Sunstone Hotel Investors Reports Results for Second Quarter 2011 Names Ken Cruse as CEO

Comparable Hotel RevPAR Increases 7.2%

Comparable Hotel EBITDA Margins Increase 280 Basis Points

ALISO VIEJO, Calif., Aug. 8, 2011 /PRNewswire/ -- Sunstone Hotel Investors, Inc. (the "Company") (NYSE: SHO) today announced results for the second quarter ended June 30, 2011.

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

  • Comparable Hotel RevPAR increased 7.2% to $131.89.
  • Comparable Hotel EBITDA increased 16.7% to $68.1 million.
  • Comparable Hotel EBITDA Margins increased by 280 basis points to 31.3%.
  • Income available to common stockholders was $31.1 million (vs. a loss of $4.9 million in the second quarter 2010).
  • Income available to common stockholders per diluted share was $0.26 (vs. a loss of $0.05 in the second quarter 2010).
  • Adjusted EBITDA increased by 46.0% to $63.0 million.
  • Adjusted FFO available to common stockholders increased by 94.6% to $34.6 million.
  • Adjusted FFO available to common stockholders per diluted share increased by 66.7% to $0.30.

Ken Cruse, President and Chief Executive Officer, stated, “With a new, talented team and a strong focus on operating performance, financial flexibility and transparency, Sunstone is well positioned to drive meaningful returns for our stockholders. As evidenced by our solid growth in revenues, EBITDA and margins during the second quarter, the new Sunstone team is already having a positive effect on the business.”  

(1)

Comparable Hotel RevPAR, Comparable Hotel EBITDA and Comparable Hotel EBITDA Margin information presented reflect the Company's Comparable 32 Hotel Portfolio, which includes all hotels owned by the Company as of June 30, 2011, excluding the Valley River Inn which has been classified as held for sale as of June 30, 2011 and included in discontinued operations for all periods presented due to its probable sale within the next year. The Comparable 32 Hotel 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, for all periods presented.




SELECTED FINANCIAL DATA

($ in millions, except RevPAR and per share amounts)

(unaudited)




Three Months Ended June 30,


Six Months Ended June 30,


2011

2010

% Change


2011

2010

% Change

Total Revenue

$  218.3

$  157.4

38.7%


$  377.3

$  295.2

27.8%

Comparable Hotel RevPAR

$  131.89

$  122.98

7.2%


$  121.53

$  113.28

7.3%









Comparable Hotel EBITDA Margin

31.3%

28.5%

280 bps


27.4%

26.1%

130 bps









Income available (loss attributable) to common stockholders

$  31.1

$  (4.9)



$  76.8

$  (31.2)


Income available (loss attributable) to common stockholders per

      diluted share

$  0.26

$  (0.05)



$  0.66

$  (0.32)


EBITDA

$  92.2

$  47.3



$  190.3

$  77.3


Adjusted EBITDA

$  63.0

$  43.2



$  95.2

$  74.2


FFO available to common stockholders

$  49.7

$  19.9



$  124.5

$  18.9


Adjusted FFO available to common stockholders

$  34.6

$  17.8



$  43.0

$  21.7


FFO available to common stockholders per diluted share (1)

$  0.42

$  0.20



$  1.06

$  0.19


Adjusted FFO available to common stockholders per diluted

      share (1)

$  0.30

$  0.18



$  0.37

$  0.22













(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 $0.42 and $0.21, respectively, for the three months ended June 30, 2011 and 2010, and $1.05 and $0.22, respectively, for the six months ended June 30, 2011 and 2010. On an "as-converted" basis, Adjusted FFO available to common stockholders per diluted share is $0.30 and $0.19, respectively, for the three months ended June 30, 2011 and 2010, and $0.38 and $0.25, respectively, for the six months ended June 30, 2011 and 2010.



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 9 through 12 of this release.  

Management Update

Effective immediately, Sunstone’s Board of Directors named Ken Cruse President and Chief Executive Officer of the company and a member of its Board of Directors.  Mr. Cruse, 42, joined Sunstone in April of 2005.  Mr. Cruse became President in December 2010 after holding leadership positions in both asset management and finance, most recently serving as Sunstone’s Chief Financial Officer from January 2007 through December of 2010.

Mr. Cruse stated, “I look forward to leading the Sunstone team.  We, as a team, are committed to achieving solid returns for our stockholders, while improving financial flexibility and improving transparency.  I thank our Board of Directors and especially Bob Alter for the support and involvement over the last eight months during my transition to CEO.”    

The appointment marks the conclusion of a period of co-leadership by Mr. Cruse and Bob Alter, Sunstone’s Executive Chairman, which was instituted in December 2010 as a means to provide stability and support during Mr. Cruse’s transition into the CEO role.   During this period, the Company executed on a number of growth initiatives and assembled Sunstone’s current leadership team.  

The Board of Directors stated, “Over the past six years, Ken has led a number of Sunstone’s most significant initiatives, ranging from asset management to major acquisitions and capital markets transactions.  As CEO, Ken's depth of experience and unique mix of strategic vision, integrity, passion and discipline will serve Sunstone very well."

Balance Sheet/Liquidity Update

As of June 30, 2011, the Company had approximately $205.9 million of cash and cash equivalents, including restricted cash of $61.1 million. The Company intends to use a material portion of its unrestricted cash to reduce the principal balance on the Doubletree Guest Suites Times Square mortgage, which matures in January 2012.  

John V. Arabia, Chief Financial Officer, stated, "We have received strong lender interest in refinancing the Doubletree Guest Suites Times Square given the superior quality and location of the hotel.  Following this refinancing, Sunstone will have less than $100 million of debt maturing through year-end 2014.  We remain committed to gradually and methodically reducing our financial leverage while maximizing shareholder value and growing the company."

As of June 30, 2011, total assets were $3.2 billion, including $2.8 billion of net investments in hotel properties, total debt was $1.7 billion and stockholders' equity was $1.3 billion.

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.

Disposition Update

Due to the probable sale of the 257-room Valley River Inn located in Eugene, Oregon within the next year, the Company classified the hotel as held for sale as of June 30, 2011, and reclassified the hotel's assets and liabilities as of June 30, 2011 and December 31, 2010 to discontinued operations on its balance sheets and the hotel's results of operations for the three and six months ended June 30, 2011 and 2010 to discontinued operations on its statements of operations.

Capital Improvements

During the second quarter of 2011, the Company invested $32.1 million in capital improvements to its portfolio.  Year-to-date through the end of the second quarter of 2011, the Company completed several value enhancing renovations, including major rooms and/or public area renovations at the Courtyard Los Angeles Airport, Doubletree Guest Suites Minneapolis, Kahler Inn and Suites, Marriott Houston, Marriott Rochester, Embassy Suites Chicago, Marriott Quincy, Marriott Tysons Corner, Sheraton Cerritos, Marriott Troy, Marriott Philadelphia and Hyatt Regency Newport Beach. The Company expects to complete the renovation of the public space and meeting space expansion at the Marriott Boston Long Wharf during the third quarter of 2011.

During the fourth quarter of 2011, the Company will commence the up-branding of the 460-room Doubletree Guest Suites Times Square to the Hilton Suites Times Square. The public space renovation will begin during the fourth quarter followed by a complete room renovation during the first quarter of 2012. The Company will provide updated timing and project scope, including anticipated displacement, during the third quarter call.

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 full year results for the Valley River Inn, which is classified as held for sale and is expected to be sold within the next year. EBITDA for the Valley River Inn, which was included in prior guidance, was expected to have been $0.5 million and $0.3 million for the third and fourth quarter, respectively.

For the full year 2011, the Company expects:

Metric

Prior Guidance (1)

Adjusted Prior

Guidance (2)

Current Guidance

Change to

Adjusted Prior

Midpoint

Comparable Portfolio RevPAR (3)

+6% - 8%

+6% - 8%

+6% - 8%

-

Loss attributable to common stockholders ($ millions)

($42) - ($30)

($42) - ($31)

($42) - ($31)

-

Adjusted EBITDA ($ millions)

$204 - $215

$203 - $214

$203 - $214

-

Adjusted FFO ($ millions)

$92 - $103

$91 - $102

$91 - $102

-

Adjusted FFO per share

$0.78 - $0.88

$0.77 - $0.87

$0.77 - $0.87

-








(1) Includes approximately $0.8 million of Adjusted EBITDA and $0.4 million of Adjusted FFO related to the second half earnings forecast of the Valley River Inn, which was classified as held for sale as of June 30, 2011 due to its probable sale within the next year.

(2) Prior guidance has been adjusted to reflect the probable sale of the Valley River Inn.

(3) Includes 33 comparable hotels for the prior guidance and 32 comparable hotels for the current guidance.



Mr. Arabia stated, "With the introduction of an enhanced quarterly financial supplemental, including robust disclosure relating to property-level operating fundamentals and earnings, we have meaningfully increased the quality of our disclosure and the transparency of our operational performance and capital structure.  Combined with last quarter's reinstatement of earnings guidance, this additional step demonstrates management's commitment to providing investors with the appropriate tools to analyze Sunstone's portfolio and corporate performance."

Dividend Update

On August 5, 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 October 15, 2011 to stockholders of record on September 30, 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. 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.   Dividends may be made in the form of cash or a combination of cash and stock consistent with Internal Revenue Service guidelines.

Earnings Call

The Company will host a conference call to discuss second quarter 2011 results on August 8, 2011, at 12:00 p.m. EDT (9:00 a.m. PDT). A live web cast of the call will be available via the Investor Relations section of the Company's website.  Alternatively, investors may dial 1-877-941-0844 (for domestic callers) or 1-480-629-9835 (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 owns (excluding hotels held for sale) 32 hotels comprised of 13,206 rooms.  Sunstone's hotels are primarily in the upper upscale segment and are generally operated under nationally recognized brands, such as Marriott, Fairmont, Hilton and Hyatt. 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 August 8, 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.

The following table includes 2011 third quarter, fourth quarter and full year forecast data for the Valley River Inn, which was classified as held for sale as of June 30, 2011 due to its probable sale within the next year.



Valley River Inn




Q3 2011


Q4 2011


FY 2011




(unaudited, $ in thousands)



Total Revenue

$ 2,600


$ 2,400


$ 10,400











Hotel Net Income (Loss)

$    100


$  (100)


$      100



Plus: Depreciation

200


200


900



Plus: Interest Expense

200


200


600



Hotel Adjusted EBITDA

$    500


$    300


$   1,600












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 portfolio hotel EBITDA and comparable portfolio hotel EBITDA margin for the purpose of our operating margins.

EBITDA represents income available (loss attributable) to common stockholders excluding: (1) non-controlling interests; (2) preferred stock dividends; (3) interest expense; (4) provision for income taxes, including income taxes applicable to sale of assets; and (5) 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 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 available (loss attributable) to common stockholders to EBITDA and Adjusted EBITDA is set forth on page 9.  Reconciliations and the components of comparable portfolio hotel EBITDA and comparable portfolio hotel EBITDA margin are set forth on pages 11 and 12. We believe comparable portfolio hotel EBITDA and comparable portfolio 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 income available (loss attributable) to common stockholders (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 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 (loss attributable) to common stockholders 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 shown below the hotel EBITDA line in presenting comparable portfolio hotel EBITDA margins. Management believes the calculation of comparable portfolio 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 portfolio hotel EBITDA to the most comparable GAAP measure. Our 32 hotel comparable portfolio includes all hotels owned by the Company as of June 30, 2011, excluding the Valley River Inn, which has been classified as held for sale as of June 30, 2011 and included in discontinued operations for all periods presented due to its probable sale within the next year. 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 portfolio hotel EBITDA and comparable portfolio 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 portfolio hotel EBITDA and comparable portfolio 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 portfolio hotel EBITDA and comparable portfolio 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 portfolio hotel EBITDA and comparable portfolio 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

Sunstone Hotel Investors, Inc.

Consolidated Balance Sheets

(In thousands, except share data)










June 30,


December 31,



2011


2010



(unaudited)



Assets




Current assets:





Cash and cash equivalents

$         144,728


$            276,034


Restricted cash

61,143


54,954


Accounts receivable, net

36,760


17,285


Due from affiliates

3


44


Inventories

2,276


2,101


Prepaid expenses

6,036


7,808


Investment in hotel properties of discontinued operations, net

14,986


131,404


Investment in other real estate of discontinued operations, net

88


896


Other current assets of discontinued operations, net

2,783


5,128

Total current assets

268,803


495,654






Investment in hotel properties, net

2,813,937


1,902,819

Other real estate, net

11,640


11,116

Investments in unconsolidated joint ventures

-


246

Deferred financing fees, net

12,260


8,855

Interest rate cap derivative agreements

22


-

Goodwill

13,088


4,673

Other assets, net

111,840


12,743






Total assets

$      3,231,590


$         2,436,106






Liabilities and Equity




Current liabilities:





Accounts payable and accrued expenses

$           28,044


$              20,889


Accrued payroll and employee benefits

17,013


12,674


Due to Third-Party Managers

5,942


7,573


Dividends payable

7,310


5,137


Other current liabilities

27,662


16,907


Current portion of notes payable

292,189


16,196


Note payable of discontinued operations

11,629


11,773


Other current liabilities of discontinued operations, net

971


21,600

Total current liabilities

390,760


112,749






Notes payable, less current portion

1,379,356


1,115,334

Interest rate swap derivative agreement

501


-

Other liabilities

10,263


8,724

Total liabilities

1,780,880


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 June 30, 2011 and December 31, 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 June 30, 2011 and





         December 31, 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 June 30, 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,





     117,242,818 shares issued and outstanding at June 30, 2011 and





     116,950,504 shares issued and outstanding at December 31, 2010

1,172


1,170


Additional paid in capital

1,311,037


1,313,498


Retained earnings

119,613


29,593


Cumulative dividends

(430,522)


(418,075)


Accumulated other comprehensive loss

(3,137)


(3,137)

Total stockholders' equity

1,289,413


1,099,299

Non-controlling interest in consolidated joint ventures

61,297


-

Total equity

1,350,710


1,099,299






Total liabilities and equity

$      3,231,590


$         2,436,106



Sunstone Hotel Investors, Inc.

Unaudited Consolidated Statements of Operations

(In thousands, except per share data)


















Three Months Ended June 30,


Six Months Ended June 30,


2011


2010


2011


2010









Revenues








Room

$ 150,280


$ 106,805


$ 256,760


$ 196,106

Food and beverage

51,043


39,374


90,328


76,535

Other operating

16,931


11,214


30,224


22,538

Total revenues

218,254


157,393


377,312


295,179

Operating expenses








Room

35,837


26,354


64,888


50,345

Food and beverage

36,106


28,244


65,832


55,112

Other operating

6,229


5,549


12,188


11,379

Advertising and promotion

10,365


7,773


18,987


15,006

Repairs and maintenance

8,249


6,473


15,521


12,795

Utilities

7,232


5,432


14,077


11,157

Franchise costs

7,484


5,636


12,734


10,151

Property tax, ground lease and insurance

14,573


10,516


28,565


20,683

Property general and administrative

25,225


18,434


45,245


35,154

Corporate overhead

6,316


5,132


13,973


9,708

Depreciation and amortization

32,659


22,974


58,881


46,221

Property and goodwill impairment losses

-


1,943


-


1,943

Total operating expenses

190,275


144,460


350,891


279,654

Operating income

27,979


12,933


26,421


15,525

Equity in earnings of unconsolidated joint ventures

-


163


21


275

Interest and other income

1,320


99


1,429


270

Interest expense

(21,153)


(16,851)


(38,937)


(36,729)

Gain on remeasurement of equity interests

-


-


69,230


-

Income (loss) from continuing operations

8,146


(3,656)


58,164


(20,659)

Income (loss) from discontinued operations

30,783


3,964


32,100


(124)

Net income (loss)

38,929


308


90,264


(20,783)

Income from consolidated joint venture attributable to non-controlling interest

(244)


-


(244)


-

Distributions to non-controlling interest

(7)


-


(14)


-

Preferred stock dividends and accretion

(7,310)


(5,187)


(12,447)


(10,374)

Undistributed income allocated to unvested restricted stock compensation

(291)


-


(717)


-

Income available (loss attributable) to common stockholders

$   31,077


$   (4,879)


$   76,842


$ (31,157)









Basic per share amounts:                                                                                                                 








       Income (loss) from continuing operations available (attributable) to common stockholders

$           -


$     (0.09)


$       0.38


$     (0.32)

       Income from discontinued operations

0.27


0.04


0.28


-

Basic income available (loss attributable) to common stockholders per common share

$       0.27


$     (0.05)


$       0.66


$     (0.32)









Diluted per share amounts:








       Income (loss) from continuing operations available (attributable) to common stockholders

$           -


$     (0.09)


$       0.38


$     (0.32)

       Income from discontinued operations

0.26


0.04


0.28


-

Diluted income available (loss attributable) to common stockholders per common share

$       0.26


$     (0.05)


$       0.66


$     (0.32)









Weighted average common shares outstanding:








      Basic

117,227


97,188


117,151


97,118

      Diluted

117,314


97,188


117,267


97,118









Dividends declared per common share

$           -


$           -


$           -


$           -



Sunstone Hotel Investors, Inc.

Reconciliation of Income Available (Loss Attributable) to Common Stockholders to Non-GAAP Financial Measures

(Unaudited and in thousands, except per share amounts)








Reconciliation of Income Available (Loss Attributable) to Common Stockholders to EBITDA and Adjusted EBITDA














Three Months Ended


Six Months Ended


June 30,


June 30,


2011

2010


2011

2010







Income available (loss attributable) to common stockholders

$ 31,077

$ (4,879)


$ 76,842

$ (31,157)

Income from consolidated joint venture attributable to non-controlling interest

244

-


244

-

Distributions to non-controlling interest

7

-


14

-

Preferred stock dividends

7,310

5,187


12,447

10,374

Undistributed income allocated to unvested restricted stock compensation

291

-


717

-

Operations held for investment:






  Depreciation and amortization

32,659

22,974


58,881

46,221

  Amortization of lease intangibles

999

150


1,936

150

  Interest expense

19,120

16,024


35,986

32,802

  Interest expense - default rate

-

120


-

884

  Amortization of deferred financing fees

812

303


1,425

793

  Write-off of deferred financing fees

-

123


-

1,585

  Loan penalties and fees

-

36


-

174

  Non-cash interest related to discount on Senior Notes

261

245


522

491

  Non-cash interest related to loss on derivatives, net

960

-


1,004

-

Non-controlling interests:






  Income from consolidated joint venture attributable to non-controlling interest

(244)

-


(244)

-

  Depreciation and amortization

(1,184)

-


(1,184)

-

  Interest expense

(456)

-


(456)

-

  Amortization of deferred financing fees

(47)

-


(47)

-

  Non-cash interest related to loss on derivative

(28)

-


(28)

-

Unconsolidated joint ventures:






  Depreciation and amortization

-

13


3

27

Discontinued operations:






  Depreciation and amortization

258

1,834


1,951

3,962

  Interest expense

157

2,634


314

5,728

  Interest expense - default rate

-

2,078


-

4,354

  Amortization of deferred financing fees

3

135


6

272

  Loan penalties and fees

-

303


-

645

EBITDA

92,199

47,280


190,333

77,305







Operations held for investment:






  Amortization of deferred stock compensation

929

686


1,473

1,648

  Gain on sale of assets

(56)

-


(56)

-

  Gain on remeasurement of equity interests

-

-


(69,230)

-

  Closing costs - completed acquisitions

633

-


3,372

-

  Impairment loss

-

1,943


-

1,943

Unconsolidated joint ventures:






  Amortization of deferred stock compensation

-

7


2

17

Discontinued operations:






  Gain on sale of assets

(14,018)

-


(14,018)

-

  Impairment loss

1,495

-


1,495

-

  Gain on extinguishment of debt

(18,145)

(6,747)


(18,145)

(6,747)


(29,162)

(4,111)


(95,107)

(3,139)