Sunstone Hotel Investors' chairman and interim CEO claimed his company's poor performance in 2021 is more related to poor execution than overall strategy issues and noted the company won't be put up for sale.

Douglas Pasquale took over the interim chief executive role after the September departure of former CEO John Arabia. When pressed by analysts, Pasquale said he has "done a lot of analysis" on the overall value of the real estate investment trust compared to what the company might receive for selling its full portfolio of 16 hotels.

"We have a good idea of what we believe the value of the company is and the value of our assets are," he said. "And based on that view, it's extraordinarily unlikely that a buyer would be willing to pay that price."

Pasquale said the company has plenty of room to grow as is once a new chief executive is in place, even as Sunstone is coming off a quarter in which the company underperformed analysts' estimates.

In a note to clients, Baird's senior hotel research analyst and director Michael Bellisario wrote Sunstone's adjusted earnings before interest, taxes, depreciation and amortization of $31.2 million in the fourth quarter came in roughly 20% short of his company's forecast.

"This miss will no doubt end up being a significant downside outlier this earnings season among Hotel REITs, in our opinion," he wrote.

Bellisario also questioned why it took so long for the company to communicate its significant shortfall to analysts and investors.

Sunstone's stock fell significantly in concert with its earnings report, falling to $10.38 at the close of markets Wednesday, down 7.4% for the day and 11.5% year to date, as of press time. The NYSE Composite was down 7% year to date.

During Wednesday's call, Sunstone officials pointed to the underperformance of their group-focused hotels as the reasons for lagging behind their hotel REIT peers. Executive Vice President and Chief Financial Officer Bryan Giglia said those hotels could do a complete 180 in 2022.

"Our group-centric, city-center properties were more challenged in the fourth quarter and more acutely felt the impact of delta-driven cancellations in October and November," he said. "Although these urban hotels remain well below pre-pandemic operating levelers, and weighed on our overall fourth quarter results, we expect them to become a tailwind moving into this year as group events and corporate travel rebound. We are encouraged by the trends we are seeing in recent weeks."

Pasquale said he understands why investors would doubt Sunstone at this point.

"You will continue to see execution," he said. "I understand why some people are skeptical, and I embrace that. It's always about show and tell, and I've always thought showing was far more important than telling."

Pasquale said the company has identified a small pool of finalists for the vacant CEO position, and he expects to have a new leader in place soon.

"It's difficult to pinpoint exactly when we will be concluded, but I'd say it is certainly within the next two months and could be as soon as two weeks depending on a number of factors that would influence that process," he said.

He said interviews with CEO candidates have reinforced his belief that the company should stay on track with its current strategy.

"We've got this terrific balance sheet, and we just see that it makes no sense at this point in time to not pursue and execute on our strategy," Pasquale said. "We've talked to multiple candidates, and that's their view as well."

During the call, Sunstone officials said the recent sale of the leasehold interest in the 419-room Hyatt Centric Chicago Magnificent Mile for $67.5 million was part of better execution on their strategy. Giglia said it's grown increasingly difficult to do business in Chicago.

"We're looking forward to investing in assets in markets where we can get strong growth," he said. "Chicago has been a market that's been tough for us. We feel that the pricing that we're getting today on [that deal] was on the high end, and it allows us to take those proceeds and do something more productive with them."

He pointed to property taxes as a major hurdle in that market.

"In Chicago, you, in a somewhat perverse way, have a partner in the city in how aggressive property taxes have gotten," he said.

The company also closed on the previously announced sale of the 340-room Embassy Suites La Jolla for $226.7 million in December.

While Sunstone executives wouldn't completely close the door on buying assets in the near future, they said they're more likely to sell and use available capital and what they described as a "strong balance sheet" for things like stock buybacks.

To that end, Sunstone's Board of Directors authorized a $500 million share repurchasing program in early February.

According to the company's fourth-quarter earnings release, Sunstone saw revenue per available room climb to $147.27 for their 16 hotels, with average daily rate of $264.39 and occupancy of 55.7%.

The company's more recently acquired hotels, the Montage Healdsburg and the Four Seasons Resort Napa Valley, boosted overall performance for the company, with those two hotels realizing RevPAR of $680.08 for the quarter.

The company reported a net income of $138.3 million in the fourth quarter and $33 million for full-year 2021, up from a $410.5 million loss in 2020.

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