Sunstone Hotel Investors (SHO) 8-K Other Events

Exhibit 99.2

Unaudited Pro Forma Financial Statements

The following unaudited pro forma financial data as of September 30, 2005 and for the nine months ended September 30, 2005 gives effect to the acquisition by Sunstone Hotel Investors, Inc. (“Sunstone”) of the Century Plaza Hotel, Los Angeles, California, and the related placement of debt. The following unaudited pro forma balance sheet as of September 30, 2005 gives effect to these transactions as if they had occurred on September 30, 2005, and the following unaudited pro forma income statement for the nine months ended September 30, 2005 is presented as if they had occurred on January 1, 2005.

The unaudited pro forma financial statements and related notes do not purport to represent what Sunstone’s results of operations would actually have been if the transactions had in fact occurred on the dates discussed above. They also do not project or forecast Sunstone’s results of operations for any future date or period. The unaudited pro forma financial statements should be read together with Sunstone’s historical consolidated and combined financial statements and related notes included in Sunstone’s Form 10-Q for the quarter ended September 30, 2005. The pro forma adjustments are based on available information and upon assumptions that Sunstone believes are reasonable; however, no assurance can be provided that actual results will not differ from the pro forma information and perhaps in material and adverse ways.

SUNSTONE HOTEL INVESTORS, INC.

PRO FORMA BALANCE SHEET

September 30, 2005

(Unaudited)

(In thousands)

	Historical			Century Plaza Hotel(1)			Pro Forma
ASSETS
Current assets:
Cash and cash equivalents	$	145,624		$	(120,780	)	$	24,844
Restricted cash		45,528						45,528
Accounts receivable, net		36,952						36,952
Due from affiliates		87						87
Inventories		2,517						2,517
Prepaid expenses and other current assets		3,516						3,516
Total current assets		234,224			(120,780	)		113,444
Investment in hotel properties, net		1,767,657			295,780			2,063,437
Other real estate, net		7,390						7,390
Deferred financing costs, net		7,401						7,401
Goodwill		27,299						27,299
Other assets, net		27,432						27,432
Total assets	$	2,071,403		$	175,000		$	2,246,403
LIABILITIES AND MEMBERS’ EQUITY
Current liabilities:
Accounts payable and other accrued expenses	$	22,831					$	22,831
Accrued payroll and employee benefits		6,252						6,252
Due to Management Company		15,494						15,494
Dividends payable		17,819						17,819
Distributions payable		1,054						1,054
Other current liabilities		27,605						27,605
Current portion of secured notes payable		4,297						4,297
Total current liabilities		95,352						95,352
Notes payable, less current portion		1,016,015			175,000			1,191,015
Other liabilities		8,608						8,608
Total liabilities		1,119,975			175,000			1,294,975
Minority interests		52,450						52,450
Series C convertible redeemable preferred stock		99,046						99,046
Stockholders’ equity
Preferred stock		121,250						121,250
Common stock		479						479
Additional paid in capital		737,639						737,639
Unearned and accrued stock compensation		(7,082	)					(7,082	)
Accumulated earnings (deficit)		317						317
Cumulative dividends		(52,671	)					(52,671	)
Total stockholders’ equity		799,932						799,932
Total liabilities and equity	$	2,071,403		$	175,000		$	2,246,403

SUNSTONE HOTEL INVESTORS, INC.

PRO FORMA BALANCE SHEET

September 30, 2005

(Unaudited)

(In thousands)

Notes to Unaudited Pro Forma Balance Sheet as of September 30, 2005

(1) Represents the acquisition of the Century Plaza Hotel, Los Angeles, California:

Cash paid	$	118,000
Debt placed in conjunction with the acquisition		175,000
Purchase price		293,000
Closing costs		2,780
Total costs	$	295,780

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SUNSTONE HOTEL INVESTORS, INC.

PRO FORMA CONDENSED INCOME STATEMENT

For the Nine Months Ended September 30, 2005

(Unaudited)

(In thousands, except per share data)

	Historical			Century Plaza (1)			Pro Forma
REVENUES
Room	$	300,513		$	26,399		$	326,912
Food and beverage		96,448			18,872			115,320
Other operating		33,683			15,491			49,174
Total revenues		430,644			60,762			491,406
OPERATING EXPENSES
Room		65,457			7,020			72,477
Food and beverage		69,263			16,571			85,834
Other hotel		128,732			11,032			139,764
General and administrative
General and administrative—corporate		8,823						8,823
General and administrative—property operations		50,035			8,507			58,542
Amortization of deferred stock compensation		1,480						1,480
Depreciation and amortization		49,784			5,546			55,330
Total operating expenses		373,574			48,676			422,250
Operating income (loss)		57,070			12,086			69,156
Interest and other income		2,614						2,614
Interest expense		(43,290	)		(8,033	)		(51,323	)
Income (loss) from continuing operations before minority interest and income taxes		16,394			4,053			20,447
Minority interest		(1,115	)		142			(973	)
Income (loss) from continuing operations		15,279			4,195			19,474
Preferred stock dividends		(6,886	)					(6,886	)
Income available to common stockholders	$	8,393		$	4,195		$	12,588
Income (loss) per share to common stockholders:
Basic	$	0.22					$	0.26
Common shares outstanding(2):
Basic		37,600						47,871
Diluted		37,904						48,191

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SUNSTONE HOTEL INVESTORS, INC.

PRO FORMA INCOME STATEMENT

For the Nine Months Ended September 30, 2005

(Unaudited)

(In thousands, except per share data)

Notes to Unaudited Pro Forma Income Statement for the Nine Months Ended September 30, 2005

(1) Represents the acquisition of the Century Plaza Hotel, Los Angeles, California:

1a. The information presented represents activity for this property from January 1, 2005 to September 30, 2005, and includes guaranteed payments that would have been made by Hyatt Corporation under the management agreement. We acquired this property on October 5, 2005.

1b. Reflects the net change in interest resulting from the new debt incurred in connection with the purchase of the Century Plaza Hotel, Los Angeles, California

Actual interest expense	$	43,290
Net increase in interest expense		8,033
Pro forma interest expense	$	51,323

1c. Record minority interest for the pro forma period:

Pro forma income available to minority interest holders and common stockholders	$	13,561
Minority ownership percentage		7.17	%
Minority interest	$	973

(2) The shares used in the basic and diluted income available to common stockholders are as follows:

Basic shares outstanding as of September 30, 2005	47,871
Unvested restricted stock grants made to employees	320
Diluted shares outstanding	48,191

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