216,457	161,913	776,011	585,099
Operating income	28,626	14,977	58,718	39,445
Equity in earnings of unconsolidated joint ventures	-	80	21	555
Interest and other income	145	121	3,118	111
Interest expense	(22,236)	(16,939)	(82,965)	(70,174)
Gain on remeasurement of equity interests	-	-	69,230	-
Income (loss) from continuing operations	6,535	(1,761)	48,122	(30,063)
Income from discontinued operations	1,053	37,433	33,177	68,605
Net income	7,588	35,672	81,299	38,542
Income from consolidated joint venture attributable to non-controlling interest	(99)	-	(312)	-
Distributions to non-controlling interest	(8)	-	(30)	-
Preferred stock dividends and accretion	(7,437)	(5,137)	(27,321)	(20,652)
Undistributed income allocated to unvested restricted stock compensation	(1)	(174)	(636)	(102)
Income available to common stockholders	$ 43	$ 30,361	$ 53,000	$ 17,788

Basic per share amounts:
Income (loss) from continuing operations available (attributable) to common stockholders	$ (0.01)	$ (0.07)	$ 0.17	$ (0.51)
Income from discontinued operations	0.01	0.35	0.28	0.69
Basic income available to common stockholders per common share	$ -	$ 0.28	$ 0.45	$ 0.18

Diluted per share amounts:
Income (loss) from continuing operations available (attributable) to common stockholders	$ (0.01)	$ (0.07)	$ 0.17	$ (0.51)
Income from discontinued operations	0.01	0.35	0.28	0.69
Diluted income available to common stockholders per common share	$ -	$ 0.28	$ 0.45	$ 0.18

Weighted average common shares outstanding:
Basic	117,265	107,266	117,206	99,709
Diluted	117,265	107,266	117,206	99,709

Sunstone Hotel Investors, Inc.
Reconciliation of Net Income to Non-GAAP Financial Measures
*(Unaudited and in thousands, except per share amounts)*


Reconciliation of Net Income to EBITDA and Adjusted EBITDA


	Three Months Ended			Year Ended
	December 31,			December 31,
	2011	2010		2011		2010

Net income	$ 7,588	$ 35,672		$ 81,299		$ 38,542
Operations held for investment:
Depreciation and amortization	34,888	23,110		127,945		92,374
Amortization of lease intangibles	1,036	55		4,007		281
Interest expense	20,414	16,057		75,995		64,813
Interest expense - default rate	-	-		-		884
Amortization of deferred financing fees	967	492		3,232		1,585
Write-off of deferred financing fees	21	-		21		1,585
Loan penalties and fees	-	137		-		311
Non-cash interest related to discount on Senior Notes	270	253		1,062		996
Non-cash interest related to loss on derivatives	564	-		2,655		-
Non-controlling interests:
Income from consolidated joint venture attributable to non-controlling interest	(99)	-		(312)		-
Depreciation and amortization	(1,416)	-		(4,014)		-
Interest expense	(557)	-		(1,562)		-
Amortization of deferred financing fees	(57)	-		(160)		-
Non-cash interest related to gain (loss) on derivative	1	-		(31)		-
Unconsolidated joint ventures:
Depreciation and amortization	-	12		3		52
Discontinued operations:
Depreciation and amortization	-	2,216		1,951		8,558
Interest expense	43	969		515		9,283
Interest expense - default rate	-	679		-		7,071
Amortization of deferred financing fees	1	47		10		453
Write-off of deferred financing fees	42	-		42		-
Loan penalties and fees	-	94		-		1,021
EBITDA	63,706	79,793		292,658		227,809

Operations held for investment:
Amortization of deferred stock compensation	575	1,537		2,745		3,942
Non-cash straightline lease expense	696	206		2,398		944
(Gain) loss on sale of assets	(10)	(1)		(83)		382
Gain on remeasurement of equity interests	-	-		(69,230)		-
Due diligence costs - abandoned project	-	21		-		959
Closing costs - completed acquisitions	31	-		3,403		-
Impairment loss	-	-		10,862		1,943
Lawsuit settlement costs	-	-		1,620		-
Costs associated with CEO severance	-	2,242		-		2,242
Non-controlling interests:
Non-cash straightline lease expense	(111)	-		(354)		-
Unconsolidated joint ventures:
Amortization of deferred stock compensation	-	11		2		32
Discontinued operations:
Gain on sale of assets	(946)	-		(14,912)		-
Impairment loss	-	-		1,495		-
Gain on extinguishment of debt	-	(39,015)		(18,145)		(86,235)
Closing costs - completed acquisition	-	22		-		6,796
	235	(34,977)		(80,199)		(68,995)

Adjusted EBITDA	$ 63,941	$ 44,816		$ 212,459		$ 158,814


Reconciliation of Net Income to FFO and Adjusted FFO


Net income	$ 7,588	$ 35,672	$ 81,299		$ 38,542
Preferred stock dividends	(7,437)	(5,137)	(27,321)		(20,652)
Operations held for investment:
Real estate depreciation and amortization	34,590	22,966	126,776		91,824
Real estate impairment loss	-	-	-		1,943
Amortization of lease intangibles	1,036	55	4,007		281
(Gain) loss on sale of assets	(10)	(1)	(83)		382
Non-controlling interests:
Income from consolidated joint venture attributable to non-controlling interest	(99)	-	(312)		-
Real estate depreciation and amortization	(1,416)	-	(4,014)		-
Discontinued operations:
Real estate depreciation and amortization	-	2,216	1,951		8,558
Gain on sale of assets	(946)	-	(14,912)		-
FFO available to common stockholders	33,306	55,771	167,391		120,878

Operations held for investment:
Interest expense - default rate	-	-	-		884
Write-off of deferred financing fees	21	-	21		1,585
Loan penalties and fees	-	137	-		311
Non-cash straightline lease expense	696	206	2,398		944
Non-cash interest related to loss on derivatives	564	-	2,655		-
Gain on remeasurement of equity interests	-	-	(69,230)		-
Due diligence costs - abandoned project	-	21	-		959
Closing costs - completed acquisitions	31	-	3,403		-
Impairment loss	-	-	10,862		-
Lawsuit settlement costs	-	-	1,620		-
Costs associated with CEO severance	-	2,242	-		2,242
Amortization of deferred stock compensation associated with CEO severance	-	1,074	-		1,074
Non-controlling interests:
Non-cash straightline lease expense	(111)	-	(354)		-
Non-cash interest related to gain (loss) on derivative	1	-	(31)		-
Discontinued operations:
Interest expense - default rate	-	679	-		7,071
Write-off of deferred financing fees	42	-	42		-
Loan penalties and fees	-	94	-		1,021
Impairment loss	-	-	1,495		-
Gain on extinguishment of debt	-	(39,015)	(18,145)		(86,235)
Closing costs - completed acquisition	-	22	-		6,796
	1,244	(34,540)	(65,264)		(63,348)

Adjusted FFO available to common stockholders	$ 34,550	$ 21,231	$ 102,127		$ 57,530

FFO available to common stockholders per diluted share	$ 0.28	$ 0.52	$ 1.43		$ 1.21

Adjusted FFO available to common stockholders per diluted share	$ 0.29	$ 0.20	$ 0.87		$ 0.57

Basic weighted average shares outstanding	117,265	107,266	117,206		99,709
Shares associated with unvested restricted stock awards	-	441	84		390
Diluted weighted average shares outstanding (1)	117,265	107,707	117,290		100,099

(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 $0.30 and $0.51, respectively, for the three months ended December 31, 2011 and 2010, and $1.43 and $1.22, respectively, for the years ended December 31, 2011 and 2010. On an "as-converted" basis, Adjusted FFO available to common stockholders per diluted share is $0.31 and $0.20, respectively, for the three months ended December 31, 2011 and 2010, and $0.89 and $0.61, respectively, for the years ended December 31, 2011 and 2010.

Sunstone Hotel Investors, Inc.
Reconciliation of Net Loss to Non-GAAP Financial Measures
Guidance for First Quarter 2012
*(Unaudited and in thousands except per share amounts)*


Reconciliation of Net Loss to Adjusted EBITDA


	Quarter Ended
	March 31, 2012
	Low	High

Net loss	$ (18,650)	$ (16,650)
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 fees	1,000	1,000
Non-controlling interests	(2,500)	(2,500)
Non-cash interest related to discount on Senior Notes	275	275
Amortization of deferred stock compensation	875	875
Non-cash straightline lease expense	750	750
Adjusted EBITDA	$ 38,000	$ 40,000


Reconciliation of Net Loss to Adjusted FFO


Net loss	$ (18,650)	$ (16,650)
Preferred stock dividends	(7,500)	(7,500)
Real estate depreciation and amortization	34,750	34,750
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	$ 8,600	$ 10,600


Adjusted FFO available to common stockholders per diluted share	$ 0.07	$ 0.09

Diluted weighted average shares outstanding	117,800	117,800

Sunstone Hotel Investors, Inc.
Reconciliation of Net Income (Loss) to Non-GAAP Financial Measures
Guidance for Full Year 2012
*(Unaudited and in thousands except per share amounts)*


Reconciliation of Net Income (Loss) to Adjusted EBITDA


	Year Ended
	December 31, 2012
	Low	High

Net income (loss)	$ (3,600)	$ 8,400
Depreciation and amortization	140,000	140,000
Amortization of lease intangibles	4,000	4,000
Interest expense	81,000	81,000
Amortization of deferred financing fees	4,000	4,000
Non-controlling interests	(10,000)	(10,000)
Non-cash interest related to discount on Senior Notes	1,100	1,100
Amortization of deferred stock compensation	3,500	3,500
Non-cash straightline lease expense	3,000	3,000
Adjusted EBITDA	$ 223,000	$ 235,000


Reconciliation of Net Income (Loss) to Adjusted FFO


Net income (loss)	$ (3,600)	$ 8,400
Preferred stock dividends	(30,000)	(30,000)
Real estate depreciation and amortization	139,000	139,000
Non-controlling interests	(7,000)	(7,000)
Amortization of lease intangibles	4,000	4,000
Non-cash straightline lease expense	3,000	3,000
Adjusted FFO available to common stockholders	$ 105,400	$ 117,400


Adjusted FFO available to common stockholders per diluted share	$ 0.90	$ 1.00

Diluted weighted average shares outstanding	117,800	117,800

Sunstone Hotel Investors, Inc.
Comparable Hotel EBITDA Margins
*(Unaudited and in thousands except hotels and rooms)*



	Three Months Ended December 31, 2011	Three Months Ended December 31, 2010
	Actual (1)	Actual (2)	Acquired Hotels (3)	Comparable (4)
Number of Hotels	32	29	3	32
Number of Rooms	13,208	11,062	2,146	13,208

Hotel EBITDA Margin (5)	28.7%	25.9%	36.1%	28.4%
Hotel EBITDA Margin adjusted for prior year property tax credits (6)	28.7%	25.1%		27.8%

Hotel Revenues
Room revenue	$ 164,945	$ 116,910	$ 38,790	$ 155,700
Food and beverage revenue	62,043	48,159	11,202	59,361
Other operating revenue	13,374	8,633	4,400	13,033
Total Hotel Revenues	240,362	173,702	54,392	228,094

Hotel Expenses
Room expense	41,711	30,697	8,724	39,421
Food and beverage expense	42,437	34,139	7,887	42,026
Other hotel expense	60,046	42,740	13,288	56,028
General and administrative expense	27,289	21,057	4,832	25,889
Total Hotel Expenses	171,483	128,633	34,731	163,364

Hotel EBITDA	68,879	45,069	19,661	64,730
Prior year property tax credits	-	(1,429)	-	(1,429)
Hotel EBITDA adjusted for prior year property tax credits	68,879	43,640	19,661	63,301

Non-hotel operating income	1,197	740	-	740
Amortization of lease intangibles	(1,036)	(55)	(1,007)	(1,062)
Non-cash straightline lease expense	(696)	(206)	(489)	(695)
Prior year property tax credits	-	1,429	-	1,429
Corporate overhead	(4,830)	(7,461)	-	(7,461)
Depreciation and amortization	(34,888)	(23,110)	(7,261)	(30,371)
Operating Income	28,626	14,977	10,904	25,881

Equity in earnings of unconsolidated joint ventures	-	80	-	80
Interest and other income	145	121	-	121
Interest expense	(22,236)	(16,939)	(3,886)	(20,825)
Income from discontinued operations	1,053	37,433	-	37,433
Net Income	$ 7,588	$ 35,672	$ 7,018	$ 42,690

(1)	Actual represents the Company's ownership results for the 32 hotels held for investment as of December 31, 2011.
(2)	Actual represents the Company's ownership results for the 29 hotels held for investment as of December 31, 2010. 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 December 31, 2010 has been adjusted by 6 additional rooms which were added to the Courtyard by Marriott Los Angeles during the second quarter of 2011.
(3)	Acquired Hotels represents prior ownership results 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. Room count as of December 31, 2010 has been adjusted by 2 additional rooms which were added to the JW Marriott New Orleans during the fourth quarter of 2011.
(4)	Comparable represents the Company's ownership results for the 29 hotels held for investment as of December 31, 2010, plus 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.
(5)	Hotel EBITDA Margin is calculated as Hotel EBITDA divided by Total Hotel Revenues.
(6)	Hotel EBITDA Margin for the three months ended December 31, 2010 includes the benefit of $1.4 million in prior year property tax credits. Without this benefit, Comparable Hotel EBITDA Margin for the three months ended December 31, 2010 would have been 27.8%, or 90 basis points lower than the three months ended December 31, 2011.

Sunstone Hotel Investors, Inc.
Comparable Hotel EBITDA Margins
*(Unaudited and in thousands except hotels and rooms)*



	Year Ended December 31, 2011			Year Ended December 31, 2010
	Actual (1)	Acquired Hotels (2)	Comparable (3)	Actual (4)	Reacquired Hotel (5)	Acquired Hotels (2)	Comparable (6)
Number of Hotels	32		32	29		3	32
Number of Rooms	13,208		13,208	11,062		2,146	13,208

Hotel EBITDA Margin (7)	27.6%	32.3%	27.8%	25.1%	10.9%	32.4%	26.7%
Hotel EBITDA Margin adjusted for prior year property tax credits, net (8)	27.5%		27.8%	24.9%			26.5%

Hotel Revenues
Room revenue	$ 572,289	$ 24,150	$ 596,439	$ 418,943	$ 4,931	$ 132,022	$ 555,896
Food and beverage revenue	196,524	11,753	208,277	159,365	3,114	40,259	202,738
Other operating revenue	47,541	2,873	50,414	33,754	240	16,240	50,234
Total Hotel Revenues	816,354	38,776	855,130	612,062	8,285	188,521	808,868

Hotel Expenses
Room expense	145,137	5,926	151,063	109,140	1,417	30,733	141,290
Food and beverage expense	143,289	7,589	150,878	117,016	2,355	28,028	147,399
Other hotel expense	208,855	9,120	217,975	158,756	2,403	50,460	211,619
General and administrative expense	93,672	3,597	97,269	73,222	1,203	18,144	92,569
Total Hotel Expenses	590,953	26,232	617,185	458,134	7,378	127,365	592,877

Hotel EBITDA	225,401	12,544	237,945	153,928	907	61,156	215,991
Prior year property tax credits, net	(600)	-	(600)	(1,429)	-	-	(1,429)
Hotel EBITDA adjusted for prior year property tax credits, net	224,801	12,544	237,345	152,499	907	61,156	214,562

Non-hotel operating income	4,357	-	4,357	3,262	-	-	3,262
Amortization of lease intangibles	(4,007)	(140)	(4,147)	(281)	-	(4,028)	(4,309)
Non-cash straightline lease expense	(2,398)	(386)	(2,784)	(944)	-	(1,963)	(2,907)
Management company transition costs	(82)	-	(82)	(232)	-	-	(232)
Prior year property tax credits, net	600	-	600	1,429	-	-	1,429
Corporate overhead	(25,746)	-	(25,746)	(21,971)	-	-	(21,971)
Depreciation and amortization	(127,945)	(6,308)	(134,253)	(92,374)	(561)	(29,046)	(121,981)
Impairment loss	(10,862)	-	(10,862)	(1,943)			(1,943)
Operating Income	58,718	5,710	64,428	39,445	346	26,119	65,910

Equity in earnings of unconsolidated joint ventures	21	-	21	555	-	-	555
Interest and other income	3,118	-	3,118	111	-	-	111
Interest expense	(82,965)	(3,008)	(85,973)	(70,174)	-	(15,657)	(85,831)
Gain on remeasurement of equity interests	69,230	-	69,230	-	-	-	-
Income from discontinued operations	33,177	-	33,177	68,605	-	-	68,605
Net Income	$ 81,299	$ 2,702	$ 84,001	$ 38,542	$ 346	$ 10,462	$ 49,350

(1)	Actual represents the Company's ownership results for the 32 hotels held for investment as of December 31, 2011.
(2)	Acquired Hotels represents prior ownership results 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. Room count as of December 31, 2010 has been adjusted by 2 additional rooms which were added to the JW Marriott New Orleans during the fourth quarter of 2011.
(3)	Comparable represents the Company's ownership results and prior ownership results for the 32 comparable hotels held for investment as of December 31, 2011.
(4)	Actual represents the Company's ownership results for the 29 hotels held for investment as of December 31, 2010. Excludes the Royal Palm Miami Beach which was sold in April 2011, the Valley River Inn which was sold in October 2011, the W San Diego which was deeded back to the lender in July 2010, the Marriott Ontario Airport which was sold by the receiver in August 2010, and eight hotels included in the Mass Mutual portfolio deeded back to the lender in November 2010, which have been reclassified as discontinued operations for the year ended December 31, 2010. Room count as of December 31, 2010 has been adjusted by 6 additional rooms which were added to the Courtyard by Marriott Los Angeles during the second quarter of 2011.
(5)	Reacquired Hotel represents operating results for the Renaissance Westchester while it was held in receivership prior to the Company's reacquisition of the hotel on June 14, 2010.
(6)	Comparable represents the Company's ownership results for the 29 hotels held for investment as of December 31, 2010, plus the Renaissance Westchester during the period it was held in receivership prior to the Company's reacquisition of the hotel on June 14, 2010, 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.
(7)	Hotel EBITDA Margin is calculated as Hotel EBITDA divided by Total Hotel Revenues.
(8)	Hotel EBITDA Margin for the year ended December 31, 2011 includes the additional benefit of $0.9 million due to prior year property tax refunds, net of appeal fees, less additional expense of $0.3 million due to a prior year property tax assessment. Hotel EBITDA Margin for the year ended December 31, 2010 includes the benefit of $1.4 million in prior year property tax credits. Without the benefit of these tax adjustments, 2011 Comparable Hotel EBITDA Margin would have been 27.8%, or 130 basis points higher than 2010's Comparable Hotel EBITDA Margin of 26.5%.

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