Good morning, ladies and gentlemen. Welcome to the Sunset (sic) [Sunstone] Hotel Investors Fourth Quarter and Full-year 2011 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded today, Wednesday, February 22. I'd now like to turn the conference over to Bryan Giglia, Senior Vice President of Corporate Finance of Sunstone Hotel Investors. Please go ahead.

Thank you, Amaryllis. Good morning, everyone, and thank you for joining us today. By now, you should have all received a copy of our fourth quarter's earnings release, which was released yesterday after the close of market. If you do not yet have a copy, you can access it on our website at www.sunstonehotels.com. In addition to our scheduled quarterly release, we also have provided a quarterly supplemental with additional disclosures, including property level operating statistics. The fourth quarter supplemental can also be found in the Investor Relations section of our website. Before we begin, I would 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 may contain non-GAAP financial information, including EBITDA, adjusted EBITDA, FFO, adjusted FFO and Hotel EBITDA margins. We are providing that information as a supplement to information prepared in accordance with Generally Accepted Accounting Principles. With us today are Ken Cruse, President and Chief Executive Officer; Marc Hoffman, Chief Operating Officer; and John Arabia, Chief Financial Officer. After our prepared remarks, the team will be available to answer your questions. I'd like to now turn the call over to Ken. Ken, please go ahead.

Thanks, Bryan, and thank you, all, for joining us today. On today's call, I'll cover some the high points from our fourth quarter and full-year before reviewing some of the details of our long-term strategy. Marc will then cover operations in detail, and John will discuss our balance sheet, finance transactions and guidance before I wrap up our prepared remarks with a discussion on our priorities with respect to future operating cash flows. So let's get started. The fourth quarter capped a significant year for Sunstone. By way of highlights, in 2011, as compared to 2010, our corporate revenues grew by 34% to $835 million. Our adjusted EBITDA also grew by 34% to $212.5 million. Our adjusted FFO per share grew 53% to $0.87. During the year, we added roughly $900 million of high-quality hotels to our portfolio, all of which performed ahead of underwriting in 2011. We also completed over $100 million of capital investments into our existing portfolio in 2011. And we materially refined our corporate governance structure, policies and protocol. And finally, we assembled a new leadership team and developed a balanced and focused strategy. 2011 was clearly a transitional year for Sunstone, and we expect 2012 will be a year in which we build positive momentum. But before we shift to our long-term plan, I'd like to spend a moment drilling down into the details of 2011. For the fourth quarter, our fourth quarter RevPAR was up 5.9% to $123.36, driven by a 5.3% increase in occupancy, which grew to 72.1%. As expected, due largely to a program change at our Doubletree Times Square and softness in our Washington, Baltimore properties, [indiscernible] for our portfolio in the fourth quarter was essentially flat, up 0.6% as compared to Q4 2010. For the full year 2011, our portfolio…

Thank you, Ken, and good morning, everyone. Thank you for joining us today. I will review our portfolio's fourth quarter and full year operating performance in greater detail, review some of our asset management initiatives and preview 2012 major CapEx projections. All hotel information discussed today, unless otherwise noted, is for our 32 Hotel portfolio, which includes, on a pro forma basis, all 2011 acquisitions, including the Doubletree Guest Suites Times Square, the JW Marriott New Orleans and the Hilton San Diego Bayfront. In the fourth quarter, 13 of our hotels generated double-digit RevPAR growth, including our 2 Houston hotels, Times Square Hilton, the Embassy Suites Chicago and the Tysons Corner Marriott, to name a few. As previously noted, a change in the Hilton HHonors redemption policy negatively impacted the Doubletree Guest Suites during the fourth quarter. But strong demand trends throughout the quarter partially offset the impact of the Hilton HHonors policy change, and as a result, the Doubletree Times Square performed better in the fourth quarter than we had anticipated. The modification to the Hilton HHonors plan resulted in a 70 basis point negative impact to Q4 portfolio RevPAR growth as opposed to the expected 130 basis point negative impact we noted on the prior call. For more detailed information, please reference Page 25 of our earnings supplemental. In 2011, 30 of our 32 hotels had positive RevPAR, with 8 of those hotels generating more than double-digit growth, including our 1,190 room Hilton San Diego Bayfront, the recently renovated Chicago Embassy Suites and Times Square Hilton. From a total rooms segmentation standpoint in Q4, group revenues were up 2.4% with a 1.2% increase in group ADR. Q4 transient room revenue increased 6.8% to last year, with a 5.18% increase in room nights and a 1.3% increase in ADR.…

Thank you, Marc. Good morning, everyone. Today, I'll give you an overview of several topics including first, our liquidity and access to capital; second, recently completed and anticipated finance transactions; and third, details regarding our earnings guidance. With respect to liquidity, Sunstone ended 2011 with just over $218 million of cash, including $150 million of unrestricted cash. We expect to utilize the bulk of our excess cash during the course of 2012 primarily to fund debt production according to our stated plan to methodically de-lever our balance sheet. In addition to our strong cash position, we have an undrawn $150 million line of credit and 12 unencumbered assets that collectively generated $40 million of EBITDA in 2011. Our unrestricted cash balance of $150 million exceeds the $90 million total of all of our debt maturities through early 2015. As detailed on Page 20 of our investor supplemental, these near-term debt maturities include the $32 million mortgage on the Renaissance Long Beach, which matures this July, and the remaining $58 million of Exchangeable Senior Notes, which are likely to be put to us next January. As detailed in our press release earlier this month, we repurchased 4.5 million of our exchangeable notes at a price of 101.5% of PAR. While the transaction was very small, it is consistent with our objective of reducing leverage. Furthermore, we've been maintaining a higher-than-normal cash balance in order to pay off both the Renaissance Long Beach mortgage and the remaining exchangeable notes within the next 12 months. At the end of the year, Sunstone had $1.57 billion of consolidated debt, which includes 100% of the $238 million mortgage secured by the Hilton San Diego Bayfront. Adjusting for the debt attributed to our minority partners in this asset and the transactions completed subsequent to the end…

Thank you very much, John. I'd like to spend my last few minutes on our operating cash flow allocation policy. As we've stated, we believe we will maximize shareholder returns by gradually reducing our leverage and smartly growing our portfolio scale and quality. Paying cash flow out of the system would be directly counterproductive to those goals. Accordingly, in addition to naturally de-leveraging through improving operations, going forward, we intend to utilize a significant portion of our operating cash flow to repay debt rather than pay significant cash dividends. While this approach will distinguish us from many of our peers, as most of you understand, cash dividends do not create value, they simply transfer value. And in our case, retaining that value within the system is the most prudent course. In our opinion, significant cash dividends make sense for companies that are mature, stable and have achieved their growth and balance sheet objectives. In our case, directing as much operating cash flow as possible toward debt prepayment, obviously, while adhering to the REIT rules will clearly maximize the benefits to our stockholders as this approach will drive additional equity value rather than equity returns, will de-risk the company and will directly offset the need for us to turn around and raise expensive capital to fund growth and de-leveraging. Clearly, this is the right course for a growing capital-intensive company like Sunstone. To wrap up, I want to thank the entire Sunstone team for all they've done and continue to do to advance our business objectives. As I said, we couldn't be more confident or enthusiastic about our future. Sunstone's value proposition is compelling, industry fundamentals are improving and we have the right plan, portfolio and team to drive significant value going forward. We thank you all very much for your time and your interest in Sunstone. And with that, let's open up the call to questions. Amaryllis, please go ahead.

[Operator Instructions] Our first question comes from the line of Joseph Greff with JPMorgan.

Sorry, Joe, we can't hear you. [Technical Difficulty]

The next question comes from the line of Smedes Rose with Keefe, Bruyette & Woods. Smedes Rose - Keefe, Bruyette, & Woods, Inc., Research Division: It's Smedes. I was just wondering if you -- you talked about some of your results without D.C. in 2012. I'm just wondering what do you think your RevPAR would have been if you x-out the weakness in D.C. for this year? Would it be higher than that 4% to 6% range, I assume, or?

Hi, Smedes. Yes, D.C. in particular is impacted by 2 factors. First of all, as we've talked before and others have spoken about as well, D.C. and Baltimore are showing soft years. And election year in D.C., city rates are down significantly in both markets, and so you just got a cyclical trough in terms of group demand. In the first quarter, I noted that our RevPAR numbers are off probably 300 basis points just due to the impacts of softness in D.C. and Baltimore. We've got additional impacts in D.C. as a result of our renovation work, which we expect will result in roughly $3 million worth of revenue displacement. So there's several hundred basis points of RevPAR impediments, if you will, in the D.C. and Baltimore assets. Just to be safe, I'd say between 100 and 150 basis points on the gross side. Smedes Rose - Keefe, Bruyette, & Woods, Inc., Research Division: Great. And then I just wanted to -- I think we've kind of figured this out, but on your RevPAR guidance of 4% to 6%, what is the sort of implied, I guess, margin expansion that you're expecting?

So good question also, Smedes. We are expecting margin expansion this year ranging from anywhere from 30 to 100 basis points. Certainly, as I mentioned in my comments, we could see margins expand at a more market pace during the course of the year. But we think at this point, caution is just the prudent way to approach our guidance.

And our next question comes from the line of Andrew Didora with Bank of America Merrill Lynch.

Ken, just a quick question with regards to the transaction environment, especially as you may look to sell some assets over time. What does the market look like right now just in terms of the pool of buyers that are out there?

Look, I think the pool of buyers, even the buyers for acquisition or assets, hotels in particular, over the last couple of years have been the lodging REITs themselves primarily. It depends on what types of assets you're selling, but there are some significant pools of private capital that are looking to invest in lodging, kind of based on the same thesis that we talked about on our call today, that we are at the front end of a recovery in our industry. We've got great fundamentals and frankly, you can get some fairly decent yields on lodging assets today, given where things are trading on cap rate terms. So we expect the buyer universally expand out a little bit during the course of 2012. That said, as you're aware, deal flow hasn't been that robust as REITs continue to revalue, and again, as private buyers get more confident in the fundamentals on our business, you'll see more of those buyers emerge.

Andrew, it's John Arabia here, if I could add on. Today, you're seeing a lot of private equity, smaller private equity players come in, particularly being attracted to assets that have -- that are good assets and also have in place assumable financing. That's something that really helps enable a transaction from public to private. And so I would say that, that level of interest is, in general, is pretty robust.

That's helpful, John. And then one last question, maybe digging down on the margin question from earlier. What would your margin growth be in 2012 if you stripped out D.C. and Baltimore?

We didn't give those figures. But as you can expect, D.C. and Baltimore are, as we touched on, impeding the top line growth. And on the bottom line growth as well, the 30 to 100 would certainly be higher if D.C. and Baltimore were firing on all cylinders as we expect them to be in 2013 and beyond. But we didn't provide specific guidance on margin performance x D.C. and Baltimore.

And our next question comes from the line of Patrick Scholes with FBR Capital Markets. Charles Patrick Scholes - FBR Capital Markets & Co., Research Division: Just want to make sure I heard you correctly. In your prepared remarks, you talked about not having or not expecting cost increases unless you had significant occupancy increases. Was that correct? Did I hear that correctly?

No, we do expect to see continued increases in cost at our property base. It's just there are natural inflationary pressures on the cost side. We do think our team and our operators have done a very good job of driving new efficiencies into our portfolio. But I don't think it would be appropriate to say that we don't expect additional cost to creep into the system absent additional occupancy. There's naturally going to be growth. Charles Patrick Scholes - FBR Capital Markets & Co., Research Division: Okay. And then just with your portfolio now, about how many points of occupancy are you away from your peak occupancy?

So last year we finished at 74. -- a little bit over 74% in occupancy. Peak occupancy is 78% -- 76%, I apologize. Charles Patrick Scholes - FBR Capital Markets & Co., Research Division: Okay. So just a couple of points left in there.

And our next question comes from the line of Enrique Torres with Green Street Advisors.

I want to know if you could give us a bit more color on your specific disposition plan regarding the assets that were mentioned in real estate alert. Can you comment on that article?

Enrique, it's our policy to report on any asset sales once we have a binding agreement or once we've closed the sale. So at this point, we have nothing to report on, on the asset sales front. If we were to pursue sale transactions, it would likely entail single assets or portfolios of assets that are smaller, geographically-isolated, more heavily leveraged hotels. So stay tuned on that front, but we have nothing to report today.

Okay. Fair enough. And then in terms of -- I noticed like in 4Q, there was a specific weakness in the beach cities, from Long Beach down to Del Mar, as well as in Rochester. Other than renovation impacts and maybe the international travel that you mentioned for Rochester last quarter, is there anything else impacting those numbers? And what's your outlook for those markets compared to your portfolio RevPAR for next year?

Yes. So starting with Rochester, Rochester was, throughout the course of 2011, impacted by softer international business that tends to trickle down to our entire portfolio in that market. We certainly are very bullish long-term on those assets, but clearly, softness throughout the course of the year just in the absence of that anchor, international business in the market. As far as Long Beach, Long Beach was softer than expected due to primarily group decreases in the fourth quarter. There's also a shift of business in the hotel from ADR to occupancy as demand in that general market decreased a little bit. So Long Beach was simply a group rotation issue. And then on the Fairmont Newport Beach, I think that was one of the other properties you mentioned. Fairmont is a hotel where we're working through the transition of a significant piece of contract business that had been in that hotel for many years. We made the right decision, we believe, with that hotel during the course of this year to take the contract business out, which is low-rated, and essentially, force the hotel to fill itself up with higher-rated [ph] group and transient business. It's a lengthy transition whenever you make that kind of a change. And clearly, in the fourth quarter, we saw continued turbulence in the numbers of the Fairmont as that transition stood. Marc, do you have anything else to add on those particulars...

No, I think the rotation in Long Beach was one significant citywide group that left the market after having been in the market for 3 years in a row. And it moved out of the market, it outgrew Long Beach. That was really the significant issue caused us $20 decrease in group rates because of that one group. It was hugely impactful. And the Fairmont, again, we're rotating out of Air France, which used to be in the marketplace and had been at the hotel for a decade and really just made a final decision that the market is strengthening; occupancies, particularly Tuesday, Wednesday, Thursday nights, and we feel this will be very positive for us over the next 3 to 5 years. And in Rochester, mostly international business really with a significant decrease out of the Arab spring more than anything else.

And then, finally, what's your outlook for non-room revenue spend for 2012 compared to like your RevPAR estimates? Are you guys seeing an uptick in or expecting an uptick in spend versus kind of how it was compared to like the lagging performance in '11?

Great question, Enrique. I think you heard us talk throughout the course of 2011 about F&B spend, in particular, lagging the trend on the room side. We did see some signs of recovery on the F&B side in the fourth quarter. In particular, banquet revenue was up $1.1 million to last year. And more importantly, banquet revenue per group room was up on a year-over-year basis, which was a reversal of the trend we've seen during the course of the year. So total portfolio banquet sales per group room night in 2011 did end up positive. It was up about $108.86 versus $103 in 2010. So positive trend, a reversal of the trend we saw during the earlier part of the year on banquet sales. We do expect to see those numbers continue to improve as group business on a higher-rated format gets tight-fitted [ph] into our hotels as opposed to some of the group business that we saw last year, and certainly in '09, with some of the lower-rated group that just weren't picking up the additional banquet business.

Yes. And then, I guess, this is, for me, I mean we're up 5.7% in group -- food and beverage per group room night full-year. It's actually the first year that we've had a positive change when you go all the way back to '09. So this change reflects the strengthening group production, the strengthening group demand, and is following what would be a normal cycle as you start to see corporate America spend more back in their functions.

Yes, Enrique, just very quickly adding on to that. You can see that in the back of our earnings release in the comparative analysis. In the fourth quarter, just full food and beverage revenues up 4.5% roughly versus the year. It was up 27%, so we're seeing an acceleration in that.

And our next question comes from the line of Michael Salinsky with RBC Capital Markets.

Just going back to Enrique's question there. If you were to sell the 5 assets that are mentioned in real estate alert, would the preference be to pay down debt at this point or would it be, would you guys look more to reallocate that in acquisitions?

I think it's a combination. As I've stated in my prepared remarks, we're looking to achieve a broad range of objectives for our company. One is improving our portfolio quality and scale, and certainly, concentrations in key growth markets. We are also looking to de-leverage the company. I think the 5 assets that were mentioned in real estate alert are hotels that all have some significant debt in place. And so, certainly, the sale of those hotels would be de-leveraging in and of itself. The equity proceeds that would come in through a transaction such as that deal, we would likely look to put those proceeds either through debt -- either toward debt repayment or toward the growth of our portfolio in terms of high-quality assets and markets where we believe growth will achieve the national norm.

Okay. In addition to the Long Beach there, is there any other debt that is prepayable without penalty at this point?

The exchangeable notes are only senior debt. As we mentioned, we bought in $4.5 million of the exchangeable notes during the first quarter. That is technically prepayable because it's just a publicly traded piece of paper. It becomes puttable back to the company in January of 2013, so we view that as debt that we'll likely look to proactively retire to the extent that we've got excess liquidity reserves to deploy toward that. Beyond that, very little of our debt is actually prepayable without some sort of accounting.

Okay, that's helpful. In '12, just going back to your dividend comments, was there any taxable net income generated? And then in '13, based upon your guidance, is there an expectation that you will generate taxable net income? Or is it a wash at this point?

So starting back with 2011, we did generate a very minor amount of taxable income in 2011. We utilized approximately $3 million of net operating loss carry forwards to address, to satisfy that taxable income. Based on our guidance in 2012, we expect our taxable income to range somewhere in the $25 million range. And then, obviously, it would grow from that point forward into 2013 and beyond if our expectations on the cyclical recovery are realized. So there is -- we are certainly shifting into a position where we're generating taxable income. It'll grow fairly meaningfully from this point forward. And as we noted in our comments, we'll look to address our taxable income in ways that help to advance our other corporate objectives, including de-leveraging and growing the quality of our portfolio but that are highly consistent, obviously, with the REIT rules.

Great. Really appreciate the color. And the final question, just because of D.C. and Baltimore were a drag in 2012, can you give us -- and I realize this is preliminary, but can you give us a sense that -- give us what you're seeing in terms of maybe group demand for 2013, just in light of the renovation, if you're expecting a pretty good pick up in those markets?

Yes. I would -- the comment would be, is that we're very, very, very confident about 2013. And as a matter of fact, we're pacing, at this point, in Baltimore for 2013, we're up 71% in pace. And in D.C., we're up 77% in pace. And we expect to have very positive years in both of those hotels. That's one of the reasons why we planned the renovation in D.C. this year, is we knew it was a significantly off-year market. The market in whole is going to be down, and the least amount of displacement for us would be in the back half of the year, which is when we're doing it.

And our final question comes from the line of David Loeb with Robert W Baird. David Loeb - Robert W. Baird & Co. Incorporated, Research Division: John, I just want to dive into the guidance a little bit more. I've heard your comments about increased displacement, but also about more pricing power and where the flow-through was last year. I just don't get how you come up with only 3.6% growth in adjusted EBITDA off of your trailing 12 months pro forma, when you're saying at the low end, 4% RevPAR growth. That would seem to imply about a 25% flow-through below your margins last year.

Yes, David, good question. At the low end of our guidance, yes, it's 4% RevPAR. And keep in mind, that is the low end of our guidance. We believe it'd be tough to really drive significant margin growth because remember, at 4%, at a 4% increase in RevPAR, total revenues are probably growing somewhere less than that. I think that was Enrique's or somebody else's question earlier, just about food and beverage and ancillary spend. And particularly, at that 4%, we still believe that we'd have some occupancy lift. So there'd be some incremental cost. There are also, as somebody else asked earlier on, there are incremental costs and wages, benefits, insurance and the like. So at the low end of that guidance, which might be conservative, as you would typically think at the low end of guidance, we don't think that the margin expansion will be all that material. David Loeb - Robert W. Baird & Co. Incorporated, Research Division: But Ken did say 30 basis points at the low end of the margin expansion, not negative. So I guess, I'm wondering, is this overly conservative as opposed to just your usual cautiousness?

David, this is Ken. Let me jump in by saying you're absolutely and astutely, I think, pointing out the conservative aspects of our guidance. As we noted in our comments, our expectations are biased towards the high end of our guidance. Though we see very little value at this point in the year, and certainly, at this point in the scope of the other sort of already announced guidance for the year, and coming out and being overly aggressive and overly ambitious in our guidance, our goal here is to be conservative, but realistic in our guidance. And therefore, you're making a fair question about the low end of our guidance and to beat or certainly meet our guidance going forward rather than find ourselves in a situation where we're having to explain why we didn't achieve our guidance. So we are certainly biased to the positive on the guidance. We're also certainly biased towards conservatism as we have put forth our forward projections.

David, I want to make sure, are you driving down to corporate level EBITDA? David Loeb - Robert W. Baird & Co. Incorporated, Research Division: Adjusted EBITDA based off of the pro forma to the adjusted EBITDA in your guidance.

Yes, so just clarifications there. We could still have modest margin growth in that low conservative assumption of RevPAR growth. But keep in mind that our corporate overhead, which has been slashed pretty materially since 2007, we anticipate our corporate overhead to be up maybe $1 million or $2 million this year as we had numerous enhancements to the team. David Loeb - Robert W. Baird & Co. Incorporated, Research Division: Okay. That makes sense.

And just to be clear, John was referring to himself as the enhancement to the team.

And we have a follow-up question from the line of Smedes Rose with Keefe, Bruyette & Woods. Smedes Rose - Keefe, Bruyette, & Woods, Inc., Research Division: I just think you said before, but can you just remind us what was the, or what do you see is -- what was, I guess, the peak EBITDA out of this portfolio? I know you have to sort of make some assumptions about the San Diego asset because it wasn't around the last peak, but what was that number?

So the peak EBITDA, and look, this is subject -- I want to be real careful about how I explain this one. Peak EBITDA for our portfolio, if you cherry pick the peak EBITDA production from each of our hotels, plus you make a regular cyclical assumption for our San Diego property as if it had existed, ranges somewhere upwards -- up towards $300 million for our portfolio. So that's not scientific. I would not state that, that is anything other than a data point. Our view is that our portfolio should not only reattain prior peak levels, but should meaningfully exceed prior peak levels as this recovery ensues. And our primary point during our prepared remarks was that we see obviously huge upside just in getting back to the prior peak numbers.

And I'm showing no further questions. Please continue.

Great. Thank you, Amaryllis, and thank you all for joining us today on the call. We look forward to seeing many of you over the next couple of weeks, and we'll speak to you again on the conference call in May.

Ladies and gentlemen, this concludes the conference call for today. You may now disconnect.