sho_Ex99-1

Exhibit 99.1

2007 Logo Med

For Additional Information:

Bryan Giglia

Sunstone Hotel Investors, Inc.

(949) 382-3036

Aaron Reyes

Sunstone Hotel Investors, Inc.

(949) 382-3018

SUNSTONE HOTEL INVESTORS REPORTS RESULTS FOR SECOND QUARTER 2019

IRVINE, CA – August 1, 2019 – Sunstone Hotel Investors, Inc. (the “Company” or “Sunstone”) (NYSE: SHO), the owner of Long-Term Relevant Real Estate® in the hospitality sector, today announced results for the second quarter ended June 30, 2019.

Second Quarter 2019 Operational Results (as compared to Second Quarter 2018):

Net income decreased 10.4% to $45.9 million. Excluding the effect of the four hotels sold subsequent to the second quarter of 2018, net income would have decreased 5.2%.

Income attributable to common stockholders per diluted common share decreased 10.0% to $0.18. Excluding the effect of the four hotels sold subsequent to the second quarter of 2018, income attributable to common stockholders per diluted common share would have decreased 5.3%.

21 Hotel Comparable Portfolio RevPAR increased 2.1% to $212.76.

21 Hotel Comparable Portfolio Adjusted EBITDAre increased 2.6% to $103.7 million.

21 Hotel Comparable Portfolio Adjusted EBITDAre Margin, excluding prior year property tax adjustments, net decreased 30 basis points to 34.3%.

Adjusted EBITDAre, excluding noncontrolling interest decreased 2.1% to $99.1 million. Excluding the effect of the four hotels sold subsequent to the second quarter of 2018, Adjusted EBITDAre, excluding noncontrolling interest would have increased 4.4%.

Adjusted FFO attributable to common stockholders per diluted share decreased 2.7% to $0.36. Excluding the effect of the four hotels sold subsequent to the second quarter of 2018, Adjusted FFO attributable to common stockholders per diluted share would have increased 5.9%.

John Arabia, President and Chief Executive Officer, stated, “Second quarter Comparable Portfolio RevPAR increased by 2.1%, driven by strong transient demand, exceeding the high-end of our previously provided guidance range. Comparable property-level Adjusted EBITDA increased 2.6%, benefiting from a 4.9% increase in food and beverage revenue and an 11.9% increase in other operating income. Better-than-expected revenue growth resulted in quarterly earnings materially above the high-end of our previously provided guidance range.”

Mr. Arabia added, “Our pristine balance sheet and significant liquidity provide us with substantial flexibility and the ability to create long-term shareholder value through the acquisition of additional Long-Term Relevant Real Estate or the repurchase of our common stock at a discount to net asset value. We remain opportunistic as we expect to continue to recycle capital and redeploy those proceeds into value-creating opportunities.”

UNAUDITED SELECTED STATISTICAL AND FINANCIAL DATA

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


	Three Months Ended June 30,								Six Months Ended June 30,
	2019			2018			Change		2019			2018			Change

Net Income	$	45.9		$	51.3		(10.4)	%	$	63.8		$	89.7		(28.8)	%
Income Attributable to Common Stockholders per Diluted Share	$	0.18		$	0.20		(10.0)	%	$	0.24		$	0.35		(31.4)	%

21 Hotel Comparable Portfolio RevPAR (1)	$	212.76		$	208.39		2.1	%	$	195.05		$	189.13		3.1	%

21 Hotel Comparable Portfolio Occupancy (1)		87.4	%		87.1	%	30	bps		83.3	%		83.1	%	20	bps
21 Hotel Comparable Portfolio ADR (1)	$	243.43		$	239.25		1.7	%	$	234.15		$	227.59		2.9	%

21 Hotel Comparable Portfolio Adjusted EBITDAre Margin (1) (2)		34.3	%		34.6	%	(30)	bps		30.6	%		30.6	%	—	bps

Adjusted EBITDAre, excluding noncontrolling interest	$	99.1		$	101.2		(2.1)	%	$	163.6		$	163.6		—	%
Adjusted FFO Attributable to Common Stockholders	$	81.7		$	83.7		(2.3)	%	$	129.2		$	129.6		(0.3)	%
Adjusted FFO Attributable to Common Stockholders per Diluted Share	$	0.36		$	0.37		(2.7)	%	$	0.57		$	0.58		(1.7)	%

(1)

The 21 Hotel Comparable Portfolio is comprised of all hotels owned by the Company as of June 30, 2019.

(2)

The 21 Hotel Comparable Portfolio Adjusted EBITDAre Margins exclude any prior year property tax adjustments, net.

Information regarding the non-GAAP financial measures disclosed in this release is provided below in “Non-GAAP Financial Measures.” Reconciliations of non-GAAP financial measures to the most comparable GAAP measure for each of the periods presented are included later in this release.

The Company’s actual results for the quarter ended June 30, 2019 compare to its guidance originally provided as follows:


Metric	Quarter Ended June 30, 2019 Guidance (1)	Quarter Ended June 30, 2019 Actual Results (unaudited)	Performance Relative to Prior Guidance Midpoint
Net Income ($ millions)	$44 to $48	$46	—
21 Hotel Comparable Portfolio RevPAR Growth	0.0% to + 2.0%	2.1%	+ 1.1%
Adjusted EBITDAre, excluding noncontrolling interest ($ millions)	$93 to $96	$99	+ $5
Adjusted FFO Attributable to Common Stockholders ($ millions)	$74 to $77	$82	+ $6
Adjusted FFO Attributable to Common Stockholders per Diluted Share	$0.32 to $0.34	$0.36	+ $0.03
Diluted Weighted Average Shares Outstanding	227,700,000	227,500,000	- 200,000

(1)

Reflects guidance presented on May 6, 2019.

Recent Developments

During the second quarter of 2019, the Company repurchased 432,464 shares of its common stock at an average price of $13.24 per share for a total purchase price of $5.7 million. Year-to-date through July 31, 2019, including shares repurchased subsequent to the end of the second quarter, the Company has repurchased 3,777,309 shares of its common stock at an average price of $13.22 per share for a total purchase price of approximately $50 million, leaving approximately $250 million of remaining authorized capacity under its $300.0 million stock repurchase program.

Balance Sheet/Liquidity Update

As of June 30, 2019, the Company had $787.7 million of cash and cash equivalents, including restricted cash of $46.2 million, total assets of $3.9 billion, including $2.9 billion of net investments in hotel properties, total consolidated debt of $979.0 million and stockholders’ equity of $2.7 billion.

Capital Improvements

The Company invested $28.2 million into capital improvements of its portfolio during the quarter ended June 30, 2019. In 2019, the Company expects to invest approximately $115 million to $135 million into its portfolio. Based on the expected timing and scope of the 2019 projects, the Company expects $5 million of total revenue displacement related to its major capital improvement projects in 2019, of which approximately $2.6 million of total revenue displacement was incurred in the second quarter of 2019. A selection of the Company’s planned 2019 capital improvement projects include:

Hilton San Diego Bayfront: The Company invested approximately $23 million, with a portion spent in 2018, to renovate all 1,190 guestrooms and suites. The work included the replacement of guestroom soft goods and renovation of corridors. The renovation began during the fourth quarter of 2018, and was completed during the third quarter of 2019. The Company incurred approximately $3 million of total revenue displacement in connection with the renovation work. In addition, the Company expects to reposition the food and beverage offerings at the hotel, which will allow for the conversion of certain existing restaurant space into additional meeting space. The food and beverage repositioning work is currently anticipated to occur in 2020.

Renaissance Harborplace: The Company invested approximately $21 million, with a portion spent in 2018, to renovate all 622 guestrooms and suites. The renovation included the complete redesign of all guestrooms and bathrooms, including the conversion of 445 bathtubs to showers. The renovation began during the fourth quarter of 2018, and was completed during the second quarter of 2019. The Company incurred approximately $2 million of total revenue displacement in connection with the renovation work.

Hyatt Regency San Francisco: The Company expects to invest approximately $5.5 million to convert currently under-utilized corridor space into 17 new guestrooms. The conversion includes the addition of 15 rooms that will offer striking views of the San Francisco bay and surrounding area. Construction of the new guestrooms began during the second quarter of 2019, and is expected to be completed in the fourth quarter of 2019. The Company does not anticipate any material revenue displacement related to the construction.

Environmental and Sustainability Projects: The Company expects to invest approximately $3 million to $6 million into additional environmental and sustainability projects in 2019, including the installation of solar panels at certain hotels in the portfolio, additional LED lighting retrofits and the modernization of other mechanical equipment intended to reduce its overall energy consumption.

2019 Outlook

The Company’s 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 the impact of any unanticipated developments in its business, changes in its operating environment, or any unannounced hotel acquisitions, dispositions, re-brandings, management changes, transition costs, noncash impairment expense, changes in deferred tax assets or valuation allowances, severance costs associated with restructuring hotel services, uninsured property losses, early lease termination costs, prior year property tax assessments or credits, debt repurchases/repayments, stock repurchases or unannounced financings during 2019.

For the third quarter of 2019, the Company expects:


Metric		Quarter Ended September 30, 2019 Guidance (1)
Net Income ($ millions)		$32 to $36
21 Hotel Comparable Portfolio RevPAR Growth		- 0.5% to + 1.5%
Adjusted EBITDAre, excluding noncontrolling interest ($ millions)		$79 to $82
Adjusted FFO Attributable to Common Stockholders ($ millions)		$62 to $65
Adjusted FFO Attributable to Common Stockholders per Diluted Share		$0.27 to $0.29
Diluted Weighted Average Shares Outstanding		225,000,000

For the full year of 2019, the Company expects:


Metric	Full Year 2019 Guidance (2)	Current Full Year 2019 Guidance (1)	Change in Full Year 2019 Guidance Midpoint
Net Income ($ millions)	$118 to $135	$117 to $130	- $3
21 Hotel Comparable Portfolio RevPAR Growth	0.5% to + 3.0%	+ 0.75% to + 2.75%	―
Adjusted EBITDAre, excluding noncontrolling interest ($ millions)	$308 to $324	$312 to $324	+ $2
Adjusted FFO Attributable to Common Stockholders ($ millions)	$238 to $254	$243 to $255	+ $3
Adjusted FFO Attributable to Common Stockholders per Diluted Share	$1.04 to $1.11	$1.07 to $1.13	+ $0.02
Diluted Weighted Average Shares Outstanding	228,000,000	226,200,000	- 1,800,000

(1)

Detailed reconciliations of Net Income to non-GAAP financial measures are provided later in this release.

(2)

Reflects guidance presented on May 6, 2019.

Third quarter and full year 2019 guidance are based in part on the following assumptions:

Full year total revenue displacement of approximately $5 million, related to planned 2019 capital investment projects.

Full year Adjusted EBITDAre, excluding noncontrolling interest displacement of approximately $4 million related to planned 2019 capital investment projects.

Full year 21 Hotel Comparable Portfolio Adjusted EBITDAre Margin is expected to decline 25 basis points to 75 basis points.

Full year corporate overhead expense (excluding deferred stock amortization) of approximately $22 million.

Full year amortization of deferred stock compensation expense of approximately $9 million.

Full year interest expense of approximately $56 million, including approximately $3 million in amortization of deferred financing costs, approximately $3 million of finance lease obligation interest and approximately $6 million of noncash loss on derivatives.

Full year total preferred dividends of $13 million, which includes the Series E and Series F cumulative redeemable preferred stock.

Dividend Update

The Company’s board of directors declared a cash dividend of $0.05 per share of common stock, as well as cash dividends of $0.434375 per share payable to its Series E cumulative redeemable preferred stockholders and $0.403125 per share payable to its Series F cumulative redeemable preferred stockholders. The dividends will be paid on October 15, 2019 to stockholders of record as of September 30, 2019.

The Company expects to continue to pay a quarterly cash dividend of $0.05 per share of common stock throughout 2019. Consistent with the Company’s past practice and to the extent that the expected regular quarterly dividends for 2019 do not satisfy the annual distribution requirements, the Company expects to satisfy the annual distribution requirement by paying a “catch-up” dividend in January 2020. The level of any future quarterly dividends will be determined by the Company’s board of directors after considering long-term operating projections, expected capital requirements, and risks affecting the Company’s business.

Supplemental Disclosures

Contemporaneous with this release, the Company has furnished a Form 8-K with unaudited financial information. This additional information is being provided as a supplement to the information in this release and other filings with the SEC. The Company has no obligation to update any of the guidance or other information provided to conform to actual results or changes in the Company’s portfolio, capital structure or future expectations.

Earnings Call

The Company will host a conference call to discuss second quarter 2019 financial results on August 2, 2019, at 12:00 p.m. Eastern Time (9:00 a.m. Pacific Time). A live web cast of the call will be available via the Investor Relations section of the Company’s website. Alternatively, investors may dial 1-786-789-4783 and reference confirmation code 8370438 to listen to the live call. 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 August 1, 2019 has interests in 21 hotels comprised of 10,780 rooms. Sunstone’s business is to acquire, own, asset manage and renovate or reposition hotels considered to be Long-Term Relevant Real Estate®, the majority of which are operated under nationally recognized brands, such as Marriott, Hilton and Hyatt. For further information, please visit Sunstone’s website at www.sunstonehotels.com.

Sunstone’s mission is to create meaningful value for our stockholders by producing superior long-term returns through the ownership of Long-Term Relevant Real Estate® in the hospitality sector. Our values include transparency, trust, ethical conduct, honest communication and discipline. As demand for lodging generally fluctuates with the overall economy, we seek to own a portfolio of hotels that will maintain a high appeal with travelers over long periods of time and will generate economic earnings materially in excess of recurring capital requirements.

Forward-Looking Statements

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 opinions, 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; international, national and local economic and business conditions, including the likelihood of a U.S. recession, government shutdown, changes in the European Union or global economic slowdown, as well as any type of flu, disease-related pandemic or the adverse effects of climate change, affecting the lodging and travel industry; the ability to maintain sufficient liquidity and our access to capital markets; terrorist attacks or civil unrest, 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; severe weather events or other natural disasters; risks impacting our ability to pay anticipated future dividends; 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 provided herein is as of the date of this release, 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.

This release should be read together with the consolidated financial statements and notes thereto included in our most recent reports on Form 10-K and Form 10-Q. Copies of these reports are available on our website at www.sunstonehotels.com and through the SEC’s Electronic Data Gathering Analysis and Retrieval System (“EDGAR”) at www.sec.gov.

Non-GAAP Financial Measures

We present the following non-GAAP financial measures that we believe are useful to investors as key supplemental measures of our operating performance: earnings before interest expense, taxes, depreciation and amortization for real estate, or EBITDAre; Adjusted EBITDAre, excluding noncontrolling interest (as defined below); funds from operations attributable to common stockholders, or FFO attributable to common stockholders; Adjusted FFO attributable to common stockholders (as defined below); hotel Adjusted EBITDAre; and hotel Adjusted EBITDAre margin. These measures should not be considered in isolation or as a substitute for measures of performance in accordance with GAAP. In addition, our calculation of these measures may not be comparable to other companies that do not define such terms exactly the same as the Company. These non-GAAP measures are used in addition to and in conjunction with results presented in accordance with GAAP. They should not be considered as alternatives to net income, cash flow from operations, or any other operating performance measure prescribed by GAAP. These non-GAAP financial measures reflect additional ways of viewing our operations that we believe, when viewed with our GAAP results and the reconciliations to the corresponding GAAP financial measures, provide a more complete understanding of factors and trends affecting our business than could be obtained absent this disclosure. We strongly encourage investors to review our financial information in its entirety and not to rely on a single financial measure.

We present EBITDAre in accordance with guidelines established by the National Association of Real Estate Investment Trusts (“NAREIT”), as defined in its September 2017 white paper “Earnings Before Interest, Taxes, Depreciation and Amortization for Real Estate.” We believe EBITDAre is a useful performance measure to help investors evaluate and compare the results of our operations from period to period in comparison to our peers. NAREIT defines EBITDAre as net income (calculated in accordance with GAAP) plus interest expense, income tax expense, depreciation and amortization, gains or losses on the disposition of depreciated property (including gains or losses on change in control), impairment write-downs of depreciated property and of investments in unconsolidated affiliates caused by a decrease in the value of depreciated property in the affiliate, and adjustments to reflect the entity’s share of EBITDAre of unconsolidated affiliates.

We make additional adjustments to EBITDAre when evaluating our performance because we believe that the exclusion of certain additional items described below provides useful information to investors regarding our operating performance, and that the presentation of Adjusted EBITDAre, excluding noncontrolling interest, when combined with the primary GAAP presentation of net

income, is beneficial to an investor’s complete understanding of our operating performance. In addition, we use both EBITDAre and Adjusted EBITDAre, excluding noncontrolling interest as measures in determining the value of hotel acquisitions and dispositions.

We believe that the presentation of FFO attributable to common stockholders provides useful information to investors regarding our operating performance because it is a measure of our operations without regard to specified noncash items such as real estate depreciation and amortization, any real estate impairment loss and any gain or loss on sale of real estate assets, all of which are based on historical cost accounting and may be of lesser significance in evaluating our current performance. Our presentation of FFO attributable to common stockholders conforms to NAREIT’s definition of “FFO applicable to common shares.” Our presentation may not be comparable to FFO reported by other REITs that do not define the terms in accordance with the current NAREIT definition, or that interpret the current NAREIT definition differently than we do.

We also present Adjusted FFO attributable to common stockholders when evaluating our operating performance because we believe that the exclusion of certain additional items described below provides useful supplemental information to investors regarding our ongoing operating performance, and may facilitate comparisons of operating performance between periods and our peer companies.

We adjust EBITDAre and FFO attributable to common stockholders for the following items, which may occur in any period, and refer to these measures as either Adjusted EBITDAre, excluding noncontrolling interest or Adjusted FFO attributable to common stockholders:

Amortization of favorable and unfavorable contracts: we exclude the noncash amortization of the favorable management contract asset recorded in conjunction with our acquisition of the Hilton Garden Inn Chicago Downtown/Magnificent Mile, along with the favorable and unfavorable tenant lease contracts, as applicable, recorded in conjunction with our acquisitions of the Boston Park Plaza, the Hilton Garden Inn Chicago Downtown/Magnificent Mile, the Hyatt Regency San Francisco and the Wailea Beach Resort. We exclude the noncash amortization of favorable and unfavorable contracts because it is based on historical cost accounting and is of lesser significance in evaluating our actual performance for the current period.

Gains or losses from debt transactions: we exclude the effect of finance charges and premiums associated with the extinguishment of debt, including the acceleration of deferred financing costs from the original issuance of the debt being redeemed or retired because, like interest expense, their removal helps investors evaluate and compare the results of our operations from period to period by removing the impact of our capital structure.

Acquisition costs: under GAAP, costs associated with completed acquisitions that meet the definition of a business are expensed in the year incurred. We exclude the effect of these costs because we believe they are not reflective of the ongoing performance of the Company or our hotels.

Cumulative effect of a change in accounting principle: from time to time, the FASB promulgates new accounting standards that require the consolidated statement of operations to reflect the cumulative effect of a change in accounting principle. We exclude these one-time adjustments, which include the accounting impact from prior periods, because they do not reflect our actual performance for that period.

Other adjustments: we exclude other adjustments that we believe are outside the ordinary course of business because we do not believe these costs reflect our actual performance for the period and/or the ongoing operations of our hotels. Such items may include: lawsuit settlement costs; prior year property tax assessments or credits; the write-off of development costs associated with abandoned projects; property-level restructuring, severance and management transition costs; lease terminations; and property insurance proceeds or uninsured losses.

In addition, to derive Adjusted EBITDAre, excluding noncontrolling interest we exclude the noncontrolling partner’s pro rata share of the net income (loss) allocated to the Hilton San Diego Bayfront partnership, as well as the noncontrolling partner’s pro rata share of any EBITDAre and Adjusted EBITDAre components. We also exclude the noncash expense incurred with the amortization of deferred stock compensation as this expense is based on historical stock prices at the date of grant to our corporate employees and does not reflect the underlying performance of our hotels. In addition, we exclude the amortization of our right-of-use assets, which includes the amortization of our operating lease intangible, as well as the noncash expense incurred from straight-lining our lease obligations, as these expenses are based on historical cost accounting and do not reflect the actual rent amounts due to the respective lessors or the underlying performance of our hotels. Additionally, we include an adjustment for the cash finance lease expenses recorded on the ground lease at the Courtyard by Marriott Los Angeles and the building lease at the Hyatt Centric Chicago Magnificent Mile. We determined that both of these leases are finance leases, and, therefore, we include a portion of the lease payments each month in interest expense. We adjust EBITDAre for these two finance leases in order to more accurately reflect the actual rent due to both hotels’ lessors in the current period, as well as the operating performance of both hotels. We also exclude the

Sunstone Hotel Investors, Inc.

Consolidated Balance Sheets

(In thousands, except share data)


	June 30,		December 31,
	2019		2018
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	741,503	$	809,316
Restricted cash		46,199		53,053
Accounts receivable, net		48,240		33,844
Prepaid expenses and other current assets		8,720		12,261
Total current assets		844,662		908,474

Investment in hotel properties, net		2,936,678		3,030,998
Finance lease right-of-use assets, net		54,991		—
Operating lease right-of-use assets, net		62,380		—
Deferred financing costs, net		3,131		3,544
Other assets, net		23,898		29,817

Total assets	$	3,925,740	$	3,972,833

Liabilities and Equity
Current liabilities:
Accounts payable and accrued expenses	$	32,092	$	30,425
Accrued payroll and employee benefits		20,407		25,039
Dividends and distributions payable		14,618		126,461
Other current liabilities		47,907		44,962
Current portion of notes payable, net		6,167		5,838
Total current liabilities		121,191		232,725

Notes payable, less current portion, net		968,090		971,225
Finance lease obligations, less current portion		27,120		27,009
Operating lease obligations, less current portion		52,097		—
Other liabilities		19,176		30,703
Total liabilities		1,187,674		1,261,662

Commitments and contingencies

Equity:
Stockholders' equity:
Preferred stock, $0.01 par value, 100,000,000 shares authorized:
6.95% Series E Cumulative Redeemable Preferred Stock, 4,600,000 shares issued and outstanding at June 30, 2019 and December 31, 2018, stated at liquidation preference of $25.00 per share		115,000		115,000
6.45% Series F Cumulative Redeemable Preferred Stock, 3,000,000 shares issued and outstanding at June 30, 2019 and December 31, 2018, stated at liquidation preference of $25.00 per share		75,000		75,000
Common stock, $0.01 par value, 500,000,000 shares authorized, 228,206,823 shares issued and outstanding at June 30, 2019 and 228,246,247 shares issued and outstanding at December 31, 2018		2,282		2,282
Additional paid in capital		2,723,737		2,728,684
Retained earnings		1,243,002		1,182,722
Cumulative dividends and distributions		(1,469,456)		(1,440,202)
Total stockholders' equity		2,689,565		2,663,486
Noncontrolling interest in consolidated joint venture		48,501		47,685
Total equity		2,738,066		2,711,171

Total liabilities and equity	$	3,925,740	$	3,972,833

Sunstone Hotel Investors, Inc.

Unaudited Consolidated Statements of Operations

(In thousands, except per share data)


	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018

Revenues
Room	$	208,735	$	220,304	$	380,593	$	400,580
Food and beverage		75,704		79,292		144,817		153,558
Other operating		18,457		17,851		35,166		34,755
Total revenues		302,896		317,447		560,576		588,893
Operating expenses
Room		51,846		54,900		100,092		105,995
Food and beverage		48,399		50,885		95,221		101,039
Other operating		4,367		4,357		8,332		8,298
Advertising and promotion		14,149		14,316		27,713		28,222
Repairs and maintenance		10,193		10,851		20,475		21,954
Utilities		6,533		6,974		13,198		14,449
Franchise costs		8,579		9,961		15,418		17,814
Property tax, ground lease and insurance		20,614		21,508		40,962		43,289
Other property-level expenses		34,015		35,518		66,855		69,425
Corporate overhead		8,078		7,594		15,594		14,696
Depreciation and amortization		36,524		37,334		72,911		74,022
Impairment loss		—		1,394		—		1,394
Total operating expenses		243,297		255,592		476,771		500,597
Interest and other income		4,811		2,966		9,735		4,457
Interest expense		(15,816)		(11,184)		(30,142)		(20,060)
Gain on sale of assets		—		—		—		15,659
Income before income taxes		48,594		53,637		63,398		88,352
Income tax (provision) benefit, net		(2,676)		(2,375)		436		1,365
Net income		45,918		51,262		63,834		89,717
Income from consolidated joint venture attributable to noncontrolling interest		(1,955)		(2,374)		(3,554)		(4,813)
Preferred stock dividends		(3,207)		(3,207)		(6,414)		(6,414)
Income attributable to common stockholders	$	40,756	$	45,681	$	53,866	$	78,490

Basic and diluted per share amounts:
Basic and diluted income attributable to common stockholders per common share	$	0.18	$	0.20	$	0.24	$	0.35

Basic and diluted weighted average common shares outstanding		227,389		225,232		227,305		224,760

Distributions declared per common share	$	0.05	$	0.05	$	0.10	$	0.10

Sunstone Hotel Investors, Inc.

Reconciliation of Net Income to Non-GAAP Financial Measures

(Unaudited and in thousands)

Reconciliation of Net Income to EBITDAre and Adjusted EBITDAre, Excluding Noncontrolling Interest


	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019			2018

Net income	$	45,918	$	51,262	$	63,834	$	89,717
Operations held for investment:
Depreciation and amortization		36,524		37,334		72,911		74,022
Interest expense		15,816		11,184		30,142		20,060
Income tax provision (benefit), net		2,676		2,375		(436)		(1,365)
Loss (gain) on sale of assets		—		6		—		(15,663)
Impairment loss		—		1,394		—		1,394
EBITDAre		100,934		103,555		166,451		168,165

Operations held for investment:
Amortization of deferred stock compensation		2,900		2,865		5,022		4,865
Amortization of favorable and unfavorable contracts, net		—		2		—		5
Amortization of right-of-use assets (1)		(251)		(229)		(270)		(447)
Finance lease obligation interest - cash ground rent		(590)		(589)		(1,179)		(1,178)
Hurricane-related insurance proceeds net of uninsured losses		—		(1,084)		—		(1,015)
Prior year property tax adjustments, net		109		136		298		117
Prior owner contingency funding		(900)		—		(900)		—
Noncontrolling interest:
Income from consolidated joint venture attributable to noncontrolling interest		(1,955)		(2,374)		(3,554)		(4,813)
Depreciation and amortization		(640)		(640)		(1,279)		(1,278)
Interest expense		(558)		(489)		(1,118)		(924)
Amortization of right-of-use asset (1)		73		73		145		145
		(1,812)		(2,329)		(2,835)		(4,523)

Adjusted EBITDAre, excluding noncontrolling interest	$	99,122	$	101,226	$	163,616	$	163,642

(1)

Amounts originally reported for the three and six months ended June 30, 2018 for amortization of lease intangibles and noncash ground rent have been reclassified to amortization of right-of-use assets to conform to the current year’s reporting.

Sunstone Hotel Investors, Inc.

Reconciliation of Net Income to Non-GAAP Financial Measures

(Unaudited and in thousands, except per share amounts)

Reconciliation of Net Income to FFO Attributable to Common Stockholders and

Adjusted FFO Attributable to Common Stockholders


	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019			2018

Net income	$	45,918	$	51,262	$	63,834	$	89,717
Preferred stock dividends		(3,207)		(3,207)		(6,414)		(6,414)
Operations held for investment:
Real estate depreciation and amortization (1)		35,900		36,876		71,670		73,104
Loss (gain) on sale of assets		—		6		—		(15,663)
Impairment loss		—		1,394		—		1,394
Noncontrolling interest:
Income from consolidated joint venture attributable to noncontrolling interest		(1,955)		(2,374)		(3,554)		(4,813)
Real estate depreciation and amortization		(640)		(640)		(1,279)		(1,278)
FFO attributable to common stockholders		76,016		83,317		124,257		136,047

Operations held for investment:
Amortization of favorable and unfavorable contracts, net		—		2		—		5
Real estate amortization of right-of-use assets (1)		146		138		297		286
Noncash interest on derivatives and finance lease obligations, net		3,634		(1,040)		5,753		(4,177)
Hurricane-related insurance proceeds net of uninsured losses		—		(1,084)		—		(1,015)
Prior year property tax adjustments, net		109		136		298		117
Prior owner contingency funding		(900)		—		(900)		—
Noncash income tax provision (benefit), net		2,648		2,147		(636)		(1,819)
Noncontrolling interest:
Real estate amortization of right-of-use asset (1)		73		73		145		145
Noncash interest on derivative, net		—		(4)		—		(1)
		5,710		368		4,957		(6,459)

Adjusted FFO attributable to common stockholders	$	81,726	$	83,685	$	129,214	$	129,588

FFO attributable to common stockholders per diluted share	$	0.33	$	0.37	$	0.55	$	0.60

Adjusted FFO attributable to common stockholders per diluted share	$	0.36	$	0.37	$	0.57	$	0.58

Basic weighted average shares outstanding		227,389		225,232		227,305		224,760
Shares associated with unvested restricted stock awards		145		277		202		310
Diluted weighted average shares outstanding		227,534		225,509		227,507		225,070

(1)

Amounts originally reported for the three and six months ended June 30, 2018 for real estate depreciation and amortization related to finance leases, amortization of lease intangibles and noncash ground rent have been reclassified to real estate amortization of right-of-use assets to conform to the current year’s reporting.

Sunstone Hotel Investors, Inc.

Reconciliation of Net Income to Non-GAAP Financial Measures

Guidance for Third Quarter and Full Year 2019

(Unaudited and in thousands, except per share amounts)

Reconciliation of Net Income to Adjusted EBITDAre, Excluding Noncontrolling Interest


	Quarter Ended				Year Ended
	September 30, 2019				December 31, 2019
		Low		High		Low		High

Net income	$	31,900	$	35,500	$	117,200	$	130,200
Depreciation and amortization		36,400		36,200		145,600		145,200
Interest expense		13,200		13,000		56,200		55,800
Income tax provision (benefit), net		100		100		(200)		(200)
Amortization of deferred stock compensation		2,100		2,100		9,300		9,300
Amortization of right-of-use assets		(300)		(300)		(800)		(800)
Finance lease obligation interest - cash ground rent		(600)		(600)		(2,400)		(2,400)
Prior year property tax adjustments, net		—		—		300		300
Prior owner contingency funding		—		—		(900)		(900)
Noncontrolling interest		(3,800)		(4,000)		(12,300)		(12,500)
Adjusted EBITDAre, excluding noncontrolling interest	$	79,000	$	82,000	$	312,000	$	324,000

Reconciliation of Net Income to Adjusted FFO Attributable to Common Stockholders


Net income	$	31,900	$	35,500	$	117,200	$	130,200
Preferred stock dividends		(3,200)		(3,200)		(12,800)		(12,800)
Real estate depreciation and amortization		35,700		35,500		143,100		142,700
Real estate amortization of right-of-use assets		200		200		600		600
Noncash interest on derivatives and finance lease obligations, net		100		100		5,900		5,900
Prior year property tax adjustments, net		—		—		300		300
Noncash income tax benefit, net		—		—		(600)		(600)
Prior owner contingency funding		—		—		(900)		(900)
Noncontrolling interest		(3,200)		(3,400)		(10,000)		(10,200)
Adjusted FFO attributable to common stockholders	$	61,500	$	64,700	$	242,800	$	255,200

Adjusted FFO attributable to common stockholders per diluted share	$	0.27	$	0.29	$	1.07	$	1.13

Diluted weighted average shares outstanding		225,000		225,000		226,200		226,200

Sunstone Hotel Investors, Inc.

Non-GAAP Financial Measures

21 Hotel Comparable Portfolio Adjusted EBITDAre and Margins

(Unaudited and in thousands)


	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018

21 Hotel Comparable Portfolio Adjusted EBITDAre Margin (1)		34.3%		34.5%		30.6%		30.6%
21 Hotel Comparable Portfolio Adjusted EBITDAre Margin, excluding prior year property tax adjustments, net (2)		34.3%		34.6%		30.6%		30.6%


Total revenues	$	302,896	$	317,447	$	560,576	$	588,893
Non-hotel revenues (3)		(25)		(21)		(48)		(41)
Hurricane-related business interruption insurance proceeds (4)		—		—		—		(812)
Total Actual Hotel Revenues		302,871		317,426		560,528		588,040
Sold hotel revenues (5)		—		(24,514)		—		(48,124)
Total 21 Hotel Comparable Portfolio Revenues	$	302,871	$	292,912	$	560,528	$	539,916


Net income	$	45,918	$	51,262	$	63,834	$	89,717
Non-hotel revenues (3)		(25)		(21)		(48)		(41)
Non-hotel operating expenses, net (6)		(778)		(785)		(1,545)		(1,558)
Hurricane-related business interruption insurance proceeds (4)		—		—		—		(812)
Hurricane-related uninsured losses (7)		—		16		—		85
Taxes assessed on commercial rents (8)		348		—		708		—
Corporate overhead		8,078		7,594		15,594		14,696
Depreciation and amortization		36,524		37,334		72,911		74,022
Impairment loss		—		1,394		—		1,394
Interest and other income		(4,811)		(2,966)		(9,735)		(4,457)
Interest expense		15,816		11,184		30,142		20,060
Gain on sale of assets		—		—		—		(15,659)
Income tax provision (benefit), net		2,676		2,375		(436)		(1,365)
Actual Hotel Adjusted EBITDAre		103,746		107,387		171,425		176,082
Sold hotel Adjusted EBITDAre (5)		—		(6,308)		—		(10,977)
21 Hotel Comparable Portfolio Adjusted EBITDAre		103,746		101,079		171,425		165,105
Prior year property tax adjustments, net (9)		109		136		298		122
21 Hotel Comparable Portfolio Adjusted EBITDAre, excluding prior year property tax adjustments, net	$	103,855	$	101,215	$	171,723	$	165,227

* Footnotes on following page.