Good afternoon, ladies and gentlemen and welcome to Sunstone Hotel Investors Fourth Quarter and Full Year 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. (Operator Instructions) As a reminder, this conference is being recorded, today, Friday, February 13, 2009. 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.

Thank you, 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-Qs, 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-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 in reconciliations to net income are contained in the earnings release that we filed yesterday. With us today are Art Buser, Chief Executive Officer and Ken Cruse, Chief Financial Officer. Following their remarks, the team will be available to answer questions. To begin management’s discussions, I would like to turn the call over to Art. Art please go ahead.

Thanks Bryan. I want to start off by thanking the 60 sum people who have called into this conference call, there should be well over 100 that have dialed in on the Internet are listening in today. This is my first call at Sunstone CEO, so let me say a few words, before we dive into the results. I met many of you at our [May, REIT] and what I said there is worth to be stating now. I look forward to [forging] and maintaining an authentic relationship with our investment community. One of the most important characteristics in my mind to have an authentic relationship in this context is frequent, transparent communication. I hope you felt that, these are challenging times, no surprise anybody here, but I’m optimistic that we have the portfolio, the balance sheet, what I would call “super bowl quality team” deliver returns to our stockholders. Our intentions and expectations are that Sunstone will be viewed as a company that exists to outperform. So with that, let’s start the call. During today’s call, we are going to cover five topics. First; let’s talk a little bit about the current economic environment, what we are doing to maximize cash flow. Secondly, our fourth quarter and full year operating results. Third, by preliminary estimate of January’s RevPAR results. Then Ken is going discuss our fourth and fifth topics, to be positioned dividend policies. So, we start with a review of our current operating environment and what we are doing about it. We all know the lodging industry continues to be directly impacted by the global economic crisis that lodging fundamentals continue to decline. We expect 2009 to be one of the most challenging years in recent memory in the industry. Throughout 2008, we worked closely with our managers…

Thank you very much, Art. Good morning or good afternoon everyone as the case maybe and thank you for joining us today. I’ll spend a moment going over our capital structure and liquidity as well as our dividend policy, before we open up the call to questions. First and foremost and to echo some of Art’s comments, we believe that the liquidity provided by our excess cash and our absence of near-term debt maturities, as well as our portfolios limited capital needs are critical advantages in today’s uncertain environment. We finished 2008 with approximately $220 million of cash on-hand, including restricted cash. This is a $109 million increase as compared to the year-ended 2007. As Art outlined, we’re focused on a variety of measures and retaining and if possible increasing our cash reserves during 2009. As of the end of 2008, our leverage ratio calculated as the ratio of our debt less cash to total assets was approximately 53% and we ended the quarter with fixed charge coverage ratio as defined in our unsecured credit facility of approximately 1.8 times. 100% of our $1.7 billion of debt is subject to fixed interest at an average rate of just 5.5%. The average term to maturity of our debt is more than six years and this is assuming that our 4.6% exchangeable senior notes will be redeemed in January of 2013 rather than at maturity in 2027. Our closest debt maturity is nearly two years away in December of 2010, which is the $81 million mortgage on our Hilton Times Square. Even in today’s challenging financing market, we believe we would be able to refinance this hotel at or above its current debt level. Beyond that, we have a well staggered maturity schedule, extending through 2021. I’ll spend a minute now on…

Thanks Ken. Again I appreciate everybody’s time today and your continued support in Sunstone and I’ve mentioned that I’m very proud of what this team has accomplished, in particularly what we’ve done in terms of margin and I look forward to speaking everybody who’s on the call today in the coming months. Before we open up to question, we did not talk lots about the super bowl quality team, so I think its important to have more than the quarter back and why we are seeing them show up on the call. So today Marc Hoffman, who’s our Head of Asset Management, is here with us today as well. Operator, please go ahead with questions.

(Operator Instructions) Your first question comes from Chris Woronka - Deutsche Bank.

A couple of quick ones; first could you let us maybe what the impact of Washington, D.C. was on your overall January numbers?

Sure, in terms of RevPAR?

Yes.

Yes, the impact of the inauguration on January RevPAR was about 700 basis points. So, if we said January was down 11, about D.C. would be down to 17.5, almost 18.

Then just as you kind of look out, are you seeing anything unusual in terms of the group cancels or booking windows, just trying to get a sense as to things changing pretty rapidly in kind of what you’re seeing and if that has anything to do with the decision not to give much guidance for ’09?

Nothing unusual for the current environment compared to three years ago. I guess I’d see it as unusual and so let me get to the heart of your question, which is Chris, maybe why aren’t we providing guidance, is that really the heart of it?

Yes, I think I can see the positive and the negative, if not just curious as to whether, there was a further decrease in visibility. I guess the last time you guys officially gave guidance was really back in the fourth quarter guidance in December.

That’s helpful. The final one is just on, Ken can you give us a share count, kind of where you’re going to be for the first quarter because you’ll have that stock dividend in there, right?

Yes, sure. After the stock dividend, total share of the principle will include the affect of the conversion of the series D that’s up $58.2 million shares.

Your next question comes from David Loeb - Robert W. Baird.

Can you give us a little bit of an idea about what do you expect for capital spending? I may have missed that, but I don’t believe you said anything about what do you think the CapEx outlook is?

David, important question for you and for me and it’s somewhat related to guidance. We said our capital spending had a lot to do with what our view of the year is and right now because I don’t have a view on the year, we’re hesitant to kind of say what our number is. What I can tell you is, it’s going to be less than what 2008 was. As you know and looking at our past statements, our incomes are $40 million, so clearly it’s got to be over or under or somewhere in between there. I know that’s a bit of a wide gap, but we haven’t set the number until we get more clarity. Until that time but the next question is what you’re doing?

When you’ve got a nice comfortable restricted cash reserve, will most of what you’re spending at least in the near term come out of that reserve is opposed from you freely available cash?

I don’t know for sure, but in thinking about it, the majority ought to come from that.

Okay and a couple for Ken, taxable income is almost impossible for us to estimate, clearly you’re not giving us any guidance. I guess the question is, do you see a scenario where your taxable income will be greater than what you would pay, assuming you paid for convertible preferred and straight preferred dividends.

Again, the answer to that is, yes. We could see a scenario where we would have distributable taxable income. Taxable income, if you look back to ’08, I think we’re going to keep with the theme of looking back instead of speculating on ’09. If you look back to ’08, we had about $84 million of operational taxable income and then we had another $29 million or some of gain that were distributable. Depending on what we do this year in terms of capital markets and assets sale transactions, you could see a distributable gain arising from that. Operationally, we are not going to comment on what we expect to come out for taxable income, but I think if you use 2008 as a baseline, you can view that $84 million as your flex point.

Okay and one final technical question. We noticed in the 10-K, that there was not a table that actually listed the individual mortgages in which assets they were tied to. Is there some reason why that was out or is that something you could provide to us?

We got the schedule at the very end of our release?

Yes, it’s just doesn’t identify which hotel go with which mortgages?

We haven’t provided that level of detail on the past, but that’s certainly something David that we can consider providing.

Your next question comes from Dennis Forst - Keybanc Capital Markets.

I wanted to ask question about the corporate overhead. Art you said that there have been cuts there? I don’t think there is going to be much in the way of severance this year. Can you give us a general idea of what corporate overhead is going to like this year?

In terms of just the dollar amount or in terms of the base?

Yes, dollar amount. It looks like it’s been last three quarters running around $4 million a quarter and I would suspect that it could even be a little less than that this year?

So, we should be down in terms of cash, down 3.5%. So, total should be $17 million.

Okay, $17 million or so, full-year?

And I’ll add the technical ish after that.

Okay, and then I wanted to understand the total portfolio occupancy in ADR for ’08, what we’re comparing against. We now have 43 hotels, what is it around 14,500 rooms. Can you walk us through the prior year occupancy and the ADR’s by quarter?

By occupancy and ADRs by quarter for either the comparable or non-comparable?

No, just the total 43 properties.

Okay, what if I give you RevPar?

Okay, I can look with that.

For 2007 or you want to go 2008?

Just 2008, I can compare it with our model of ’09.

Yes, it was 114 and up, still less than 3% year-over-year. Q2 we’re 130, like 132, that was a little under 4% up year-over-year. Then Q3 was 126, if you start to see the slide we’re almost down 2% year-over-year and then Q4 was 107%; again that was 11.4%

Yes, and then the full year number are in K, I’ll spell it out. Okay, and last question for Ken; there is a covenant that you have on the Series C preferred that might prevent you from paying it, can walk us through with that covenant is?

Sure, I’ll give you a moment on the Series C. We didn’t spend time on the call today because we view that as a less restrictive and les eminent covenant concern as compared to our credit facility. Series C has a couple of financial covenants as a leverage ratio and that’s calculated debt-to-EBITDA, a maximum of the eight times. It also has a fixed charge coverage ratio at 1.15. The way it’s awarded in the Series C s, it’s much restricted than the credit facility. We would need to breach a covenant and fail a covenant for four consecutive quarters, before we have what’s called a financial ratio violation. If a financial ratio violation were to occur, we would end up having a couple of different restrictions. We’ll pay a little bit more in interest on the Series C, so basis point increase in the interest rate. The Series C holder will have the right to elect one board member of the company and we would also have certain other restrictions such as a restriction on paying dividends on the common stock and it helped us as we cleared the financial ratio violation.

(Operator Instruction) Your next question comes from Michael Salinsky - RBC Capital Markets.

I know you guys are not giving guidance and you guys have done a very good job on the expense front over the past four quarters here. Just given the expenses reductions we seen, thus far in 2008, how much is really left to eliminate in 2009 and just looking at that I know I guess that you guys are providing guidance, but can you kind of give us a sense of what kind of flow through. If RevPAR is down, 10%, what kind of impact do you expect to see on the margin front, just given what you guys have rolled out thus far this year?

I know you guys are not giving guidance and you guys have done a very good job on the expense front over the past four quarters here. Just given the expenses reductions we seen, thus far in 2008, how much is really left to eliminate in 2009 and just looking at that I know I guess that you guys are providing guidance, but can you kind of give us a sense of what kind of flow through. If RevPAR is down, 10%, what kind of impact do you expect to see on the margin front, just given what you guys have rolled out thus far this year?

That was Michael a direct question. If we saw a 10% further RevPAR decline, what might we see in the EDITDA?

No, what might you see on the margin front? I mean what’s the flow through essentially on the margin front?

No, what might you see on the margin front? I mean what’s the flow through essentially on the margin front?

Again, tough to calculate; it’s somewhat store-by-store. I think in the past we talked about that for every 1% decline in RevPAR that the result declined in EBITDA. It could be kind of two to three time, that doesn’t tell you what the margin is, but at least tells you what the gross EBITDA is. So that indicates to you that what we expected, there’s been a decline in RevPAR, and we all know there is diminishing returns on the first dollar loss in revenue and these are kind of expenses that as it continues to go it’s more, more difficult. I think as you’ve heard on the call, Marc and his team did a great job of continuing to find expenses and make cut. So, I would expect that kind of that, and a two to three times reduction in EBITDA would likely still hold, again depending on is it 100% ADR or kind of which will tell the default. So, I know I didn’t answer your question directly in terms of how much it would change EBTIDA margin, but if we see that’s where the EBITDA would change and I think, staffing reduction should be over about $4.5 million in cost savings for 2009 based on what we’ve done thus far. Mark, you do have anything to add to that.

Thank you, Art. Mike, when we build the cost models for 2009, we were very cognizant and we were very proactive working with our partners; we’ve taken approximately $13 million in peer cost model changes for operating these hotel. It’s not a cost reduction from the normal, if the hotel goes from 80% to 70%, that’s normal cost. It’s really remodeling the way the hotel has run and so we took out of pure $13 million additional cost, which should helps us to meet weather the storm of what the RevPAR’s are as they decline.

Okay. Responding on the expense line, what are you guys looking for, for utilities, insurance and real estate taxes in 2009?

We haven’t given that level of detail again. Part of the reason why we’re not giving you clear guidance on the top-line is we’ve redone the budget a couple of times and clearly as occupancy changes, some of those expenses that do vary along with occupancy are going to change as well. So unfortunate I can’t give you a lot of guidance on that.

Okay. Secondly, your fourth quarter results and the guidance you provided originally, does that include the guarantee in there?

Yes, it does.

Did that come in more or less expected, or was it inline?

Outline.

Finally, several of your peers and some of the other sectors have been authored by buying their converts back as it related to de-lever. Is that been something contemplated and will that provide you with enough liquidity to maintain the covenants on your line, if you were to do so?

We’re not a buyer of those right now. Again our stated goal has really been to maintain and build our cash reserves; never say never but it’s something that we’re not a buyer of now.

Thank you and I show no additional questions at this time. Please continue.

Again thanks again for all of you listening in. I look forward to our next call; it’s going to be scheduled for sometime in March. Thanks again, good bye from Sunstone.

Ladies and gentlemen, this concludes the Sunstone Hotel Investors fourth quarter 2008 conference call. You may now disconnect. Thank you for using AT&T conferencing. and are :

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