Sunstone to Sell Four Rochester Hotels and a Laundry Facility for $230 Million

Provides Preliminary 2012 Earnings Results

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. January 29, 2013

ALISO VIEJO, CA - January 29, 2013 - Sunstone Hotel Investors, Inc. (the "Company") (NYSE: SHO) announced today that it has entered into agreements to sell a four-hotel, 1,222-room portfolio and commercial laundry facility (collectively, the "Rochester Portfolio") in Rochester, Minnesota for a gross price of $230 million. The four hotels include the 660-room Kahler Grand, the 271-room Kahler Inn & Suites, the 202-room Marriott Rochester and the 89-room Residence Inn by Marriott Rochester. Concurrent with the Rochester Portfolio sale, the Company will defease the outstanding $26.7 million mortgage secured by the 660-room Kahler Grand hotel for a total cost of approximately $30 million, and has prepaid the $0.4 million loan secured by the laundry facility. The Company expects to retain a $25 million, 11% dividend yield preferred equity investment in the four hotels.

The anticipated gross sale price represents an 11.9x multiple on 2012 EBITDA of $19.4 million and a 7.3% capitalization rate on 2012 net operating income. Net of $20 million allocated to the commercial laundry facility, the $210 million gross sale price allocated to the four hotels equates to $172,000 per key, a 12.8x multiple on 2012 EBITDA and a capitalization rate of 6.9% on 2012 net operating income.

The Company expects to receive initial net proceeds of approximately $165 million, subject to final closing costs, from the sale of the Rochester Portfolio. The Company intends to use the net proceeds from the sale of the Rochester Portfolio for general corporate purposes, which may include hotel acquisitions, renovations of our existing hotels, reduction of our debt or preferred securities or other corporate purposes.

Sale of the Rochester Portfolio is expected to close in January 2013, subject to customary closing conditions. As such, the Company can offer no assurances that the sale will close on the terms described herein, or at all.

Ken Cruse, President and CEO, stated, "The Sunstone team continues to make solid progress against our plan to improve our portfolio quality while strengthening our balance sheet. For full-year 2012, the Rochester Portfolio generated RevPAR of approximately $80 and EBITDA per key of approximately $13,400, both of which are more than 30% below our portfolio average. By selling the Rochester hotels at a sub-7% cap rate on 2012 operating income, we will improve our portfolio RevPAR by over $5.50 (or by 4%), while increasing our Hotel EBITDA per key by approximately $625 (or by 3%), to over $20,000 on a pro forma basis for 2012. Additionally, this sale will reduce our overall indebtedness by approximately $27 million. Upon completion of the Rochester Portfolio sale, our total debt will have been reduced by $85 million thus far in 2013 when combined with the redemption of the remaining $58 million of our exchangeable senior notes. Following these transactions, our pro forma cash position will exceed $250 million and we will maintain full access to our $150 million credit facility, enhancing our ability to capitalize on a wide range of opportunities consistent with our stated business objectives."

Mr. Cruse continued, "Today we also provided preliminary fourth quarter and full-year 2012 RevPAR, EBITDA and FFO results. Our preliminary results exceeded the high end of prior guidance. Continued strength in business trends throughout our portfolio, especially among the hotels we recently renovated, is driving meaningful growth in hotel revenues and profitability. Looking ahead, fundamentals for Sunstone's portfolio are compelling: we now hold focused investments in key growth markets and we continue to improve our portfolio's competitiveness through high-quality renovations. With the U.S. demand-to-supply ratio well above historical norms and our portfolio running at nearly 80% occupancy, our pricing power continues to improve."

Retirement of Exchangeable Notes

The Company's operating partnership, Sunstone Hotel Partnership, LLC (the "Operating Partnership"), has retired the outstanding $58 million aggregate principal amount of 4.60% Exchangeable Senior Notes due 2027 (the "Notes"). Pursuant to a Tender Offer Statement on Schedule TO originally filed with the Securities and Exchange Commission on December 17, 2012, $42 million of Notes were validly tendered, accepted and repurchased on January 17, 2013. On January 22, 2013, the remaining $16 million of Notes were redeemed. The Operating Partnership paid for all of the $58 million in Notes with available cash.

2012 Preliminary Earnings Results

The Company has provided preliminary fourth-quarter and year-ended 2012 results. The results provided are subject to adjustments that may result from the completion of the Company's annual audit process. The Company's results include the Company's ownership period for all 2012 acquisitions and dispositions, and reflect the application of net operating loss carryforwards to reduce taxable income in 2012. The Company treats any state and federal taxes associated with the application of net operating loss carryforwards as a one-time expense and adds them back to Adjusted EBITDA and Adjusted FFO.