Good afternoon ladies and gentlemen and welcome to Sunstone Hotel Investors Third Quarter Conference 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. If anyone needs assistance at any time throughout this conference, please press the star followed by the zero. As a reminder, this conference is being recorded, today, Wednesday, November 5, 2008. I would like to turn the conference over to Mr. Bryan Giglia, Vice President of Corporate Finance of Sunstone Hotel Investors, please go ahead sir.

Good afternoon everyone and thank you for joining us today. By now you should have all received a copy of our earnings 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 described in our prospectuses, 10-Ks and other filings with the SEC which could cause actual results to differ materially from those projected. We caution you to consider those factors in evaluating our forward looking statements. We also note that this call contains non-gap 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-gap items in reconciliations to net income are contained in the earnings release that we issued earlier today. With us today are Bob Alter, Executive Chairman and Chief Executive Officer, Art Buser, President, Ken Cruse, Chief Financial Officer. Bob will begin our call today, with an overview of the operating environment. Art will then review the highlights from the quarter. And finally, Ken will discuss our liquidity, capital structure and guidance. Following the remarks, the team will be available to answer questions. To begin management’s discussion, I’d like to turn the call over to Bob. Bob, please go ahead.

Good afternoon everyone and thank you for joining us today. During today’s call, we will cover five topics. First I will discuss the current economic environment and its implications for Sunstone’s long term value. Next, Art Buser, our new president will review our third quarter operations, and near term cash maximization tactics. And finally, Ken Cruse will discuss our liquidity position and our guidance for the remainder of the year. Number one, current operating environment and implications on Sunstone’s value. For the past year, the US and the World have been struggling with a growing financial crisis and declining consumer sentiment, which have led to the global economic downturn we’re currently experiencing. The lodging industry is highly correlated to the overall economy so you might expect we are seeing softening in our business. During the third quarter, our comparable RevPAR was down 1.3% as compared to last year’s extraordinary level. Not a trivial decline, but certainly not catastrophic. In fact, I would characterize our 78.5% occupancy and $158 average rate as healthy. Our portfolio continues to perform at a very high level. The third quarter, same store RevPAR down just slightly to 2007 peak levels, and year to date we are still up more than 9% as compared to our 2006 levels, which was a very strong year for our industry and our portfolio. Meanwhile, our stock, which traded above $15 a little over a month ago, and over $30 a little over a year ago, has recently traded below $4 which puts our total equity market cap below the value of our cash on hand, and implies the portfolio valuation of less than $120,000 per (inaudible). For perspective, we estimate the replacement value per (inaudible) of our properties ranges from $300,000 to $500,000. Now, I cannot tell you exactly…

Thank you Bob. And thanks everybody for joining us on the call today. Did you all know I joined the team back in July and from day one I’ve truly hit the ground running. Having done a full lap around our properties and about ten deep into the second lap, I can say, with confidence, that buy and large our assets are in great shape. They’re in the market you want to be in long term. Bob mentioned our balance sheet is strong, with meaningful liquidity and we have the makings of a super bowl team. As the leader of this team, it’s my responsibility to maximize the performance of our hotels, and our people for our shareholders. Let me first speak to the third quarter results. Even in this challenging environment, our third quarter FFO per share came in just slightly below last year’s level. Year-to-date, our portfolio’s generated over $2 in FFO per share, 2.5% increase over last year. Adjusted EBITDA for the third quarter was $68.5 million, down 10% from last year, and adjusted FFO per share was only down slightly to last year, $0.69. Third quarter, 2008, total hotel portfolio hotel RevPAR decreased by 2.1%. The 1.1% increase in ADR was partially offset by 260 bases point decline in occupancy. I am disappointed to say that this result was slightly below the low end of our previously stated range, primarily due for greater than expected softening of travel across the board. Specifically weakness in Baltimore, San Diego markets and the impact of Hurricane Ike on our two Houston properties. Year-to-date, our total RevPAR increased 1.3% over 2007, out performing the US upper upscale trend which is up .5% year-to-date. Comparable portfolio RevPAR excluding the Renaissance, Baltimore and Orlando, our two non-comparable hotels that experienced material and…

Thank you Art. Good afternoon everyone, and thank you for joining us today. First, with respect to our capital structure and liquidity. As Bob said, we finished the quarter with approximately $232 million of cash on hand, including restricted cash. This equates to nearly $4.80 of cash per share. Said another way, our cash on hand equates to better than 85% of the closing price of our stock today. As Art outlined, we are focused on a variety of measures, things that are maximizing our retained cash during these uncertain economic times. As of the end of the quarter our ratio of net debt to total assets, as defined in our unsecured credit facility, was approximately 44%. At the end of the quarter with a fixed charge coverage ratio of 1.93 times. 100% of our $1.7 (inaudible) a set is fixed at an average rate of just 5.5%. This average rate is approximately 200 to 300 basis points below current market rates. The average terms of maturity of our debt is more than seven years, assuming that our 4.6% exchange with senior notes will be put back to us on the first permitted date in January of 2013. Our closest debt maturity is in December 2010, which is the $81 million mortgage on our Hilton Times Square, the hotel we believe to be worth well in excess of $300 million. Even in today’s market, we do not believe that refinancing this hotel at or above its current debt level will be an issue. We believe that especially in these challenging times, the liquidity provided by our excess cash and our absence of near term debt maturities are critical advantages. I’ll spend a minute now on a topic that’s on the minds of many investors, corporate financial covenants. First off, none…

Ken thank you. 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 sir. We will now begin the question and answer session. As a reminder, if you have a question, please press the star, followed by one on your touch tone phone. If you would like to withdraw your question, please press the star, followed by the two. And if you’re using speaker equipment, you will need to life the handset before making your selection. Our first question is from Jeff Donnelly with Wachovia Securities, please go ahead. Jeff Donnelly – Wachovia Securities: Good evening guys. You mentioned it obviously in your press release that you continue to pay out 100% of your taxable income. You know, are you able to give us, I’m not sure if you have this handy, what your taxable net income was fully year ’07 and, sorry if I missed it in your remarks, maybe an estimate in 2008?

In 2007 our dividend was just about right on our taxable income for the year. So if you look back to our dividend last year that was pretty close to our taxable income. As I mentioned in my remarks, we’re not prepared to give an estimate for 2008 at this time. We’re delaying the announcement of the dividends until December when we’ll have a bit more clarity o on that. Jeff Donnelly – Wachovia Securities: Are you able, maybe to express it in a different light as you look forward to 2009? Like maybe as a percentage of an SAD payout?

When we make our calculations for taxable income, we look at it as equating approximately 90% to 100% of SAD or cash available for distribution. Jeff Donnelly – Wachovia Securities: That’s helpful. And just one last question, you know, I’m not sure if this is for Art or Bob or both. I don’t expect either of you to give guidance, this is (inaudible) guidance on 2009 or really place stock picker, but you know, you did mention it Bob, I mean hotel stocks tend to move on RevPAR deceleration or declines begin to abate. When, in your opinion, do you believe we get that period? Is it late in 2009, when you begin to see RevPAR declines begin to slow down?

Jeff, if I knew that, or any of us knew that, we would not be working for a living. Obviously, you know, there’s a lot of, you know, info floating around there that it could be, you know, the end of, end to the third or fourth quarter of ’09, it could be in ’10. You know, generally when the bottom has hit on RevPAR and it starts to show year over year growth, that’s when generally investors get excited and come into the market and they end to come into the market kind of at the end of that, as part of the increase. You know, based on what I think will happen in ’08, I think our comparisons for ’09 should be pretty favorable, just because of how bad ’08 fourth quarter’s going to look. But you know, who knows where the economy goes from here. Jeff Donnelly – Wachovia Securities: And actually one last question, I guess for you Bob, you know, probably close to, I guess maybe it was eight year ago, I forget when it was. But, you know, we found ourselves in a similar circumstance with Sunstone and you were able to take Sunstone private. You know, you definitely have access to that private equity world. What are you hearing from...

It was nine years exactly last month, October. Jeff Donnelly – Wachovia Securities: Not that you’re counting. What do you hear form that world today around how they look at like, I guess either public companies evaluations or real estate, you know, hotel assets and valuations? And when do you think that group gets interested in maybe becoming more active in hotels and real estate?

Did you read page C14 of the Wall Street Journal today about Blackstone’s timing? Jeff Donnelly – Wachovia Securities: Yes.

I would suggest that most of the private equity is sitting on the sidelines for at least a little bit. Jeff Donnelly – Wachovia Securities: Okay, thanks.

Thank you sir, our next question comes from the line of David Bow, with Robert W. Barrett & Company, please go ahead. David Bow – Robert W. Barrett & Company : Hi, Bob, I don’t know what to say about your level of wealth, but I imagine you really enjoy working too. So that’s kind of a funny thought. On the dividend (inaudible), I clearly think that nobody’s going to mind you resetting the dividend in this environment. But I am curious about what your thinking was about the stock dividend given that clearly your shareholders can’t use the stock dividend to pay their taxes. What’s the thought here about the potential solution of that and why you would stock dividend and how much you might you use.

Hi David, it’s Ken Cruse. With respect to the stock dividend as Art, Bob and I all emphasized on the call today, our focus is on maximizing our retained cash in this uncertain environment. Certainly over the long term our goal is to distribute out to our shareholders a meaningful cash percentage of our income. But in the near time because we have a non-recurring capital gain this year, we are looking into doing a stock dividend, or partial stock dividend similar to what other (inaudible) have done including the (inaudible). And this would not result in dissolutions to the existing shareholders as it would be split, an optional split for the existing shareholder group only. It’s as if, David, you handed me one share and I handed you back a share 1.1 shares back. That simply is what happens, it’s not additional shares being issued to the public, it’s just splitting the shares that are being held by the existing shareholder group. So I think it’s a great way for us to retain cash in an environment like this, and as you mentioned very appropriately, most of our shareholders are expecting to see dividends reduced by most of the (inaudible). David Bow – Robert W. Barrett & Company : Right. The reduction part I think really applies to next year, people are going to have tax bills related to the capital gains. But I definitely hear your point about the stock split. It just seems like then it’s a phantom dividend. It’s really more changing the number of shares that everybody has rather than providing some return.

Actually you’re earlier comment about the tax portion of it, a significant number of our shareholders are pension funds that are tax exempt. So in that case, they can choose the shares. Those that are tax paying will have an option to choose some portion of their dividend in cash. And so therefore, the taxpayers will likely pick the cash and the non-taxpayers will likely pick the shares. In terms of it’s a phantom dividend, it’s not a phantom but in fact, you know as Ken explained, the 1.1 of the split aspect of it does solve our taxable distribution requirement without necessarily utilizing what we consider our precious commodity, which is cash. David Bow – Robert W. Barrett & Company : Yes, the option part is something that was not explicit in the release. It sounded like Ken was sort of leaning that way. Thank you for making that explicit because then suddenly it makes a lot more sense where not everybody’s getting more shares. So you’re getting a value if you take more shares versus, I think what you’re giving up in cash. Would you set some parameters around that? Is that what you’re going to decide and announce in December that you decide that a certain portion is, you can choose on a certain portion? Or within certain guidelines?

David, hi, this is Ken again. I apologize for not explaining it more clearly up front. Yes, in December we will announce the parameters. But essentially what we expect to do is make up to 20% of the total value of the dividend available to shareholders who wish to receive up to all cash in a distribution. We will make that amount available in cash. Now again, we will limit the amount of available, of cash available on the total distribution to 20%. So there is a variety of scenarios where you can see that shareholders who elect to receive all cash may not receive all cash. But I think Bob said it pretty well. Generally there are a number of shareholders who would prefer to receive their shares, they’ll elect to receive all shares, because it’s up to their shareholders who would prefer to receive all cash. And they’ll elect to receive all cash. David Bow – Robert W. Barrett & Company : Okay, and back to the dividend level. Is there a portion of your first three quarters dividends and what would have been the ordinary $0.35 in the fourth quarter, that is in excess of what you’re taxable income has been. And I guess what I’m trying to get at is, we’ve made a calculation of what we think that special dividend requirement of the capital gain distribution requirement could be. But might it be less than that given that you’ve paid in excess of your taxable income to date?

David at this point we’re not prepared to talk about our regular taxable income for the year. But I think you’re on a good track there in terms of trying to estimate what we paid out relative to our taxable income. And certainly that will factor into the total amount of the dividend that we pay out in January. As you know, it’s going to change dollar for dollar with changes in our operations. And in this volatile environment we are not prepared today to tell you what our regular taxable income will likely come out at this year. David Bow – Robert W. Barrett & Company : Thank you, okay. One more and then I’ll click back in for additional ones. You have $43 million of restricted cash. That seems like kind of a lot. I know you’ve had that for a while. But what does that relate to given that you’ve put a lot of capital into your hotels over the last several year?

We have a number of different reserves David. As you know most of our debt is secured debt by the hotels. So we have a lot, at any given point in time where we’ll have property tax reserves for example in out hotels. That’s a big number for our portfolio, we pay over $20 million in property taxes. Most of that gets impounded. And you know there are variety of other reserve accounts.

All of our franchise hotels and our franchises themselves have a (inaudible) reserve requirement, which that money goes into funds that’s restrictive. And then when we go spend capital, we use it out of that fund. But there’s always an amount of money in what we call capX jail, that’s in the restricted numbers. David Bow – Robert W. Barrett & Company : Right, it’s just, for a (inaudible) reserver it’s a very big number, particularly when presumably you’ve got the get out of jail card when you’ve spent in 2007.

Well we’ve spent, we have a billion, almost a billon dollars worth of revenues. Our capX reserves are in the $45 to $50 million a year.

4%, at 4% and 5% depending on the, you know...

About a million per property.

Right. David Bow – Robert W. Barrett & Company : Okay. That’s great, thank you.

Thanks David.

Thanks David.

Thank you sir and our next question comes form the line of Dennis Force of Citibank, please go ahead sir. Dennis Force – Citibank: Good afternoon. Ken I missed one of the points you were talking about with the $81 million mortgage due at the end of 2010. What is the security on that?

That’s the Hilton in Times Square. Dennis Force – Citibank: Times Square Hilton, okay. And if you were to, for argument sake, refinance that today, what kind of a rate do you think would be available?

Okay, I’ll caveat that with this is based on our, you know, the (inaudible) of lenders recently. We haven’t done any secured financing recently. But current indications would be on an asset like that, we could in excess of $100 to $150 million of proceeds that’s well below what we could have gotten a year and a half ago on the assets. And the rate on a mortgage such as this would range from LIBOR plus 300, to LIBOR plus 450. Dennis Force – Citibank: Okay. Great. And are you talking about it being a floating rate or that being a fixed rate?

Those are floating rate terms. Dennis Force – Citibank: Okay, so...

On a fixed rate, generally it is, would be today, 300 to 450 over call it the (inaudible). And the existing rate on that piece of debt is 5 point... Dennis Force – Citibank: 5.92.

5.92. Dennis Force – Citibank: Yeah, so your rate would be, you think LIBOR plus 300 to 400 or on fixed 10 year treasuries, plus...

300 to 400. Dennis Force – Citibank: 300 to 400.

Yes. Dennis Force – Citibank: Okay and then you said you had 11 unencumbered hotels. Would you give us the last 12 months cash flow on that?

We have not reported that out Dennis. Let us look into maybe providing that in the future. Dennis Force – Citibank: Okay, good. And then, the $67 million left of share repurchasable, does that sunset at the end of the year?

Yes. Dennis Force – Citibank: So use it or lose it, okay. And then lastly, in the press release, say the company invested 20.9 million in capital projects, is that all capX for the quarter?

Yes. Dennis Force – Citibank: That was total capX okay, great. Thank you very much.

Thanks Dennis.

Thank you sir. Our next question is from the line of Tom Vanderfoot with Argent Funds, please go ahead. Tom Vanderfoot – Argent Funds: My question has been answered, thanks.

Thank you sir. And our next question comes from the line of Chris Barranca with Deutsche Bank, please go ahead. Chris Barranca – Deutsche Bank: You know, you can’t provide ’09 guidance, but how should we think about cost per occupied room and you know, I assume you’re going to remix business a little bit which could impact the rate. I mean how are you guys internally with Sunstone with (inaudible) properties? Is there any way to kind of ballpark targets there?

Chris I missed the front end part of your question. Was it just basically about how we’re estimating costs, or did it have to do with revenues as well? Chris Barranca – Deutsche Bank: Well I mean both, I mean, I assume the business is going to be remixed a little bit next year. You might group up a little bit in certain cases, and take a little bit more discount business. And so, you know, how do we think of, how do we think about your overall, I guess, revenue management and then, you know, mix of occupancy RevPAR. Without numbers just kind of directionally and what, you know, how that’s going to impact your cost management strategy.

I think as you pointed out, it’s probably pretty difficult for us to talk about individual rate strategy or property strategies because it’s really a street corner by street corner, asset by asset. So there’s no real general direction that I can give you that’s applicable universally across our properties. You know in terms of expense line items that we’ve rebid out, our insurance and so there’s some things we can look in to the future. But in terms of wages and other things, there’s really not a lot of barometers that I can look to. Now everybody is grouping up out there, the question is whether group is really a (inaudible) to a hotel. Sometimes there are, you know there are businesses out there now that actually aren’t down as much, or maybe flat with last year. And so you know, grouping up is a common popular, sometimes useful strategy but not always applicable. So, sorry, I don’t have a direct answer for that because we’re really going to be getting budgets at some cases, beginning at 2009, certainly at the end of this year. It’s premature for me to do anymore than speculate anymore than I have. Chris Barranca – Deutsche Bank: Okay, fair enough. Thanks.

Thank you sir. And our next question comes from the line of David Bow for a follow up. David Bow – Robert W. Barrett & Company : Hi, sorry about the printer noise in the background, lots of earnings today. I was a little surprised at the coverage language in the press release. It seems like you guys are, or your lawyers, went out of the way to make sure that you discussed what the risk was of the covenants. Is there anything that’s materially changed that’s led you to that additional concern, other than just the fact that stock is down and the market’s down and people are very worried about that?

Hey David, it’s Art Buser. You know having listened to a number of calls and transcripts, it seems every call somebody asks about line of credit, so we just thought the right thing to do was we’re going to be asked about it why not give people full detail on that up front. And that was really the reason behind it. David Bow – Robert W. Barrett & Company : Well that’s great, we definitely appreciate that level of detail. Ken, in that covenant, among the covenant is a requirement for an unencumbered pool of assets. Is that the 11 hotels, or a subset of the 11 hotels?

That is the 11 hotels. There are 10 hotels in that pool, one hotel is not pledged to the facility. David Bow – Robert W. Barrett & Company : Okay, so you could borrow against the 11, but it sounds like what you’re saying is that’s sort of in lieu of the credit line.

That’s correct. That’s correct. David Bow – Robert W. Barrett & Company : Okay, and finally just a kind of a math thing, in looking at your results relative to your guidance, you were under in comparable RevPAR. You were worse than expected. Worse than expected in margins. But Ken right in the middle of adjusted EBITDA, to me the obvious answer there is that your G&A was less than you expected. Is that right, or was there something else that I missed or something else about the nature of the guidance?

David you’re hitting the nail pretty close to on the head. G&A did come in below and as Art mentioned in his comments, G&A has come in year to date down 8% relative to where we were budgeting and forecasting. We also saved some money on our interest expense during the course of the quarter. I’m sorry, we had higher interest income during the course of the quarter which was factored into our EBITDA. And then our laundries also out performed relative to forecast. So a few minor items but they all worked to enhance the EBITDA number during the quarter. David Bow – Robert W. Barrett & Company : That’s great, well those things count. That’s all I had, thank you very much.

Thank you David.

Thank you. And I saw no further questions in the queue, I would like to hand the call back over to management for any closing remarks.

Again, this is Art Buser, thank you very much for calling in. I look forward to speaking with you next time.

Thanks.

And ladies and gentlemen, this concludes the Sunstone Hotel Investors Third Quarter Conference Call. You may now disconnect. Thank you for using AT&T conferencing.