Sunstone to Acquire 357-room Hilton Garden Inn Chicago Downtown/Magnificent Mile

$91.75 million or Approximately $257,000 per key

. June 25, 2012

ISO VIEJO, CA - June 19, 2012 - Sunstone Hotel Investors, Inc. (the "Company" or "Sunstone") (NYSE: SHO) today announced that it has entered into a purchase and sale agreement to acquire the fee-simple interest in the 357-room Hilton Garden Inn Chicago Downtown/Magnificent Mile (the "Hotel") for a gross purchase price of $91.75 million ($257,000/key). The purchase price represents an 11.7x multiple on 2012 forecasted hotel Adjusted EBITDA of $7.8 million and a 7.7% capitalization rate on 2012 forecasted hotel net operating income. During the Company's anticipated 2012 ownership period, the Hotel is expected to generate approximately $4.1 million of EBITDA and $3.7 million of net operating income. A definition of Adjusted EBITDA and reconciliation to net operating income is set forth at the end of this release.

Ken Cruse, President and Chief Executive Officer, stated, "We are pleased to announce the acquisition of the Hilton Garden Inn Chicago, our second recent acquisition in the Magnificent Mile area of downtown Chicago. The hotel's strong urban location, superior RevPAR and EBITDA per key, the efficiency of the urban select-service model and the hotel's close proximity to our other downtown Chicago hotels make this a very attractive addition to our portfolio. We intend to capitalize on meaningful synergies across our three-hotel Magnificent Mile portfolio through coordinated revenue management and by combining operations management of the Hilton Garden Inn with our Embassy Suites Chicago, which is located directly across the street. Our acquisition of the Hilton Garden Inn will be funded entirely with cash and we will own the hotel free and clear of mortgage debt. This acquisition fits squarely within our strategy, which is predicated on growing our portfolio quality and scale while gradually deleveraging our balance sheet through creative, value-additive acquisitions. Separately, we are also pleased to report that strengthening industry fundamentals are driving continued growth within our existing portfolio as evidenced by quarter-to-date Comparable Hotel RevPAR growth of 7.5% through June 15, 2012."

Transaction Rationale

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

Improves Sunstone's Portfolio Quality and Scale: Given the high-quality/high-performance nature of the asset (the Hotel's projected 2012 RevPAR and Hotel Adjusted EBITDA per key of approximately $140 and $22,000, respectively), the transaction will improve the quality and scale of Sunstone's portfolio.
Improves Sunstone's Growth Profile: Chicago is expected to outperform the average Top 25 U.S. Lodging Markets (according to STR) in future RevPAR growth. PKF Hospitality Research forecasts RevPAR growth of 8.3%, 9.1% and 10.3% in 2012, 2013, and 2014, respectively. Notably, 2012, 2013 and subsequent years are expected to be very strong convention years as Chicago's McCormick Place already reports more definite city-wide events contracted than Chicago's prior peak years.
Improves Sunstone's Balance Sheet: As the acquisition will be funded entirely with cash, 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.
Attractively-Priced, Off-Market Transaction: Consistent with Sunstone's recent transactions, the Hilton Garden Inn Chicago acquisition was directly sourced by Sunstone through pre-existing relationships. The lack of competition for the acquisition, and the fact that Sunstone was able to provide the seller with ongoing management of the Hotel, helped Sunstone achieve attractive deal terms.
Immediate Market Complexing Opportunity: The location of the Hotel across the street from Sunstone's Embassy Suites Chicago will enable Sunstone to capitalize on substantial market complexing opportunities (similar to Sunstone's management complexing of the Doubletree Guest Suites Times Square and the Hilton Times Square). As the two hotels are both flagged within the Hilton family of brands, complexing operations between the properties will enable significant improvements in revenue management through a consolidated sales effort in addition to material cost savings in overhead, purchasing efficiencies, etc. The forecasted 2012 EBITDA and property-level Net Operating Income outlined herein exclude the benefits of any potential operating synergies.

Hotel Description
The Hilton Garden Inn Chicago Downtown/Magnificent Mile is a 357-room, 23-story hotel, well located along Grand Avenue in downtown Chicago amidst the market's leading business and visitor demand generators. The Hotel is one block from Chicago's famous "Magnificent Mile," and is within walking distance to over 30 million square feet of high-end office space. Each guest room and suite provides guests with generous views of downtown Chicago. The Hotel's meeting and break-out space is primarily located on the 12th floor and features views of the Chicago skyline. The Hotel offers approximately 5,700 square feet of combined meeting space.

The transaction is expected to close in the third quarter.

About Sunstone Hotel Investors:
Sunstone Hotel Investors, Inc. is a lodging real estate investment trust ("REIT") that, upon the acquisitions of the Hilton Garden Inn Chicago Downtown/Magnificent Mile, will have interests in 33 hotels held for investment comprised of 13,698 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. For further information, please visit Sunstone's website at www.sunstonehotels.com.

Sunstone's mission is to create meaningful value for our stockholders by becoming the premier hotel owner. Our values include transparency, trust, ethical conduct, communication and discipline. We seek to employ a balanced, cycle-appropriate corporate strategy that encompasses the following:

Proactive portfolio management;
Intensive asset management;
Disciplined external growth; and
Measured balance sheet improvement.

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 June 19, 2012, 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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