Sunstone Hotel Investors (SHO) 8-K Results of Operations and Financial Condition

Exhibit 99.1

For Additional Information:

Bryan Giglia

Vice President – Corporate Finance

Sunstone Hotel Investors, Inc.

(949) 369-4204

SUNSTONE HOTEL INVESTORS REPORTS RESULTS OF OPERATIONS FOR

SECOND QUARTER 2008

Total Revenue increases 4.6%

Total Hotel RevPAR increases 3.7%

Announces $100 million increase to stock repurchase program

SAN CLEMENTE, CA – August 5, 2008 – Sunstone Hotel Investors, Inc. (the “Company”) (NYSE: SHO) today announced results of operations for the second quarter ended June 30, 2008.

Second Quarter 2008 Highlights (as compared to second quarter 2007):

• Total revenue increased 4.6% to $255.2 million.

• Total portfolio RevPAR increased 3.7% to $130.24.

• Comparable portfolio RevPAR increased 2.6% to $128.45.

• Net income decreased 7.1% to $69.2 million.

• Income available to common stockholders decreased 7.6% to $61.1 million.

• Income available to common stockholders per diluted share decreased 4.5% from $1.10 to $1.05.

• Adjusted EBITDA decreased 1.0% to $85.2 million.

• Adjusted FFO available to common stockholders increased 5.3% to $54.1 million.

• Adjusted FFO available to common stockholders per diluted share increased 8.8% from $0.80 to $0.87.

• Total hotel operating profit margin increased 80 bps to 31.7%.

• Comparable hotel operating profit margin increased 20 bps to 31.6%.

Robert A. Alter, Chief Executive Officer and Executive Chairman, stated, “We are pleased with our portfolio’s performance during the second quarter, especially considering the overall softness in industry fundamentals.”

“During the quarter, the Company announced the selection of Art Buser as President. Art began his employment with Sunstone on July 21 and he will become CEO in 2009 after a transition period during which I will remain CEO. I’ve known Art for many years and consider him to be an exceptional leader, with the right values, integrity and intelligence to lead Sunstone for many years to come,” Alter said.

“Also during the quarter, after receiving an unsolicited purchase offer, we sold the 726-room Hyatt Regency Century Plaza for gross proceeds of $366.5 million. As we announced on June 2^nd, this sale marks the completion of a highly successful investment for Sunstone through which we realized an exceptional return after renovating, rebranding, and repositioning a previously underperforming hotel. As a result of this sale, we ended the

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quarter in a strong liquidity position, with $443.7 million of cash and cash equivalents on hand. Subsequent to the end of the quarter, we invested approximately $129 million to repurchase approximately 7.4 million shares of our common stock at a price significantly below our estimated net asset value. As evidenced by our announcement today of an additional $100 million stock repurchase authorization, we continue to believe that our stock is a very compelling investment alternative,” Alter said.

“We believe our balance sheet provides strong dividend support and capital resources to take advantage of investment opportunities we expect to arise during this phase of the lodging cycle as less well-capitalized hotel owners become compelled to sell,” Alter said. “The lodging industry is a street corner-by-street corner business. We believe we have the best growth potential among our peers. Our assets are located on great street corners, our capital deployment strategy is focused on intelligent repositioning, rebranding and renovating projects, and our asset management expertise is second to none. Our current strategy is to focus on internal cost efficiencies while maintaining a conservative balance sheet and a disciplined approach to investments.”

SELECTED FINANCIAL DATA

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

(unaudited)

	Three Months Ended June 30,								Six Months Ended June 30,
	2008			2007			% Change		2008			2007			% Change
Total Revenue	$	255.2		$	244.1		4.6	%	$	479.7		$	448.2		7.0	%
Total RevPAR	$	130.24		$	125.60		3.7	%	$	121.47		$	117.91		3.0	%
Comparable RevPAR (1)	$	128.45		$	125.22		2.6	%	$	119.62		$	117.66		1.7	%
Income available to common stockholders	$	61.1		$	66.2		(7.6	)%	$	58.6		$	67.1		(12.7	)%
Income available to common stockholders per diluted share	$	1.05		$	1.10		(4.5	)%	$	1.00		$	1.13		(11.5	)%
EBITDA	$	127.3		$	138.2		(7.9	)%	$	188.7		$	199.0		(5.2	)%
Adjusted EBITDA	$	85.2		$	86.1		(1.0	)%	$	146.6		$	146.9		(0.2	)%
FFO available to common stockholders	$	54.1		$	46.3		16.8	%	$	84.3		$	76.2		10.6	%
Adjusted FFO available to common stockholders	$	54.1		$	51.4		5.3	%	$	84.3		$	81.3		3.7	%
FFO available to common stockholders per diluted share (2)	$	0.87		$	0.72		20.8	%	$	1.35		$	1.20		12.5	%
Adjusted FFO available to common stockholders per diluted share (2)	$	0.87		$	0.80		8.8	%	$	1.35		$	1.28		5.5	%
Total Hotel Operating Profit Margin		31.7	%		30.9	%	80 bps			28.9	%		28.5	%	40 bps
Comparable Hotel Operating Profit Margin		31.6	%		31.4	%	20 bps			28.8	%		29.0	%	-20 bps

(1) Includes 42 “Comparable” hotels (including prior ownership periods). Excludes two “Non-comparable” hotels that experienced material and prolonged business interruption during either the current or preceding calendar year (Renaissance Baltimore and Renaissance Orlando).

(2) Reflects series C convertible preferred stock on an “as-converted” basis.

Contemporaneously with this press release, the Company has filed its Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2008 with the Securities and Exchange Commission.

Disclosure regarding the non-GAAP financial measures in this release is included on page 6. Disclosure regarding the Comparable Portfolio is included on page 7 of this release. Reconciliations of non-GAAP financial measures to the most comparable GAAP measure for each of the periods presented are included on pages 10 through 12 of this release.

Performance Relative to Guidance

The following table compares our guidance for the second quarter 2008 (as updated on June 2, 2008) to our actual results.

	Guidance	Actual Second Quarter 2008
Total Portfolio RevPAR Growth	4.0% to 6.0%	3.7%
Comparable RevPAR Growth	4.0% to 6.0%	2.6%
Adjusted EBITDA	$84.0 million to $86.8 million	$85.2 million
Adjusted FFO available to common stockholders per diluted share	$0.84 to $0.88	$0.87
Total Hotel Operating Profit Margin	+50 bps to +100 bps	+80 bps
Comparable Hotel Operating Profit Margin	+50 bps to +100 bps	+ 20 bps

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For the second quarter 2008, total portfolio RevPAR increased 3.7% as compared to the second quarter 2007, driven by an increase of 4.0% in average daily room rate offset by a decrease of 20 basis points in occupancy. Comparable RevPAR, excluding two “Non-comparable” hotels that experienced material and prolonged business interruption during either the current or preceding calendar year (the Renaissance Baltimore and the Renaissance Orlando), increased 2.6% as compared to the second quarter 2007, driven by an increase of 3.9% in average daily room rate offset by a decrease of 100 basis points in occupancy.

For the second quarter 2008, total hotel operating profit margins increased 80 basis points as compared to the second quarter 2007 (from 30.9% to 31.7%). Comparable hotel operating profit margins increased 20 basis points as compared to the second quarter 2007 (from 31.4% to 31.6%) (see page 12 for a reconciliation of hotel operating income to the comparable GAAP measure).

Acquisitions, Dispositions, Investments and Financings

On May 30, 2008, the Company sold the Hyatt Regency Century Plaza for gross proceeds of $366.5 million, resulting in a net gain of $42.1 million. As of June 30, 2008, the net proceeds from this sale were presented on the Company’s balance sheet as cash proceeds held by accommodator to facilitate a potential tax-deferred exchange. Subsequent to the end of the second quarter and upon the expiration of the exchange asset identification period, the Company withdrew the proceeds from the accommodator, and used a portion to repay credit facility borrowings used to fund the Tender Offer described below and other general corporate purposes. As a result, the remaining proceeds of approximately $221.0 million are currently held as unrestricted cash and cash equivalents. By withdrawing the funds from the accommodator, the Company will recognize a tax gain on the sale of the property. Internal Revenue Service rules generally require a REIT, at its election, either to pay tax on any capital gains recognized during the year, or to declare a special distribution of those capital gains to its stockholders before the year end. At this time, the Company continues to analyze these options.

On February 21, 2008, the Company announced that its board of directors had authorized the Company to repurchase up to $150 million of its common stock during 2008 (the “2008 Repurchase Program”). On July 8, 2008, the Company completed a modified “Dutch Auction” tender offer (the “Tender Offer”) to purchase up to 6,200,000 shares of its common stock at a price per share not less than $16.75 and not greater than $19.25. The Tender Offer expired on June 27, 2008, and on July 8, 2008, the Company announced the final results and settlement of the Tender Offer. In accordance with the terms and conditions of the Tender Offer, the Company accepted for purchase 7,374,179 shares (6,200,000 shares initially offered to be purchased plus an additional 1,174,179 shares – the maximum increase permitted without amending or extending the Tender Offer), at a price of $17.50 per share, for a total cost of $129.0 million (excluding fees and costs of the Tender Offer). As noted above, the Tender Offer was initially funded with a draw on the Company’s credit facility, which was subsequently repaid using a portion of the net proceeds from the sale of the Hyatt Regency Century Plaza. As of August 5, 2008, the Company has repurchased 8,108,486 shares since the beginning of the year. On August 5, 2008, the board of directors authorized an increase of $100 million to the 2008 Repurchase Program. With this increase, the Company has $109.2 million remaining under the 2008 Repurchase Program.

Considering the economic environment, the Company intends to invest excess cash on a measured basis.

Balance Sheet/Liquidity Update

As of June 30, 2008, the Company had approximately $443.7 million of cash and cash equivalents (including cash proceeds held by an accommodator to facilitate a potential tax-deferred exchange and restricted cash). As of June 30, 2008, the Company had no outstanding indebtedness under its credit facility, and had $5.3 million in outstanding irrevocable letters of credit backed by the credit facility, leaving, as of that date, up to $194.7 million available under the credit facility. On June 30, 2008, total assets were $3.0 billion, including $2.5 billion of net investments in hotel properties, total debt was $1.7 billion and stockholders’ equity was $1.1 billion.

Hotel Renovations

During the second quarter 2008, the Company invested $27.9 million in capital projects.

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Management Succession

On June 19, 2008, the Company announced the appointment of Arthur L. Buser as President of the Company effective July 21, 2008. Upon completion of a transition period that is expected to conclude no later than July 1, 2009, Mr. Buser will be appointed Chief Executive Officer. During the transition period, Robert A. Alter will remain Chief Executive Officer and Executive Chairman of the board of directors. Upon Mr. Buser’s appointment to Chief Executive Officer, Mr. Alter will remain as Executive Chairman.

Outlook

The Company is providing guidance for the third quarter and full year 2008 at this time but does not undertake to make updates for any subsequent developments in its business. Achievement of the anticipated results is subject to risks and uncertainties, including those disclosed in the Company’s filings with the Securities and Exchange Commission. The Company’s guidance does not take into account any additional hotel acquisitions, dispositions, stock repurchases or financings during 2008. As the level of demand for U.S. lodging is highly correlated to the overall U.S. economy, changes in U.S. economic performance could have a material effect on the Company’s results of operations.

Third Quarter 2008 Outlook

For the third quarter 2008, the Company expects total portfolio RevPAR to range from a decrease of approximately 2.0% to flat as compared to the third quarter 2007 and Comparable RevPAR, excluding two “Non-comparable” hotels (Renaissance Baltimore and the Renaissance Orlando), to range from a decrease of approximately 1.0% to an increase of approximately 1.0% as compared to the third quarter 2007 (see page 7 for an explanation of measures relating to comparability). Additionally, for the third quarter 2008:

• Income available to common stockholders is expected to be approximately $4.3 million to $6.5 million;

• Adjusted EBITDA is expected to be approximately $67.7 million to $69.9 million;

• Adjusted FFO available to common stockholders is expected to be approximately $36.3 million to $38.5 million;

• Adjusted FFO available to common stockholders per diluted share is expected to be approximately $0.65 to $0.69;

• Total hotel operating profit margins are expected to decrease approximately 50 - 100 basis points compared to the third quarter 2007; and

• Comparable hotel operating profit margins are expected to decrease approximately 50 - 100 basis points compared to the third quarter 2007.

Full Year 2008 Outlook

For the full year 2008, the Company expects total portfolio RevPAR to range from a decrease of approximately 1.0% to an increase of approximately 1.5% compared to the full year 2007 and Comparable RevPAR, excluding two “Non-comparable” hotels (Renaissance Baltimore and the Renaissance Orlando), to range from a decrease of approximately 1.0% to an increase of approximately 1.5% compared to the full year 2007. Additionally, for the full year 2008:

• Income available to common stockholders is expected to be approximately $68.1 million to $85.1 million;

• Adjusted EBITDA is expected to be approximately $285.4 million to $302.4 million;

• Adjusted FFO available to common stockholders is expected to be approximately $160.3 million to $177.3 million;

• Adjusted FFO available to common stockholders per diluted share is expected to be approximately $2.72 to $3.00;

• Total hotel operating profit margins are expected to range from a decrease of approximately 100 basis points to flat compared to the prior year; and

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• Comparable hotel operating profit margins are expected to range from a decrease of approximately 100 basis points to flat compared to the prior year.

Dividend Update

On August 5, 2008, the Company declared a dividend of $0.35 per share payable to its common stockholders. The Company also declared a dividend of $0.50 per share payable to its Series A cumulative redeemable preferred stockholders and a dividend of $0.404 per share payable to its Series C cumulative convertible redeemable preferred stockholders. The dividends will be paid on October 15, 2008 to stockholders of record on September 30, 2008.

The level of any future quarterly dividends will be determined by the Company’s board of directors after considering operating results, expected capital requirements and risks affecting the Company’s business.

Earnings Call

The Company will host a conference call to discuss second quarter results on August 5, 2008, at 2 p.m. PDT. A live web cast of the call will be available via the Investor Relations section of the Company’s website atwww.sunstonehotels.com. Alternatively, investors may dial 1-800-366-7449 (for domestic callers) or 303-262-2139 (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. is a lodging real estate investment trust (“REIT”) that, as of the date hereof, has interests in 45 hotels comprised of 15,354 rooms primarily in the upper-upscale segment operated under nationally recognized brands, such as Marriott, Hilton, Hyatt, Fairmont and Starwood. For further information, please visit the Company’s website atwww.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 possibility of a U.S. recession; potential terrorist attacks, which would affect occupancy rates at our hotels and the demand for hotel products and services; operating risks associated with the hotel business; risks associated with the level of our indebtedness and our ability to meet covenants in our debt agreements; relationships with property managers and franchisors; our ability to maintain our properties in a first-class manner, including meeting capital expenditure requirements; our ability to compete effectively in areas such as access, location, quality of accommodations and room rate structures; changes in travel patterns, taxes and government regulations, which influence or determine wages, prices, construction procedures and costs; our ability to identify, successfully compete for and complete acquisitions; the performance of 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 5, 2008, 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.

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Non-GAAP Financial Measures

We present the following non-GAAP financial measures that we believe are useful to investors as key measures of our operating performance: (1) Earnings Before Interest Expense, Taxes, Depreciation and Amortization, or EBITDA; (2) Adjusted EBITDA (as defined below); (3) Funds From Operations, or FFO; (4) Adjusted FFO (as defined below); and (5) hotel operating income and hotel operating profit margin for the purpose of our operating margins.

EBITDA represents income available to common stockholders excluding: (1) preferred stock dividends; (2) amortization of deferred stock compensation; (3) interest expense (including prepayment penalties, if any); (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) the impact of any gain or loss from asset sales; (2) impairment charges; and (3) other adjustments we have identified in this release. We believe EBITDA and Adjusted EBITDA are useful to investors in evaluating our operating performance because these measures help investors evaluate and compare the results of our operations from period to period by removing the impact of our capital structure (primarily interest expense and preferred stock dividends) and our asset base (primarily depreciation and amortization) from our operating results. We also use EBITDA and Adjusted EBITDA as measures in determining the value of hotel acquisitions and dispositions. A reconciliation of income available to common stockholders to EBITDA and Adjusted EBITDA is set forth on pages 10 and 11. A reconciliation and the components of hotel operating income and hotel operating profit margin are set forth on page 12. We believe hotel operating income and hotel operating profit margin are also useful to investors in evaluating our property-level operating performance.

We compute FFO in accordance with standards established by the National Association of Real Estate Investment Trusts, or NAREIT, an industry trade group. The Board of Governors of NAREIT in its March 1995 White Paper (as clarified in November 1999 and April 2002) defines FFO to mean net income (loss) (computed in accordance with GAAP), excluding gains and losses from sales of property, plus real estate-related depreciation and amortization (excluding amortization of deferred financing costs), and after adjustment for unconsolidated partnerships and joint ventures. We also present Adjusted FFO, which excludes prepayment penalties, written-off deferred financing costs, impairment losses and other adjustments we have identified in this release. We believe that the presentation of FFO and Adjusted FFO provide useful information to investors regarding our operating performance because they are measures of our operations without regard to specified non-cash items such as real estate depreciation and amortization, gain or loss on sale of assets and certain other items which we believe are not indicative of the performance of our underlying hotel properties. We believe that these items are more representative of our asset base and our acquisition and disposition activities than our ongoing operations. We also use FFO as one measure in determining our results after taking into account the impact of our capital structure. A reconciliation of income available to common stockholders to FFO and Adjusted FFO is set forth on pages 10 and 11.

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

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Comparable Portfolio Information

The Company’s definition of “Comparable Portfolio” includes those hotels owned as of the reporting date which have not experienced material and prolonged business interruption due to renovations, re-branding or property damage during either the calendar year presented or the preceding calendar year. For the third quarter and full year 2008, the Comparable Portfolio is expected to exclude the Renaissance Orlando and the Renaissance Baltimore. We refer to these excluded hotels as “Non-comparable” hotels. Also, the revenue and expense items associated with the Company’s two commercial laundry facilities, BuyEfficient, LLC (for 2007), and other miscellaneous non-hotel items have been shown below the hotel operating income line in presenting comparable hotel operating margins. Management believes the definition of Comparable Portfolio as well as the calculation of hotel operating income results in a more accurate presentation of the trends in RevPAR and comparable hotel operating margins of the Company’s stabilized portfolio of hotels. See page 12 for a reconciliation of hotel operating income to the comparable GAAP measure.

***Tables to Follow***

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Sunstone Hotel Investors, Inc.

Consolidated Balance Sheets

(In thousands, except share data)

	June 30, 2008			December 31, 2007
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	38,940		$	67,412
Cash proceeds held by accommodator		361,017			—
Restricted cash		43,783			48,442
Accounts receivable, net		34,888			36,703
Due from affiliates		78			932
Inventories		2,990			3,190
Prepaid expenses		5,997			9,021
Total current assets		487,693			165,700
Investment in hotel properties, net		2,467,761			2,786,821
Other real estate, net		15,033			14,526
Investment in unconsolidated joint ventures		29,286			35,816
Deferred financing costs, net		12,136			12,964
Goodwill		16,251			16,251
Other assets, net		15,457			17,074
Total assets	$	3,043,617		$	3,049,152
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued expenses	$	28,837		$	28,540
Accrued payroll and employee benefits		10,522			18,133
Due to Interstate SHP		13,600			15,051
Dividends payable		25,775			25,995
Other current liabilities		37,784			39,817
Current portion of notes payable		11,396			9,815
Total current liabilities		127,914			137,351
Notes payable, less current portion		1,706,707			1,712,336
Other liabilities		6,144			6,034
Total liabilities		1,840,765			1,855,721
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, 2008 and December 31, 2007, liquidation preference of $24.375 per share		99,596			99,496
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, 2008 and December 31, 2007, stated at liquidation preference of $25.00 per share		176,250			176,250
Common stock, $0.01 par value, 500,000,000 shares authorized, 58,196,122 shares issued and outstanding at June 30, 2008 and 58,815,271 shares issued and outstanding at December 31, 2007		582			588
Additional paid in capital		978,167			987,554
Retained earnings		261,481			191,208
Cumulative dividends		(313,224	)		(261,665	)
Total stockholders’ equity		1,103,256			1,093,935
Total liabilities and stockholders’ equity	$	3,043,617		$	3,049,152

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Sunstone Hotel Investors, Inc.

Unaudited Consolidated Income Statements

(In thousands, except per share data)

	Three Months Ended June 30,						Six Months Ended June 30,
	2008			2007			2008			2007
Revenues
Room	$	171,111		$	163,176		$	319,057		$	297,921
Food and beverage		68,111			65,597			128,510			121,356
Other operating		16,014			15,292			32,100			28,890
Total revenues		255,236			244,065			479,667			448,167
Operating expenses
Room		36,095			34,733			69,756			65,114
Food and beverage		46,566			44,582			91,573			84,388
Other operating		8,973			9,885			18,072			19,205
Advertising and promotion		13,174			12,663			26,247			24,378
Repairs and maintenance		9,222			9,021			18,316			17,335
Utilities		8,802			7,775			17,766			15,394
Franchise costs		9,963			9,361			17,926			16,756
Property tax, ground lease and insurance		14,478			13,572			28,191			26,035
Property general and administrative		27,631			27,888			54,327			52,001
Corporate overhead		5,264			9,442			11,987			16,718
Depreciation and amortization		28,919			27,065			58,555			51,498
Total operating expenses		209,087			205,987			412,716			388,822
Operating income		46,149			38,078			66,951			59,345
Equity in net losses of unconsolidated joint ventures		(56	)		(110	)		(1,522	)		(1,461	)
Interest and other income		1,101			678			1,679			1,337
Interest expense		(24,578	)		(23,706	)		(49,060	)		(43,530	)
Income from continuing operations		22,616			14,940			18,048			15,691
Income from discontinued operations		46,602			59,532			52,225			63,609
Net income		69,218			74,472			70,273			79,300
Preferred stock dividends and accretion		(5,232	)		(5,188	)		(10,464	)		(10,375	)
Undistributed income allocated to Series C preferred stock		(2,858	)		(3,113	)		(1,226	)		(1,799	)
Income available to common stockholders	$	61,128		$	66,171		$	58,583		$	67,126
Basic per share amounts:
Income from continuing operations available to common stockholders	$	0.30		$	0.16		$	0.13		$	0.09
Income from discontinued operations		0.75			0.94			0.87			1.05
Basic income available to common stockholders per common share	$	1.05		$	1.10		$	1.00		$	1.14
Diluted per share amounts:
Income from continuing operations available to common stockholders	$	0.25		$	0.11		$	0.11		$	0.06
Income from discontinued operations		0.80			0.99			0.89			1.07
Diluted income available to common stockholders per common share	$	1.05		$	1.10		$	1.00		$	1.13
Weighted average common shares outstanding:
Basic		58,186			60,230			58,452			59,022
Diluted		58,276			60,364			58,546			59,175
Dividends paid per common share	$	0.35		$	0.32		$	0.70		$	0.64

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Sunstone Hotel Investors, Inc.

Reconciliation of Income Available to Common Stockholders to Non-GAAP Financial Measures

(Unaudited and in thousands except per share amounts)

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

	Three Months Ended June 30,						Six Months Ended June 30,
	2008			2007			2008			2007
Income available to common stockholders	$	61,128		$	66,171		$	58,583		$	67,126
Series A and C preferred stock dividends		5,232			5,188			10,464			10,375
Undistributed income allocated to Series C preferred stock		2,858			3,113			1,226			1,799
Amortization of deferred stock compensation		1,089			1,861			2,138			3,106
Continuing operations:
Depreciation and amortization		28,919			27,065			58,555			51,498
Interest expense		24,159			23,388			48,222			42,949
Amortization of deferred financing fees		419			318			838			581
Unconsolidated joint ventures:
Depreciation and amortization		1,263			1,233			2,537			2,466
Interest expense		1,236			1,957			2,757			3,874
Amortization of deferred financing fees		327			330			725			660
Amortization of deferred stock compensation		64			—			64			—
Discontinued operations:
Depreciation and amortization		653			3,207			2,592			6,360
Interest expense		—			3,500			—			7,383
Amortization of deferred financing fees		—			44			—			69
Write-off of deferred financing fees		—			362			—			362
Prepayment penalties		—			415			—			415
EBITDA		127,347			138,152			188,701			199,023
Gain on sale of assets		(42,108	)		(55,938	)		(42,108	)		(55,938	)
Costs associated with CEO succession and executive officer severance		—			3,864			—			3,864
		(42,108	)		(52,074	)		(42,108	)		(52,074	)
Adjusted EBITDA	$	85,239		$	86,078		$	146,593		$	146,949
Reconciliation of Income Available to Common Stockholders to FFO and Adjusted FFO
Income available to common stockholders	$	61,128		$	66,171		$	58,583		$	67,126
Series C preferred stock dividends		1,707			1,662			3,414			3,325
Undistributed income allocated to Series C preferred stock		2,858			3,113			1,226			1,799
Real estate depreciation and amortization - continuing operations		28,644			26,847			58,107			51,059
Real estate depreciation and amortization - unconsolidated joint ventures		1,251			1,233			2,525			2,466
Real estate depreciation and amortization - discontinued operations		653			3,207			2,592			6,360
Gain on sale of assets		(42,108	)		(55,938	)		(42,108	)		(55,938	)
FFO available to common stockholders		54,133			46,295			84,339			76,197
Discontinued operations:
Write-off of deferred financing fees		—			362			—			362
Prepayment penalties		—			415			—			415
Costs associated with CEO succession and executive officer severance		—			3,864			—			3,864
Amortization of deferred stock compensation associated with executive officer severance		—			437			—			437
		—			5,078			—			5,078
Adjusted FFO available to common stockholders	$	54,133		$	51,373		$	84,339		$	81,275
FFO available to common stockholders per diluted share	$	0.87		$	0.72		$	1.35		$	1.20
Adjusted FFO available to common stockholders per diluted share	$	0.87		$	0.80		$	1.35		$	1.28
Diluted weighted average shares outstanding (1)		62,379			64,467			62,648			63,277

(1) Diluted weighted average shares outstanding includes the Series C Convertible Preferred Stock on an as-converted basis. Additionally, during the third quarter 2007, the Company revised its methodology for computation of diluted earnings per share by applying the treasury stock method to unvested restricted stock awards. As a result of the revision, the unvested restricted stock awards for purposes of calculating FFO and Adjusted FFO available to common stockholders per diluted share have decreased by 496,000 and 402,000 shares for the three and six months ended June 30, 2007, respectively.

10

Sunstone Hotel Investors, Inc.

Reconciliation of Income Available to Common Stockholders to Non-GAAP Financial Measures

Guidance for the Quarter Ending September 30, 2008 and Full Year 2008

(Unaudited and in thousands except per share amounts)

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

	Quarter Ending September 30, 2008				Full Year December 31, 2008
	Low End of Range		High End of Range		Low End of Range			High End of Range
Income available to common stockholders	$	4,300	$	6,500	$	68,100		$	85,100
Series A preferred stock dividends		3,500		3,500		14,100			14,100
Series C preferred stock dividends		1,700		1,700		6,700			6,700
Undistributed income allocated to Series C preferred stock		—		—		1,200			1,200
Amortization of deferred stock compensation		1,300		1,300		4,600			4,600
Continuing operations:
Depreciation and amortization		29,200		29,200		119,400			119,400
Interest expense		24,300		24,300		96,700			96,700
Amortization of deferred financing fees		400		400		1,700			1,700
Unconsolidated joint venture:
Depreciation and amortization		1,300		1,300		5,200			5,200
Interest expense		1,300		1,300		5,300			5,300
Amortization of deferred financing fees		400		400		1,700			1,700
Amortization of deferred stock compensation		—		—		100			100
Discontinued operations:
Depreciation and amortization		—		—		2,600			2,600
EBITDA		67,700		69,900		327,400			344,400
Gain on sale of assets		—		—		(42,000	)		(42,000	)
Adjusted EBITDA	$	67,700	$	69,900	$	285,400		$	302,400
Reconciliation of Income Available to Common Stockholders to FFO and Adjusted FFO
Income available to common stockholders	$	4,300	$	6,500	$	68,100		$	85,100
Series C preferred stock dividends		1,700		1,700		6,700			6,700
Undistributed income allocated to Series C preferred stock		—		—		1,200			1,200
Continuing operations:
Real estate depreciation and amortization		29,000		29,000		118,500			118,500
Unconsolidated joint venture:
Real estate depreciation and amortization		1,300		1,300		5,200			5,200
Discontinued operations:
Depreciation and amortization		—		—		2,600			2,600
FFO available to common stockholders		36,300		38,500		202,300			219,300
Gain on sale of assets		—		—		(42,000	)		(42,000	)
Adjusted FFO available to common stockholders	$	36,300	$	38,500	$	160,300		$	177,300
Adjusted FFO available to common stockholders per diluted share	$	0.65	$	0.69	$	2.72		$	3.00
Diluted weighted average shares outstanding (1)		55,621		55,621		59,015			59,015

(1) Diluted weighted average shares outstanding includes the Series C Convertible Preferred Stock on an as-converted basis.

11

Sunstone Hotel Investors, Inc.

Comparable Hotel Operating Margins

(Unaudited and in thousands except hotels and rooms)

	Three Months Ended June 30, 2008									Three Months Ended June 30, 2007
	Actual June 30, 2008 (1)			Non-comparable Hotels (2)			Comparable June 30, 2008 (3)			Actual June 30, 2007 (4)			Prior Ownership Adjustments (5)			Subtotal			Non-comparable Hotels (2)			Comparable June 30, 2007 (3)
Number of Hotels		44			(2	)		42			44						44			(2	)		42
Number of Rooms		14,894			(1,403	)		13,491			14,894						14,894			(1,403	)		13,491
Hotel operating profit margin (7)		31.7	%		32.8	%		31.6	%		30.9	%		29.7	%		30.9	%		26.5	%		31.4	%
Hotel Revenues
Room revenue	$	171,111		$	(17,651	)	$	153,460		$	163,176		$	1,727		$	164,903		$	(15,255	)	$	149,648
Food and beverage revenue		68,111			(10,304	)		57,807			65,597			929			66,526			(8,809	)		57,717
Other operating revenue		12,141			(1,272	)		10,869			11,276			63			11,339			(895	)		10,444
Total Hotel Revenues		251,363			(29,227	)		222,136			240,049			2,719			242,768			(24,959	)		217,809
Hotel Expenses
Room expense		36,343			(3,660	)		32,683			35,034			416			35,450			(3,359	)		32,091
Food and beverage expense		46,578			(6,471	)		40,107			44,612			617			45,229			(5,707	)		39,522
Other hotel expense		61,454			(6,860	)		54,594			59,177			573			59,750			(6,249	)		53,501
General and administrative expense		27,183			(2,647	)		24,536			27,138			305			27,443			(3,042	)		24,401
Total Hotel Expenses		171,558			(19,638	)		151,920			165,961			1,911			167,872			(18,357	)		149,515
Hotel Operating Income		79,805			(9,589	)		70,216			74,088			808			74,896			(6,602	)		68,294
Non-hotel operating income		527						527			497						497						497
Corporate overhead		(5,264	)		114			(5,150	)		(9,442	)					(9,442	)		38			(9,404	)
Depreciation and amortization		(28,919	)		3,573			(25,346	)		(27,065	)					(27,065	)		3,153			(23,912	)
Operating Income		46,149			(5,902	)		40,247			38,078			808			38,886			(3,411	)		35,475
Equity in net losses of unconsolidated joint ventures		(56	)					(56	)		(110	)					(110	)					(110	)
Interest and other income		1,101			(15	)		1,086			678						678			(80	)		598
Interest expense		(24,578	)		1,239			(23,339	)		(23,706	)					(23,706	)		1,250			(22,456	)
Income from discontinued operations		46,602						46,602			59,532						59,532						59,532
Net Income	$	69,218		$	(4,678	)	$	64,540		$	74,472		$	808		$	75,280		$	(2,241	)	$	73,039
	Six Months Ended June 30, 2008									Six Months Ended June 30, 2007
	Actual June 30, 2008 (1)			Non-comparable Hotels (2)			Comparable June 30, 2008 (3)			Actual June 30, 2007 (4)			Prior Ownership Adjustments (6)			Subtotal			Non-comparable Hotels (2)			Comparable June 30, 2007 (3)
Number of Hotels		44			(2	)		42			44						44			(2	)		42
Number of Rooms		14,894			(1,403	)		13,491			14,894						14,894			(1,403	)		13,491
Hotel operating profit margin (7)		28.9	%		30.1	%		28.8	%		28.8	%		21.2	%		28.5	%		24.5	%		29.0	%
Hotel Revenues
Room revenue	$	319,057		$	(33,103	)	$	285,954		$	297,921		$	10,295		$	308,216		$	(28,279	)	$	279,937
Food and beverage revenue		128,510			(20,207	)		108,303			121,356			5,213			126,569			(16,957	)		109,612
Other operating revenue		24,286			(2,606	)		21,680			20,907			981			21,888			(1,846	)		20,042
Total Hotel Revenues		471,853			(55,916	)		415,937			440,184			16,489			456,673			(47,082	)		409,591
Hotel Expenses
Room expense		70,237			(6,876	)		63,361			65,701			2,815			68,516			(6,432	)		62,084
Food and beverage expense		91,598			(12,926	)		78,672			84,453			3,743			88,196			(11,289	)		76,907
Other hotel expense		120,096			(13,175	)		106,921			112,911			4,257			117,168			(11,968	)		105,200
General and administrative expense		53,451			(6,126	)		47,325			50,467			2,178			52,645			(5,846	)		46,799
Total Hotel Expenses		335,382			(39,103	)		296,279			313,532			12,993			326,525			(35,535	)		290,990
Hotel Operating Income		136,471			(16,813	)		119,658			126,652			3,496			130,148			(11,547	)		118,601
Non-hotel operating income		1,022						1,022			909						909						909
Corporate overhead		(11,987	)		174			(11,813	)		(16,718	)					(16,718	)		51			(16,667	)
Depreciation and amortization		(58,555	)		7,090			(51,465	)		(51,498	)					(51,498	)		6,264			(45,234	)
Operating Income		66,951			(9,549	)		57,402			59,345			3,496			62,841			(5,232	)		57,609
Equity in net losses of unconsolidated joint ventures		(1,522	)					(1,522	)		(1,461	)					(1,461	)					(1,461	)
Interest and other income		1,679			(37	)		1,642			1,337						1,337			(172	)		1,165
Interest expense		(49,060	)		2,482			(46,578	)		(43,530	)					(43,530	)		2,474			(41,056	)
Income from discontinued operations		52,225						52,225			63,609						63,609						63,609
Net Income	$	70,273		$	(7,104	)	$	63,169		$	79,300		$	3,496		$	82,796		$	(2,930	)	$	79,866

(1) Represents our ownership results for the 44 hotels we owned as of the end of the period.

(2) Represents our ownership results for the 2 “non-comparable” hotels that experienced material and prolonged business interruption during either the current or preceding calendar year (Renaissance Baltimore and Renaissance Orlando).

(3) Represents our ownership and prior ownership results (for the 2007 period) for 42 “comparable” hotels we owned as of June 30, 2008, excluding the 2 “non-comparable” hotels that experienced material and prolonged business interruption during either the current or preceding calendar year (Renaissance Baltimore and Renaissance Orlando).

(4) Represents our ownership results for the 44 hotels we owned as of the end of the period.

(5) Represents prior ownership results for the 1 hotel acquired subsequent to March 31, 2007 (Marriott Boston Quincy).

(6) Represents prior ownership results for the 3 hotels acquired during the first six months of 2007 (Renaissance LAX, Marriott Long Wharf and Marriott Boston Quincy).

(7) Hotel operating profit margin is calculated as hotel operating income divided by total hotel revenues.

12

Sunstone Hotel Investors, Inc.

Comparable Portfolio Operating Statistics by Region

(Unaudited)

			Three Months Ended June 30, 2008						Three Months Ended June 30, 2007						Percent Change in Comparable RevPAR
Region	Number of Hotels	Number of Rooms	Occupancy Percentages		Average Daily Rate		Comparable RevPAR		Occupancy Percentages		Average Daily Rate		Comparable RevPAR
California	17	4,803	81.1	%	$	154.15	$	125.02	81.1	%	$	151.23	$	122.65	1.9	%
Other West (1)	7	2,123	77.6	%		116.98		90.78	80.6	%		106.09		85.51	6.2	%
Midwest (2)	8	2,500	68.4	%		144.97		99.16	69.5	%		141.82		98.56	0.6	%
Middle Atlantic (3)	8	3,476	83.7	%		222.42		186.17	84.6	%		212.84		180.06	3.4	%
South (4)	2	589	78.1	%		117.46		91.74	82.1	%		121.00		99.34	-7.7	%
Total Comparable Portfolio	42	13,491	78.7	%	$	163.22	$	128.45	79.7	%	$	157.12	$	125.22	2.6	%
			Six Months Ended June 30, 2008						Six Months Ended June 30, 2007						Percent Change in Comparable RevPAR
Region	Number of Hotels	Number of Rooms	Occupancy Percentages		Average Daily Rate		Comparable RevPAR		Occupancy Percentages		Average Daily Rate		Comparable RevPAR
California	17	4,803	79.7	%	$	151.49	$	120.74	78.7	%	$	150.23	$	118.23	2.1	%
Other West (1)	7	2,123	77.1	%		122.22		94.23	80.3	%		111.60		89.61	5.2	%
Midwest (2)	8	2,500	64.3	%		138.92		89.33	67.2	%		133.73		89.87	-0.6	%
Middle Atlantic (3)	8	3,476	75.3	%		215.48		162.26	78.1	%		203.77		159.14	2.0	%
South (4)	2	589	78.6	%		119.03		93.56	81.9	%		122.76		100.54	-6.9	%
Total Comparable Portfolio	42	13,491	75.2	%	$	159.07	$	119.62	76.8	%	$	153.20	$	117.66	1.7	%

(1) Includes Oregon, Texas and Utah.

(2) Includes Illinois, Michigan and Minnesota.

(3) Includes Maryland, Massachusetts, New York, Pennsylvania, Virginia and District of Columbia. Excludes the Renaissance Baltimore which experienced material and prolonged business interruption during either the current or preceding calendar year.

(4) Includes Florida and Georgia. Excludes the Renaissance Orlando which experienced material and prolonged business interruption during either the current or preceding calendar year.

13

Sunstone Hotel Investors, Inc.

Comparable Portfolio Operating Statistics by Brand

(Unaudited)

			Three Months Ended June 30, 2008						Three Months Ended June 30, 2007						Percent Change in Comparable RevPAR
Brand	Number of Hotels	Number of Rooms	Occupancy Percentages		Average Daily Rate		Comparable RevPAR		Occupancy Percentages		Average Daily Rate		Comparable RevPAR
Marriott (1)	24	7,682	79.8	%	$	162.01	$	129.28	80.2	%	$	155.91	$	125.04	3.4	%
Hilton	6	1,955	83.1	%		228.07		189.53	83.9	%		215.67		180.95	4.7	%
InterContinental	3	665	66.8	%		116.86		78.06	73.0	%		110.55		80.70	-3.3	%
Hyatt	2	605	74.4	%		137.28		102.14	80.6	%		147.74		119.08	-14.2	%
Other Brand Affiliations (2)	4	1,385	82.3	%		149.53		123.06	84.4	%		149.10		125.84	-2.2	%
Independent	3	1,199	69.1	%		102.40		70.76	68.1	%		94.98		64.68	9.4	%
Total Comparable Portfolio	42	13,491	78.7	%	$	163.22	$	128.45	79.7	%	$	157.12	$	125.22	2.6	%
			Six Months Ended June 30, 2008						Six Months Ended June 30, 2007						Percent Change in Comparable RevPAR
Brand	Number of Hotels	Number of Rooms	Occupancy Percentages		Average Daily Rate		Comparable RevPAR		Occupancy Percentages		Average Daily Rate		Comparable RevPAR
Marriott (1)	24	7,682	76.2	%	$	158.71	$	120.94	77.0	%	$	153.67	$	118.33	2.2	%
Hilton	6	1,955	78.3	%		215.17		168.48	80.2	%		200.39		160.71	4.8	%
InterContinental	3	665	61.0	%		113.45		69.20	73.2	%		108.85		79.68	-13.2	%
Hyatt	2	605	77.2	%		138.00		106.54	76.2	%		147.17		112.14	-5.0	%
Other Brand Affiliations (2)	4	1,385	79.7	%		149.85		119.43	82.4	%		149.70		123.35	-3.2	%
Independent	3	1,199	66.0	%		101.74		67.15	65.9	%		93.83		61.83	8.6	%
Total Comparable Portfolio	42	13,491	75.2	%	$	159.07	$	119.62	76.8	%	$	153.20	$	117.66	1.7	%

(1) Excludes the Renaissance Baltimore and Renaissance Orlando which experienced material and prolonged business interruption during either the current or preceding calendar year.

(2) Includes a Fairmont, a Sheraton, a W Hotel, and a Wyndham.

14

Sunstone Hotel Investors, Inc.

Debt Summary

(Unaudited - dollars in thousands)

Debt	Collateral	Interest Rate / Spread	Maturity Date	June 30, 2008 Balance			Recent Events (1)		August 1, 2008 Balance
Fixed Rate Debt
Secured Mortgage Debt	1 hotel	5.92%	2010	$	81,000				$	81,000
Secured Mortgage Debt (2)	11 hotels	5.95%	2011		248,164					248,164
Secured Mortgage Debt (3)	2 hotels	4.98%	2012		65,000					65,000
Secured Mortgage Debt	Rochester laundry facility	9.88%	2013		4,469					4,469
Secured Mortgage Debt (3)	10 hotels	5.34%	2015		270,410					270,410
Secured Mortgage Debt (3)	2 hotels	5.30%	2016		196,060					196,060
Secured Mortgage Debt	1 hotel	5.69%	2016		48,000					48,000
Secured Mortgage Debt	1 hotel	5.66%	2016		34,000					34,000
Secured Mortgage Debt	1 hotel	5.58%	2017		75,000					75,000
Secured Mortgage Debt	1 hotel	5.58%	2017		176,000					176,000
Secured Mortgage Debt	1 hotel	6.14%	2018		65,000					65,000
Secured Mortgage Debt	1 hotel	6.60%	2019		70,000					70,000
Secured Mortgage Debt	1 hotel	5.95%	2021		135,000					135,000
Exchangeable Senior Notes	Guaranty	4.60%	2027		250,000					250,000
Total Fixed Rate Debt					1,718,103					1,718,103
Credit Facility	Unsecured	L+0.90% -1.50%	2011		—					—
TOTAL DEBT				$	1,718,103		$	—	$	1,718,103
Preferred Stock
Series A cumulative redeemable preferred		8.00%	perpetual	$	176,250			—	$	176,250
Series C cumulative convertible redeemable preferred		6.63%	perpetual	$	100,000			—	$	100,000
Debt Statistics
% Fixed Rate Debt					100.0	%				100.0	%
% Floating Rate Debt					0.0	%				0.0	%
Average Interest Rate					5.52	%				5.52	%
Weighted Average Maturity of Debt (includes amounts outstanding on the Credit Facility) (4)					9.0 years					9.0 years

(1) Reflects net additional draws and repayments on our credit facility.

(2) Cross-collateralized loan with life insurance company.

(3) Individual, non cross-collateralized loans.

(4) Assumes the exchangeable senior notes remain outstanding to maturity. If the exchangeable senior notes were redeemed upon the first call date, the weighted average maturity would be approximately 7 years.

15