Wailea Beach Marriott Resort & Spa Sold for $325.7 Million

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. June 24, 2014

June 24, 2014 - Sunstone Hotel Investors, Inc. (NYSE: SHO) announced that the Company has entered into a definitive agreement to acquire the 544-room Wailea Beach Marriott Resort & Spa, located on 22 fee-simple acres in Maui, Hawaii, for a net purchase price of $325.7 million, or $598,600 per key.

Sunstone Sunstone Hotel Investors, Inc. (NYSE: SHO) announced that the Company has entered into a definitive agreement to acquire the 544-room Wailea Beach Marriott Resort & Spa, located on 22 fee-simple acres in Maui, Hawaii, for a net purchase price of $325.7 million, or $598,600 per key.

The purchase price represents a 16.9x multiple on 2014 forecasted Hotel EBITDA of $19.3 million and a 5.2% capitalization rate on 2014 forecasted Hotel net operating income. The Company expects to fund the acquisition, in part, with $60 million of common stock issued directly to the seller - an affiliate of Blackstone Real Estate Partners IV (the "Seller") - at a price of $14.87 per share. The Company expects to fund the balance of the purchase price with proceeds from the issuance of common stock. Additionally, the Company expects to receive operational support from Marriott International, the Hotel manager, during a planned renovation of the Hotel in 2015 and 2016.

Wailea Beach Marriott Resort & Spa

Ken Cruse, Chief Executive Officer, stated, "We are pleased to announce our planned acquisition of the 544-room Wailea Beach Marriott Resort & Spa, our first acquisition in the strong Hawaiian market. This acquisition fits squarely within our strategy of increasing our portfolio quality and scale while improving our financial flexibility."

Mr. Cruse continued, "The Wailea Beach Marriott Resort & Spa is located on 22 acres of fee-simple, ocean-front land in the heart of Wailea, Maui's most desirable location. Wailea is one of the most attractive and supply-constrained leisure and group destinations in the United States. While the Hotel currently produces superior RevPAR relative to our portfolio average, we believe the Hotel's market penetration, cash flows and long-term value will materially benefit from our asset management process and a carefully planned and executed repositioning program. Accordingly, we intend to optimize the Hotel's 22-acre footprint within this exceptional market by creating a more well-defined, cohesive destination resort experience. This project is highly consistent with our skill set, as our team has deep experience in the development and oversight of comprehensive resort hotel repositioning programs. Lastly, Marriott has demonstrated their commitment to the long-term success of this Hotel by working with us to provide operational support during our planned renovation."

Transaction Rationale

The Company expects this acquisition will be additive to its stockholders in the following ways:

Value-Add Opportunity: Through selective, value-add capital investment focused primarily on the Hotel's public areas, dining experiences and leisure amenities and its strong relationship with Marriott, the Company intends to reposition the Hotel, which we believe will enable the Hotel to achieve significantly higher ADRs. Specifically, the Hotel's ADR is currently approximately $50 below the ADRs being achieved by its Kaanapali competitive set and roughly $200 below the ADRs being achieved by the upper-upscale Wailea resort hotels. The Company expects to invest approximately $65 million into the Hotel in 2015 and 2016, focused primarily on enhancing the Hotel's public space experience

• Improves Sunstone's Portfolio Quality and Scale: The Hotel's RevPAR and EBITDA are very strong (the Hotel's projected 2014 RevPAR and Hotel EBITDA per key is approximately $210 and $35,500, respectively). Accordingly, the acquisition is expected to increase Sunstone's full-portfolio comparable RevPAR by 1.3% and its Hotel EBITDA per key by 1.9%.
• Improves Sunstone's Long-Term Growth Profile: The Maui lodging market is Hawaii's strongest lodging market - it consistently maintains the highest ADR of all the Hawaiian Islands, and historically has been one of the quickest markets to recover given its convenient and increasing airlift capacity. Following the recent economic downturn, the Maui lodging market has demonstrated robust health, with compounded average annual RevPAR growth of 7.1%. Year-to-date through April 2014, RevPAR growth across the Maui lodging market is accelerating, and is up 7.6% over the same period in 2013.
• Improves Sunstone's Financial Flexibility: As the acquisition will be funded entirely with cash and common stock issued to the Seller, no debt will be incurred pursuant to the acquisition. As a result, Sunstone expects the acquisition to improve its credit statistics. Upon closing the acquisition, Sunstone will own 14 unencumbered hotels valued at more than $1.5 billion.
• Off-Market Transaction: Consistent with Sunstone's recent transactions, the Wailea Beach Marriott Resort & Spa acquisition was directly sourced by Sunstone through a pre-existing relationship with the Seller.
• Geographic Profile: The Company's portfolio of institutional-quality, upper-upscale hotels will be further diversified in terms of asset size, geography and business mix. Specifically, the acquisition of the Hotel will increase Sunstone's West Coast regional EBITDA (as a percentage of full-portfolio comparable Hotel EBITDA) by more than 300 basis points to 39%.

Hotel Description

The fee-simple, 544-room Hotel is located on 22 waterfront acres on Wailea Beach, Maui's most popular leisure destination and is adjacent to the high-end Shops at Wailea. At an average size of nearly 450 square feet, the Hotel provides some of the largest standard guestrooms on Maui. The Hotel offers 45,000 square feet of flexible meeting facilities featuring three ballrooms, 21 meeting rooms, and significant outdoor oceanfront space that may be entitled for future development.

In 2014, for the 20th consecutive year, Maui was named "Best Island in the World" in the Conde Nast Traveler Reader's Poll, and is one of the most desirable and high barrier-to-entry leisure and group destinations in the world. Additionally, Wailea is Maui's most exclusive master-planned resort community, and is consistently one of the more popular luxury resort destinations in North America. Located in South Maui, the Hotel's location is proximate to many of the island's best beaches, high-end restaurants and shops, and championship golf.

The transaction is expected to close in the third quarter. The acquisition of the Hotel is subject to the satisfactory completion of customary closing procedures. Accordingly there can be no assurance that the acquisition of the Hotel will close. The forecast amounts are based on the Company's assumptions of operating performance. Sunstone cannot assure you that the forecasts will be achieved. About Sunstone Hotel Investors, Inc.

About Sunstone Hotel Investors, Inc

Sunstone Hotel Investors, Inc. is a lodging real estate investment trust ("REIT") that, as of the completion of the acquisition will have interests in 30 hotels comprised of 14,304 rooms. Sunstone's hotels are primarily in the upper upscale segment and are generally operated under nationally recognized brands, such as Marriott, Hilton, Fairmont, Hyatt and Sheraton.