ALISO VIEJO, Calif., Nov. 7, 2011 -- Sunstone Hotel Investors, Inc. (the "Company") (NYSE: SHO) today announced results for the third quarter ended September 30, 2011.

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

• Comparable Hotel RevPAR increased 8.6% to $129.07.
• Comparable Hotel EBITDA increased 12.2% to $56.4 million.
• Comparable Hotel EBITDA Margins increased by 150 basis points to 27.2%.
• Adjusted EBITDA increased by 32.9% to $52.4 million.
• Adjusted FFO available to common stockholders increased by 67.6% to $23.7 million.
• Adjusted FFO available to common stockholders per diluted share increased by 33.3% to $0.20.
• Loss attributable to common stockholders was $24.0 million (vs. income available to common stockholders of $18.3 million in the third quarter 2010).
• Loss attributable to common stockholders per diluted share was $0.20 (vs. income available to common stockholders of $0.19 in the third quarter 2010).

Ken Cruse, President and Chief Executive Officer, stated, “We are pleased to report another strong quarter. Our portfolio’s year-over-year RevPAR growth accelerated to 8.6%, while our continued focus on operational efficiency led to 150 basis points of Comparable Hotel EBITDA Margin expansion. As a result, our Adjusted EBITDA and Adjusted FFO per share both grew by 33% and exceeded expectations despite the turbulent economic environment. Subsequent to quarter end, we reduced our overall indebtedness and bolstered our liquidity by refinancing our Doubletree Times Square and monetizing the Royal Palm mortgage. With ample liquidity and limited near-term debt maturities, we remain focused on maximizing shareholder value by continuing to drive operational excellence, methodically improving our balance sheet and selectively allocating capital to our most attractive investment opportunities.”

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

Disposition Update

On October 26, 2011, the Company closed on the previously announced sale of the 257-room Valley River Inn located in Eugene, Oregon. The gross sales price of $16.4 million includes the assumption of the existing mortgage secured by the hotel which totaled $11.5 million on the date of the sale.

Balance Sheet/Liquidity Update

As of September 30, 2011, the Company had approximately $223.7 million of cash and cash equivalents, including restricted cash of $63.8 million, total assets of $3.2 billion, including $2.8 billion of net investments in hotel properties, total consolidated debt of $1.7 billion and stockholders' equity of $1.3 billion.

As previously announced on October 10, 2011, the Company refinanced a $270.0 million loan secured by interests in its 460-room Doubletree Guest Suites Times Square (the “Hotel”). The Hotel was refinanced with a new $180.0 million seven-year, non-recourse mortgage. The new mortgage, which bears a floating interest rate of 3-month LIBOR plus 325 basis points, requires payments of interest only for the first 24 months of the term. The Company funded the remainder of the repayment of the prior loan with approximately $90.0 million of its unrestricted cash. In addition, on October 10, 2011 the Company also announced the sale of the first mortgage note held in conjunction with its sale of the Royal Palm hotel in April 2011 for net proceeds of approximately $79.2 million. In anticipation of this sale, the Company recorded an impairment loss of $10.9 million in September 2011. Adjusting its September 30, 2011 cash and debt balances for these two transactions and the sale of the Valley River Inn, the Company has approximately $218.5 million of cash and cash equivalents, including restricted cash of $63.8 million, and total consolidated debt of $1.6 billion.

John Arabia, Chief Financial Officer, stated, “Our adjusted unrestricted cash balance of over $150 million materially exceeds the $95 million of debt that matures through early 2015. Sunstone’s large unrestricted cash balance, our undrawn credit facility and limited near-term debt maturities not only provide the Company with significant downside protection in the event of an unanticipated decline in operating fundamentals, but also give us several years to gradually and thoughtfully reduce financial leverage in a manner that is additive to shareholder value.”

Corporate Governance Structure Update

Today the Board of Directors announced certain changes to its corporate governance structure, effective as of November 7, 2011:

• Robert (Bob) Alter has been named Chairman Emeritus and Founder and will no longer serve as the Company's Executive Chairman of the Board. Mr. Alter will remain a Director until the Company's May 2012 Annual Meeting, at which time Mr. Alter will not stand for re-election to the Company's Board of Directors.
• Lew Wolff will no longer serve as the Company's Co-Chairman of the Board. Mr. Wolff will remain a Director.
• Keith Locker, a member of the Board since May 2, 2006 and Chair of the Strategic Planning and Capital Markets Committee, has been named the Company’s independent Chairman of the Board. Mr. Locker will continue to serve as Chair of the Strategic Planning and Capital Markets Committee.
• Douglas Pasquale has been appointed to the Company’s Board of Directors. Mr. Pasquale is a Senior Advisor and Director of Ventas, Inc., and is the former Chairman, President and CEO of Nationwide Health Properties, Inc., a NYSE-listed healthcare REIT that was sold to Ventas in July 2011. Mr. Pasquale has also held executive-level positions at various hotel and health care ownership and management companies, including Atria Senior Living Group, ARV Assisted Living, Inc., Richfield Hospitality Services and Regal Hotels International-North America.
• Andrew Batinovich has been appointed to the Company’s Board of Directors. Mr. Batinovich is President and CEO of Glenborough LLC, a private real estate investment and management company specializing in office properties. Mr. Batinovich was also a co-founder of Glenborough LLC’s predecessor, Glenborough Realty Trust, a NYSE-listed REIT which was sold to an affiliate of Morgan Stanley in 2006.
• Keith Russell, a member of the Board since the Company's initial public offering in October 2004, has succeeded Keith Locker as Chair of the Audit Committee.
• Jamie Behar, a member of the Board since the Company's initial public offering in October 2004, has succeeded Keith Russell as Chair of the Nominating and Corporate Governance Committee.

Mr. Alter stated, "I am excited and pleased to announce my retirement from Sunstone's Board of Directors in May after serving both as CEO and Chairman since I founded this Company 16 years ago. Founding Sunstone Hotel Investors has been the most enjoyable and satisfying accomplishment of my long career in the hotel industry. I am very proud of the organization I have built over the years and the growth of the Company into an outstanding owner of one of the best hotel portfolios in major U.S. markets. I am pleased with the corporate direction, business plan and the new team that senior management and I have assembled to lead Sunstone for many years. I am also honored to announce important changes to Sunstone's corporate governance structure. Keith Locker, who has served as a director for over five years, will serve the Company well as Sunstone's new independent Chairman of the Board. Sunstone's two new independent directors, Doug Pasquale and Andy Batinovich, both having extensive industry experience, will bring new dimensions of leadership to the Board."

Mr. Cruse stated, "The entire Sunstone team thanks Bob for his exceptional support, teamwork and mentorship during his 16 years with the Company. Through Bob's vision and leadership, Sunstone has grown into an outstanding organization, with an exceptional portfolio of hotels and a very solid business plan. It is our privilege and honor to have had the opportunity to work with, and learn from, an industry legend like Bob."

Capital Improvements

During the third quarter of 2011, the Company invested $17.7 million in capital improvements into its portfolio. Year-to-date through the end of the third quarter of 2011, the Company invested $82.4 million in capital improvements into its portfolio.

2011 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 has provided guidance for the full year 2011. The Company's guidance does not take into account any additional hotel acquisitions, dispositions or financings during 2011. Prior 2011 guidance included $4.0 million of partial-year interest income from the Royal Palm mortgage, which was sold in October 2011. EBITDA for the Royal Palm mortgage was expected to have been $1.4 million for the fourth quarter.

For the full year 2011, the Company expects:

Mr. Cruse stated, "Our portfolio continues to deliver meaningful RevPAR and EBITDA gains as business transient travel remains strong. While there is a risk that unchecked macroeconomic uncertainty may ultimately lead to moderation of business travel and group demand in certain of our hotels, we believe our aggressive approach to asset management, continued strength in group production and ramp up from our recently renovated hotels are likely to drive continued growth in 2012."

Dividend Update

On November 4, 2011, 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 January 15, 2012 to stockholders of record on December 31, 2011. 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 negative 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, and risks affecting the Company's business. Common stock dividends may be made in the form of cash or a combination of cash and stock consistent with Internal Revenue Service guidelines.

Supplemental Disclosures

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

Earnings Call

The Company will host a conference call to discuss third quarter 2011 results on November 8, 2011, at 12:00 p.m. EST (9:00 a.m. PST). A live web cast of the call will be available via the Investor Relations section of the Company's website. Alternatively, investors may dial 1-888-549-7750 (for domestic callers) or 1-480-629-9770 (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. ("Sunstone") is a lodging real estate investment trust ("REIT") that, as of September 30, 2011, has interests in 32 hotels comprised of 13,206 rooms, excluding one hotel classified as held for sale. Sunstone's hotels are primarily in the upper upscale segment and are generally operated under nationally recognized brands, such as Marriott, Hilton, Fairmont, Hyatt and Starwood. For further information, please visit Sunstone's website at 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 that may cause the actual results to differ materially from those anticipated at the time the forward-looking statements are made. These risks include, but are not limited to: volatility in the debt or equity markets affecting our ability to acquire or sell hotel assets; national and local economic and business conditions, including the likelihood of a prolonged U.S. recession; the ability to maintain sufficient liquidity and our access to capital markets; potential terrorist attacks, which would affect occupancy rates at our hotels and the demand for hotel products and services; operating risks associated with the hotel business; risks associated with the level of our indebtedness and our ability to meet covenants in our debt and equity agreements; relationships with property managers and franchisors; our ability to maintain our properties in a first-class manner, including meeting capital expenditure requirements; our ability to compete effectively in areas such as access, location, quality of accommodations and room rate structures; changes in travel patterns, taxes and government regulations, which influence or determine wages, prices, construction procedures and costs; our ability to identify, successfully compete for and complete acquisitions; the performance of hotels after they are acquired; necessary capital expenditures and our ability to fund them and complete them with minimum disruption; our ability to continue to satisfy complex rules in order for us to qualify as a REIT for federal income tax purposes; and other risks and uncertainties associated with our business described in the Company's filings with the Securities and Exchange Commission. Although the Company believes the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that the expectations will be attained or that any deviation will not be material. All forward-looking information in this release is as of November 7, 2011, and the Company undertakes no obligation to update any forward-looking statement to conform the statement to actual results or changes in the Company's expectations.

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

Non-GAAP Financial Measures

We present the following non-GAAP financial measures that we believe are useful to investors as key measures of our operating performance: (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) comparable hotel EBITDA and comparable hotel EBITDA margin.

EBITDA represents net income (loss) excluding: (1) non-controlling interests; (2) interest expense; (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) amortization of deferred stock compensation; (2) the impact of any gain or loss from asset sales; (3) impairment charges; and (4) other adjustments we have identified in this release. We believe EBITDA and Adjusted EBITDA are useful to investors in evaluating our operating performance because these measures help investors evaluate and compare the results of our operations from period to period by removing the impact of our capital structure (primarily interest expense) and our asset base (primarily depreciation and amortization) from our operating results. We also use EBITDA and Adjusted EBITDA as measures in determining the value of hotel acquisitions and dispositions. A reconciliation of net income (loss) to EBITDA and Adjusted EBITDA is set forth on page 9. Reconciliations and the components of comparable hotel EBITDA and comparable hotel EBITDA margin are set forth on pages 11 and 12. We believe comparable hotel EBITDA and comparable hotel EBITDA margin are also useful to investors in evaluating our property-level operating performance.

We compute FFO in accordance with standards established by the National Association of Real Estate Investment Trusts, or NAREIT, an industry trade group. The Board of Governors of NAREIT in its March 1995 White Paper (as clarified in November 1999 and April 2002) defines FFO to mean net income (loss) (computed in accordance with GAAP), excluding non-controlling interests, gains and losses from sales of property, plus real estate-related depreciation and amortization (excluding amortization of deferred financing costs), and after adjustment for unconsolidated partnerships and joint ventures. We also present Adjusted FFO, which excludes 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 net income (loss) to FFO and Adjusted FFO is set forth on page 9.

The revenue and expense items associated with our commercial laundry facility, BuyEfficient and other miscellaneous non-hotel items have been excluded in presenting comparable hotel EBITDA margins. Management believes the calculation of comparable hotel EBITDA results in a more accurate presentation of hotel EBITDA margins of the Company's 32 hotel comparable portfolio. See pages 11 and 12 for reconciliations of comparable hotel EBITDA to the most comparable GAAP measure. Our 32 hotel comparable portfolio includes all hotels held for investment by the Company as of September 30, 2011, excluding the Valley River Inn, which has been classified as held for sale as of September 30, 2011 and included in discontinued operations for all periods presented due to its sale in October 2011. The 32 hotel comparable portfolio 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, as well as 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.

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

For Additional Information:

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