Good afternoon, ladies and gentlemen, and welcome to the Sunstone Hotel Investors’ first quarter 2008 Earnings Call. At this time, all participants are in a listen-only mode. Following today's presentation, instructions will be given for the question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded today, Thursday, May 8, 2008. I would now like to turn the conference over to Mr. Bryan Giglia, Vice President of Corporate Finance of Sunstone Hotel Investors. Please go ahead, sir.

Thank you. Good afternoon, everyone, and thank you for joining us today. By now you should have received a copy of the corresponding press release. If you do not yet have a copy, you can access it on the investor relations tab of our website at www.sunstonehotels.com. Before we begin this conference, I'd like to remind everyone that this call contains forward-looking statements that are subject to risks and uncertainties, including those contained in our prospectuses, 10-Ks, 10-Qs, and other filings with the SEC, which could cause actual results to differ materially from those projected. We caution you to consider those matters in evaluating our forward-looking statements. We also note that this call contains non-GAAP financial information, including EBITDA, adjusted EBITDA, FFO, adjusted FFO and hotel operating margins. We are providing that information as a supplement to information prepared in accordance with Generally Accepted Accounting Principles. Explanations of such non-GAAP items and reconciliations to net income are contained in our earnings release that we issued earlier today. With us today are Bob Alter, Executive Chairman, and Ken Cruse, Chief Financial Officer. Bob will go over the highlights from the quarter and provide a status update on the CEO search. Ken will provide an in-depth review of the quarter and discuss our capital structure and credit ratios, as well as second quarter and updated full-year guidance. Following the remarks, the team will be available to answer questions. To begin management's discussion, I would like to turn the call over to Bob. Bob, please go ahead.

Thank you, Brian. Good afternoon, everyone, and welcome to the Sunstone Hotel Investors first quarter earnings conference call. As many of you know, on March 4, I was appointed as interim CEO to fill the vacancy created by Steve Goldman's departure, and on March 14, the Board formed a search committee to provide for a replacement CEO. That search has gone forward, and I will give you more progress on that as the call progresses. As you know, it's been over a year since I've been on one of these earnings calls, and as much as I enjoy these calls, I don't expect this to become a recurring event. I will provide an update, as I said, later on this call. Let's review the recent quarter. Our team continues to execute on Sunstone's business plan and we are pleased with our portfolio's performance during the quarter. With our hotels posting positive year-over-year growth in total portfolio RevPAR and hotel operating margins. We continue to get strong lift from the $275 million renovation program we completed last year, as our renovated hotels continue to ramp up. The hotels we renovated in 2006 and 2007 continue to deliver strong year-over-year RevPAR growth, and it can take over two years for a hotel to stabilize after a major renovation. The Hyatt Regency Century Plaza and the Fairmont Newport Beach are two examples of hotels where we completed renovations in 2006 and which continued to produce double digit RevPAR growth during the first quarter. Adjusted EBITDA during the quarter was $61 million, up slightly from last year, and adjusted FFO per share was flat to last year at $0.48. The first quarter 2008 total hotel portfolio RevPAR increased by 3.1%, driven by a 4.8% increase in ADR, which was offset by 120 basis points…

Thanks Bob, and good afternoon, everyone, and thank you for joining us today. First, let me spend a few minutes drilling down on our RevPAR performance during the first quarter. As Bob said, total RevPAR was up 3.1% for the quarter, and comparable RevPAR was up 1.6%. Both of which were significantly above the U.S. upper upscale average according to Smith Travel. Our California properties generated 3.5% growth in comparable RevPAR during the quarter. Total Los Angeles and Orange County area hotels posted an impressive 9% RevPAR increase over Q1 2007, while our San Diego hotels continue to struggle with a 7.9% RevPAR decline in Q1. This decline was primarily due to the lobby renovation in the W hotel, and bathroom renovation at our Holiday Inn San Diego downtown, as well as new luxury supply in the San Diego market. San Diego citywide's are expected to pick up, beginning in Q2, and we would expect the demand trends to improve as a result. During the quarter, we wrote yet another page in our Rochester, Minnesota, success story, as the portfolio continues to realize double digit RevPAR growth, driven in part by increased demand for our high end hotel within a hotel, known as the International at the Kahler Grand. We are currently converting 40 regular rooms within the Kahler Grand into 19 international rooms. We expect to have these new luxury rooms online in the fourth quarter. Going forward, we may consider the conversion of additional regular rooms into international rooms, as well as other highest and best used conversions within the approximately one million square feet of building area comprising the Kahler Grand property. Our middle Atlantic region was flat for the quarter. Our Marriott Boston Long Wharf was responsible for much of the underperformance in the middle Atlantic…

Thanks, Ken. Even in these uncertain economic times, we believe the lodging sector is fundamentally sound and we remain focused on execution and improving our effectiveness at maximizing the value of our assets. We own a geographically diverse portfolio of high institutional quality from primarily upper upscale hotels. 80% of our EBITDA comes from our top 30 hotels in major markets. The implementation of increased levels of discipline and accountability has begun to bear fruit as our first quarter results demonstrate. We will continue to focus on our core competencies as we drive internal growth, while evaluating acquisition opportunities that will enhance our earnings, thereby allowing us to build long term shareholder value. Historically, the greatest opportunities are found during this phase of the cycle, and we have positioned the company well to take advantage of these opportunities as they arise. We appreciate your time today as well as your continued support of Sunstone. I am very proud of what this team has accomplished to date and look forward to talking to you again in the coming months. Thank you. With that, I'd like to open up the call to questions. Operator, please go ahead.

Thank you. (Operator Instructions). First question comes from the line of Jeff Donnelly with Wachovia. Please go ahead.

Good afternoon, guys.

Hi, Jeff. How are you?

How are you doing, Bob. It's like The Godfather. You get dragged back in.

And you were the first person to make that comment.

I'm sure. I'm just curious actually, concerning the candidates you mentioned for replacement of CEO. We've seen a lot of hotel company leaders exit the business the past few years. Any chance we see someone come back out of retirement from a company that maybe went private recently?

I actually haven't even focused on that as a possibility. In the list, we had a diverse group, and the candidates that we are selecting are all experienced in our field. We are not going outside the industry. So I think it's a name that you probably will have had some experience with, and I think you'll have fabulous confidence in his ability or her ability to execute the game plan that this management team has set out in the past.

So meaning more like a hotel person than necessarily a real estate person, per se?

Well, you mean when you say hotel, I think.

When you say industry. I wonder.

Industry being the hotel industry.

Okay. And then, I'm just curious more on the business itself. I know you had strong RevPAR in the Los Angeles Orange County area but given all the press that we've been seeing about the impact of job losses in Orange County from subprime and what have you, was there any impact that you guys could discern in Orange County for your hotels?

It's interesting, because we have, obviously every day you read all the papers and all the office vacancy in Orange County and I think McGuire's Portfolio has really been negatively affected in the marketplace as a result of the credit crunch and the mortgage companies going out of business. So earlier in the year, we told both of our two hotels in Orange County, the Fairmont and Hyatt Newport Beach, to really keep their antenna up and be proactive. In fact, both hotels were very proactive in terms of opening up the faucets on various other channels and had successful, successful quarter, very impressive quarters, and in fact we've actually dialed back some of the channels because we were basically increasing room quantity and occupancy so much that we were worried about our rate integrity. So we actually are dialing that back a little bit. But we are actually predicting both of those hotels a very successful 2008, and we are surprised at how strong the economy has stayed when it comes to transient demand as well as group demand in those two markets, in that market with those two hotels.

Are you guys willing to share with us what you guys are looking for full year EBITDA from the Fairmont as well as the Century Plaza asset?

No, I don't think it's useful to do individual hotels. There's too many competitive influences with other brands, other hotel owners involved in this public information.

Last question then, I guess is, what is the market out there like for asset sales? And maybe you can talk about the financing market, where people are finding debt, and what kind of leverage they can get, and how underwriting has changed on asset sales.

Well, I think the answer is, in the hotel space below kind of $45 million or $50 million, I'd say asset sales in the $10 million to $45 million market. The brokers, they tell me and tell our group that businesses remains brisk and they continue to execute on numerous deals in the private market placement. They have not felt that underwriting has changed or cap rates have changed that dramatically, and the people that are doing it, in many cases are getting local debt from local banking institutions in the kind of 65% range, as they had in the past. The pricing is a little bit steeper as we know spreads have gone up. The refinance market has been much more difficult and the market from kind of $50 million to $150 million on asset sales, I think, has slowed down, and I would probably guess there's been some cap rate erosion in that area based on what we hear from the brokers. In terms of the credit markets, in terms of refinancing hotels, I think people are getting a lot less proceeds. People are underwriting them based on actual cash flow as opposed to projected cash flow. And occasionally you still see new builds and new starts, we just recently saw a new start under construction in Long Beach of a boutique hotel that has been in the making for a number of years and apparently they kept their financing together. But I would believe that over the next year that the banks don't make that many new commitments. So I think what you are seeing is the tail end of people that already had commitments getting under way.

That's helpful, thanks guys.

Thank you.

Thank you. Our next question is from the line of Michelle Ko with UBS. Please go ahead.

Hi. Good quarter. I was wondering, in terms of, if you see attractive opportunities arise what markets do you think you need to increase your exposure?

Sunstone is an opportunistic company and we believe that in an attempt to help continue to grow our business, we will look at opportunities in markets that we believe have growth in them, and we don't get specific because it's not as a branded owner of hotels that with somebody else owning the brand. It's not critical for us to have, quote, a Hilton in this location or a Marriott in this location. It's more about the opportunity and how we can continue to increase our earnings and our cash flow per share and dividends for our shareholders.

But are there any specific markets you think you are maybe under exposed to?

There are markets that we would like to be in, like downtown San Francisco, downtown Seattle, and in both cases we have not been able to find values at levels. We've tried a number of times that we think is accretive to the shareholders. So we haven't done anything there. But short of those two markets, we are very comfortable with the markets that we have right now.

Okay. Thanks. Also I was just wondering, it seems like you are more optimistic on your full year outlook and your second quarter expectations. I know that 1Q outperformed your prior first quarter estimate by a penny, and you did repurchase some shares but have you gotten a little bit more optimistic in terms of the environment or what has changed?

First of all, I think that one thing that is very difficult in the quarter to quarter calculations is, last year Easter was in the second quarter and this year Easter was in the first quarter, and the Easter week in most of our business hotels is a terrible time, spring break and Easter vacation hurts our hotels as opposed to helps them. So therefore, our April is a lot stronger just by the calendar than it was last year because we don't have that Easter week in it. And we are continuing to see strong group pace and we are continuing to see demand holding up. So we are very optimistic and as it's now May, our April numbers we feel very comfortable with and our balance of our quarter we are certainly optimistic.

Okay, great. Thank you.

Thank you. Our next question is from the line of David Loeb with Robert Baird. Please go ahead.

Hi, Bob, can I just ask you to, if you can, if you can quantify one thing that you said in the call. You said you expected an announcement shortly. Are we talking about days, weeks, a month, more for you?

Let's say it will certainly be during the second quarter, before the next earnings call. I think we will have an announcement.

It sounds like you've zeroed in on a candidate and you are just working through the details. Is that fair?

No. Let me say that we have gotten it down to a final group, and we have discussed it at the Board level, and we are now ready to finish the process among the finalists.

Got it, okay. A couple of questions about specific markets. Boston and San Diego, both are getting some supply later in the year. San Diego looks like it is going to be getting some supply for the next several years. Can you talk about what the outlook is in those markets and what your thoughts are on how your hotels will perform in that environment?

Let's talk about San Diego first. San Diego has a 1,200 room Hilton opening at the convention center this fall. Concurrently with that, the convention center has a very, very strong calendar and so I expect that the absorption of that 1,200 rooms into the calendar will be solid, although there's also been a number of other hotels, specifically our W Hotel downtown has been impacted by the opening of the Hard Rock and the ID in the last 12 months. We also have been affected at our Holiday Inn downtown by a major renovation. But we do see strong results coming through in the second quarter, and we are more optimistic about that market, and over the rest of the year and we certainly believe long term it's a fabulous market. The barriers to entry, even though they have had new supply, it's still very expensive and it has a lot of upward rate pressure that will benefit all of our properties in the San Diego area. In the Boston area we've already had some new supply added to the market recently. There was a Renaissance Hotel that opened. There was an Independent hotel, upscale in the former jail that opened. There's been some other hotels in the makings in Boston. We also tore up the Long Wharf and did a major renovation during the first quarter. The product has come out very, very well. We are back on track and we project a very strong year-end finish for that hotel.

I must say I always aspired to avoid spending the night in the Charles Street jail, I am not sure anybody would want it. Generally on the environment, are you seeing any slowdown in group bookings, attrition, or are you expecting more attrition, or in the bookings that you are getting, are you noting any change in the food and beverage commitments? Are meeting planners choosing cheaper menus? Or does that lead you to expect less out of room spend?

I'll just say that year over year at this point we are actually ahead on gross revenues on group bookings as of today versus a year ago. Ken, do you want to give him some more specifics?

Specifically, we are up 6% in pace this year and 90% of our groups are on the books in our big group houses. And right now we are really not seeing significant trade downs from the quality of menus. And I know that's something that we've been focused in on. And then some additional color on, in terms of attrition and cancellations, in the first quarter we monitored that fairly closely and there's really only a couple of groups that fell off the books. A couple in Orlando that were related to a change in the leadership actually of a company so a meeting was cancelled, and then one or two pieces at our Fairmont actually in Newport Beach. Both non, really, economy related, much more related to the nature of the business of the company that had booked the business in the hotel. So we are really not seeing a meaningful increase in cancellations. And as Bob and I both mentioned, pace is up nicely.

Great, thanks very much.

Thank you. Our next question is from the line of Michael Salinsky with RBC. Please go ahead.

Good afternoon, guys.

Hi, Michael.

Your comments on group bookings for fiscal year '08 were very encouraging. Can you give us a sense of what preliminary pace for fiscal year '09 is looking like at this point?

Ken’s got that.

Yes, '09 pace is up slightly. Still pretty early in the year but for our SHP portfolio actually it is up in the high single digits and then for our brand managed portfolio it's slightly up on a year-over-year basis.

That's helpful. Secondly, on previous conference calls you talked about looking at the portfolio asset-by-asset all the way down, trying to sell some of the lower end hotels. Is there a portfolio or anything identified at this point? Or can you provide a little bit more color on what you are looking at in terms of dispositions this year?

We have always had a policy that we do not talk about anything in terms of what we are planning until we actually have hard money and a firm commitment from a buyer. So at this point we have nothing to disclose.

Would you expect to be selling assets though this year? Is that a fair question to ask?

Absolutely. Our portfolio, our recycling of capital process has always gone on. As you know, since Sunstone went public in 2004, I think we've sold 26 assets and have acquired 17. So, yes. The answer is you can always expect to see announcements when they are firm and we are ready to make an announcement.

Okay. Then finally, in terms of capital spend for the year, it looks like you completed one asset in Boston there. Are there other major projects that should be on the horizon?

We have a conversion of a hotel in Houston to a Hilton and that conversion of that hotel should be complete by mid July. We also have a major renovation that will go on through the summer at the Holiday Inn downtown San Diego. As well as building of an additional floor of high end rooms at the International, which is our hotel within a hotel. And then we are completing renovation of the public space at the W Hotel in San Diego.

Okay.

So, all of those projects are going as we speak and will be completed during the second and third quarters.

That's helpful, and finally, I don't know if you mentioned this, what was RevPAR performance if you exclude the Boston hotel that was under renovations during the first quarter?

It was up 100 basis points over what we reported. So just add 100 basis points to the comparable numbers.

Okay. Thanks guys.

I think we reported 1.6. So it would be 2.6 total.

Thank you. At this time we have no further questions. Please continue with any closing remarks.

Just again, I'd like to thank everyone for your participation and your further interest in Sunstone. I appreciate the market support during this period of time of transition where I've become interim CEO, and our shares have performed nicely and I appreciate that. So again, thanks for your interest and we continue to work for the shareholders. Thank you.

Ladies and gentlemen, this concludes the Sunstone Hotel Investors first quarter conference call. Thank you for your participation and you may now disconnect.