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Exhibit 8.1
May 17, 1999
Sunstone Hotel Investors, Inc.
903 Calle Amanecer
San Clemente, CA 92672
RE: SUNSTONE HOTEL INVESTORS, INC./TAX OPINION
Ladies and Gentlemen:
We have acted as counsel to Sunstone Hotel Investors, Inc., a
Maryland corporation (the "Company"), in connection with the preparation of the
Registration Statement on Form S-3 filed with the Securities and Exchange
Commission (the "Registration Statement") with respect to the issuance by the
Company of warrants (the "Warrants") to purchase common stock ("Common Stock")
of the Company and the issuance of Common Stock upon the exercise of the
Warrants.
The Company currently owns more than a 90% general partner
interest in Sunstone Hotel Investors, L.P. (the "Partnership"). The Partnership
currently owns, either directly or indirectly through subsidiary entities,
several hotels and associated personal property (the "Hotels"). Each of the
Hotels is leased to Sunstone Hotel Properties, Inc., a Colorado corporation (the
"Lessee"), pursuant to a percentage lease (collectively, the "Leases"). Sunstone
Hotel Management, Inc. (the "Management Company") is managing the Hotels. Robert
A. Alter and Charles L. Biederman are 80% and 20% shareholders, respectively, of
the Lessee and Mr. Alter is the sole shareholder of the Management Company. Mr.
Alter is the Chairman of the Board of Directors and President of the Company and
will continue to serve as such.
In 1997, the Company acquired all of the stock of Kahler Realty
Corporation ("Kahler"). (This transaction is referred to herein as the
"Acquisition".) Kahler adopted a plan of liquidation after the Acquisition and
all of its assets, subject to all of its outstanding liabilities, were
transferred to the Company during 1997. The Company in turn contributed all such
assets to the Partnership.
In connection with the opinions rendered below, we have examined
the following:
1. The Amended Articles of Incorporation of the Company.
2. The Company's By-laws, as amended to date.
3. The Registration Statement.
4. The Limited Partnership Agreement of the Partnership, as
amended and restated to date (the "Partnership Agreement").
5. The cost segmentation analysis dated August 15, 1995,
the cost segmentation analysis as of December 31, 1995, the cost segmentation
analysis as of May 31, 1996, and the cost segmentation analysis as of December
31, 1996, prepared by Coopers & Lybrand L.L.P., and the cost segmentation
analysis prepared by Ernst & Young LLP ("Ernst & Young") in connection with the
Acquisition. (The foregoing analyses and information are referred to herein as
the "Cost Segmentation Analyses.")
6. An analysis dated April 1, 1999, of the Company's
satisfaction of the tests for qualification as a REIT for income tax purposes
prepared by Ernst & Young (the "REIT Qualification Analysis").
7. Projections as to the expected financial performance of
the Company, the Lessee and the Management Company.
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8. The analysis of Kahler's pre-Acquisition earnings and
profits prepared by KPMG Peat Marwick LLP in connection with the Acquisition
(the "KPMG E&P Analysis").
9. The review of the KPMG E&P Analysis prepared by Ernst &
Young in connection with the Acquisition (the "Ernst & Young E&P Review").
10. A representation certificate from the Company as to
certain factual matters (the "Representation Certificate").
11. Such other documents and data as we have deemed
necessary or appropriate for purposes of this opinion.
In connection with the opinions rendered below, we have assumed
that:
A. Each of the documents referred to above has been duly
authorized, executed, and delivered, is authentic if an original or accurate if
a copy, and has not been amended.
B. Each of the representations set forth in the
Representation Certificate is true and correct.
C. The Company will not make any amendments to its
organizational documents, or in its operations or the Leases, after the date of
this opinion that would affect its qualification as a REIT for any taxable year.
D. No actions will be taken by the Company, the
shareholders of the Company, the Partnership, the partners of the Partnership or
any other entity in which the Company owns an interest (either directly or
indirectly) after the date hereof that would have the effect of materially
altering the facts upon which we have relied in rendering our opinion, including
those facts set forth in the Representation Certificate.
E. The Cost Segmentation Analyses and the REIT
Qualification Analysis are accurate in all material respects and there have been
no material changes in the information reflected in the Ernst & Young REIT
Qualification Analysis since the date thereof that would adversely affect the
Company's qualification as a REIT.
F. The information and conclusions reflected in the KPMG
E&P Analysis and the Ernst & Young E&P Review are accurate in all material
respects.
G. The projections provided to us regarding the expected
financial performance of the Company, the Lessee and the Management Company
represented reasonable projections when prepared, and there have been no
material changes in the information reflected in those projections since the
date thereof.
H. The rental payments pursuant to the Leases have not been
and will not be calculated based on the net income of the Lessee (and no rent
abatements have been or will be calculated with reference to the net income of
the Lessee).
Based on the documents, assumptions and representations
described in this letter, we are of the opinion that the statements regarding
federal income tax considerations set forth in the Registration Statement under
the caption "Federal Income Tax Considerations," insofar as such statements
constitute statements of law or legal conclusions, are correct in all material
respects.
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The foregoing opinion is based on current provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), and the Regulations,
published administrative interpretations thereof, and published court decisions.
The Internal Revenue Service (the "Service") has not issued Regulations or
administrative interpretations with respect to various provisions of the Code
relating to REITs. The foregoing opinion is not binding on the Service, and no
assurance can be given that the Service will not successfully challenge our
opinion upon audit.
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Furthermore, no assurance can be given that the tax law will not change in a way
that will adversely affect the Company and its shareholders.
Our opinion is conditioned and based upon the accuracy of
substantial factual information, representations and conclusions provided to us
by various parties, including (without limitation) the Representation
Certificate, the Cost Segmentation Analyses, the REIT Qualification Analysis,
the KPMG E&P Analysis and the Ernst & Young E&P Review. We have not rendered an
opinion as to any factual matters, including (without limitation) the accuracy
of the information, representations and conclusions referred to in the preceding
sentence. In particular, we have rendered no opinion as to such factual matters
as the amount of Kahler's pre-Acquisition earnings and profits, the conformity
of the Leases with normal business practices (as represented by the Company) or
the accuracy of the Cost Segmentation Analyses or the REIT Qualification
Analysis. If any such information, representations or conclusions as to factual
matters is inaccurate in any material respect, our opinion could be different.
Furthermore, we have not monitored and will not monitor compliance by the
Company with the ongoing requirements for qualification as a REIT and,
therefore, cannot assure that the Company has or will satisfy each of those
requirements.
We hereby consent to the filing of this opinion as an exhibit to
the Registration Statement. We also consent to the references to Brobeck,
Phleger & Harrison LLP under the captions "Federal Income Tax Considerations"
and "Legal Matters" in the Registration Statement.
The foregoing opinion is limited to the federal income tax
matters specifically addressed herein, and no other opinion is rendered with
respect to other federal tax matters or to any issues arising under the tax laws
of any state or locality. We undertake no obligation to update the opinion
expressed herein after the date of this letter. This opinion letter is solely
for the information and use of the Company and the purchasers of the Warrants
and Common Stock from the Company, and may not be relied upon for any purpose by
any other person without our express written consent.
Very truly yours,
BROBECK, PHLEGER & HARRISON LLP
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