Winston Hotels, Inc. (NYSE: WXH), a real estate investment trust
(REIT) and owner of premium limited-service, upscale extended-stay
and full-service hotels, today announced results for the three and
six months ended June 30, 2006. 2006 Second Quarter Highlights --
Net income available to common shareholders per share totaled
$0.14; -- FFO available to common shareholders totaled $0.20 per
share; excluding non-recurring debt extinguishment expenses as well
as certain non-cash charges, FFO available to common shareholders
would have totaled $0.36 per share, which exceeds First Call
consensus analyst expectations by $0.02; -- Increased EBITDA by
$4.5 million, or 33.8 percent, to $17.7 million; -- Improved same
store RevPAR by 11.7 percent; excluding two hotels that were
negatively impacted by renovations, same store RevPAR improved by
12.3 percent; -- Posted same store operating margin growth of 110
basis points; excluding two hotels that were negatively impacted by
renovations, same store operating margin rose 170 basis points; --
Sold three hotels for total aggregate net proceeds of $14.9
million, resulting in an aggregate gain on sale, net of minority
interest, of $3.5 million; -- We expect full year FFO available to
common shareholders of $0.91 to $0.96 per share. Excluding
non-recurring debt extinguishment expenses as well as certain
non-cash charges, FFO available to common shareholders is expected
to be $1.07 to $1.12, compared to $1.09 to $1.15 previously
forecasted. The revision is due primarily to the earnings dilution
resulting from the sale of three hotels this summer and additional
pre-opening expenses for the company's Homewood Suites hotel in
Princeton, N.J. that now is expected to open during the fourth
quarter of 2006 instead of the first quarter of 2007; -- Invested
in a joint venture that began development of a $14.6 million
120-room Courtyard by Marriott hotel in Jacksonville, Fla. and
began development of a $10.7 million wholly owned 79-room Residence
Inn hotel in Roanoke, Va.; -- Funded a $20.3 million "B" note with
Canyon Capital Realty Advisors LLC and closed on two additional
loans totaling $10.2 million; -- Completed a 10-year, $176 million
CMBS loan financing at a fixed interest rate of 5.94 percent. This
financing is interest only for four years, significantly extends
Winston's weighted average debt maturities and increased the
company's percentage of fixed rate debt to 67 percent; and -- The
company entered into definitive agreements to acquire two hotels
under construction in New York City for an aggregate of $110
million. 2006 Second Quarter Financial Results Net income available
to common shareholders was $3.7 million for the 2006 second
quarter, or $0.14 per share, compared to net income available to
common shareholders of $3.9 million, or $0.15 per share, for the
same period in 2005. Net income available to common shareholders
for the 2006 second quarter included a gain on sale, net of
minority interest, of approximately $3.5 million, or $0.13 per
share, and a charge of approximately $4.0 million, or $0.15 per
share, of non-recurring debt extinguishment expenses related to the
payoff of two outstanding loans in conjunction with completing the
recent $176 million CMBS facility described below as part of a
strategy to significantly lower the company's interest expense and
extend its debt maturities. Net income available to common
shareholders for the 2006 second quarter also included non-cash
charges totaling $0.4 million, or $0.01 per share, for asset
retirement obligation expenses and income tax expense related to
development fees received from a joint venture, which are
eliminated in consolidation. Funds from operations (FFO) available
to common shareholders for the 2006 second quarter was $5.7
million, compared to $8.3 million in the 2005 second quarter, or
$0.20 and $0.30 per share, respectively. Excluding the charges
described above, FFO available to common shareholders for the 2006
second quarter would have been approximately $10 million, or $0.36
per share. The company had approximately 27.9 million and 27.6
million fully diluted weighted average common shares outstanding in
the 2006 and 2005 reporting periods, respectively. Earnings before
interest, taxes, depreciation and amortization for the 2006 second
quarter was $17.7 million, compared to $13.3 million in the 2005
second quarter. Same Store Operating Statistics Second quarter 2006
revenue per available room (RevPAR) for the company's 41 hotels
that were open throughout the six month periods ended June 30, 2006
and 2005 rose 11.7 percent, led by an 8.6 percent increase in
average daily room rate (ADR) and a 2.8 percent increase in
occupancy. Second quarter 2006 operating margins rose 110 basis
points to 45.2 percent from 44.1 percent in the same period a year
earlier, despite increased fuel prices and franchise fees. These
costs were partially offset by improvements in managing labor
costs, room operating supplies/expenses and a number of
energy-saving measures. "We have been working closely with our
operators to improve margins and saw significant improvement this
past quarter," said Robert W. Winston III, chief executive officer.
"We continue to focus heavily on margin enhancement." The following
table details the same store operating statistics, which include 41
consolidated hotels that were open throughout the six month periods
ended June 30, 2006 and 2005 (includes 39 wholly owned hotels and
two hotels owned through joint ventures, the Chapel Hill, N.C.
Courtyard by Marriott and the Ponte Vedra, Fla. Hampton Inn). -0-
*T Same Store Operating Statistics
----------------------------------------------------------------------
Three Months Ended Six Months Ended June 30, June 30,
-------------------------- -------------------------- 2006 2005
Change 2006 2005 Change -------- -------- -------- --------
-------- -------- Hotel Room Revenues $38,372 $34,748 10.4% $71,631
$65,107 10.0% RevPAR $74.64 $66.84 11.7% $70.00 $62.96 11.2%
Occupancy 75.8% 73.7% 2.8% 72.7% 70.4% 3.3% ADR $98.48 $90.71 8.6%
$96.32 $89.43 7.7% Operating Margin 45.2% 44.1% 110 bps 43.2% 42.5%
70 bps
----------------------------------------------------------------------
*T Excluding the operating results of two hotels that were
negatively impacted by renovations for the three months ended June
30, 2006 and 2005, (i) same store RevPAR increased 12.3 percent to
$76.36 from $68.02; and (ii) same store operating margins increased
170 basis points to 46.2 percent from 44.5 percent. Excluding the
operating results of the same two hotels that were negatively
impacted by renovations for the six months ended June 30, 2006 and
2005, (i) same store RevPAR increased 11.9 percent to $71.53 from
$63.92; and (ii) same store operating margins increased 110 basis
points to 44.1 percent from 43.0 percent. 2006 Third Quarter
Outlook and Guidance For the 2006 third quarter, the company
forecasts net income per share available to common shareholders of
$0.24 to $0.26. On a same store basis, the company expects 2006
third quarter RevPAR to increase 8 to 10 percent as compared to the
prior year's third quarter. FFO per share available to common
shareholders is expected to be between $0.31 and $0.33 for the 2006
third quarter. 2006 Annual Outlook and Guidance Revised For the
year ended December 31, 2006, the company forecasts net income per
share available to common shareholders of $0.53 to $0.58. On a same
store basis, the company expects 2006 RevPAR to increase 8 to 10
percent from the prior year. FFO per share available to common
shareholders for the year ended December 31, 2006, is expected to
be between $0.91 to $0.96, compared to the $1.09 and $1.15
forecasted earlier this year. FFO per share available to common
shareholders for the year ended December 31, 2006, excluding the
non-recurring debt extinguishment expenses and the non-cash charges
described above, is expected to be between $1.07 and $1.12 per
share. The decline in the FFO per share available to common
shareholders is primarily due to earnings dilution resulting from
the sale of two hotels in June 2006, the sale of the West
Springfield Hampton Inn in July 2006 and pre-opening expenses for
the Homewood Suites hotel in Princeton, N.J. that is expected to
open during the fourth quarter of 2006 instead of the first quarter
of 2007. This guidance assumes no additional hotel acquisitions,
dispositions, developments or placements of hotel debt during the
remainder of 2006, other than those activities discussed below.
Hotel Development During the 2006 second quarter, the company began
development on two new projects, one wholly owned and one in a
joint venture. In July 2006, the company purchased a parcel of land
for $0.5 million and plans to build a wholly owned 79-room
Residence Inn hotel in Roanoke, Va. for an estimated total cost of
approximately $10.7 million, $7.0 million of which is expected to
be borrowed under a mortgage loan. The hotel is expected to break
ground in the 2006 third quarter and open in the fourth quarter of
2007. The company entered into a joint venture with Skyline Hotel
Investors, LLC (Skyline), to build a 120-room Courtyard by Marriott
at Flagler Corporate Park in Jacksonville, Fla. for approximately
$14.6 million. The total equity investment in the joint venture is
expected to be approximately $5.2 million, of which the company
will contribute approximately $2.5 million for a 48 percent
ownership interest. The joint venture expects to fund the remainder
of the development costs with borrowings under a mortgage loan. The
joint venture plans to break ground on the hotel in the 2006 third
quarter and open the hotel in the fourth quarter of 2007. We are
making excellent progress on our development program, which we
believe will provide us with substantial embedded growth over the
next several years as these properties open and ramp up," Winston
said. "For example, our 123-room Courtyard by Marriott, which was
converted from a former historic apartment building, opened in
mid-April in Kansas City, Mo. and has been very well received in
the community and is ramping up on target." "We expect to open our
wholly owned 142-room, $19.6 million Homewood Suites hotel in
Princeton, N.J. in the 2006 fourth quarter, one quarter ahead of
schedule," Winston noted. "Furthermore, we are on schedule and on
budget to open our joint-venture, 121-room, $12.3 million Hilton
Garden Inn in Akron, Ohio, in the 2006 fourth quarter and the
wholly owned, 119-room, $13.3 million Hilton Garden Inn in
Wilmington, N.C., in the 2007 second quarter." "At this stage of
the hotel real estate cycle, in certain cases, we have been seeing
better value creation opportunities for development than
acquisition," he said. "Although land and construction costs have
increased significantly, we believe that we can attain higher
stabilized returns through development than acquisitions in certain
cases. Nevertheless, we continue to have a very active acquisition
pipeline, and continue to seek what we believe are appropriate
risk-adjusted returns. Every investment decision we make weighs the
advantages of acquisition versus development in order to
continuously improve our portfolio and shareholder returns." Hotel
Acquisitions The company announced that it has entered into
definitive agreements to acquire two hotels in New York City for a
purchase price of $55 million each. Located in the Tribeca area and
Chelsea area, the hotels currently are under construction and are
expected to open during the 2007 first quarter. Acquisition of
these hotels is subject to our satisfactory completion of due
diligence and other customary closing conditions. Negotiations have
begun with Hilton Hotels Corporation to brand the hotels as Hilton
Garden Inns. "Both hotels are well located in strong and growing
markets with multiple demand generators," Green said. "These
acquisitions will diversify our portfolio, adding a significant
urban component in the nation's most visible market. We believe
these acquisitions will better balance our portfolio and help us
optimize our opportunities in all phases of the real estate cycle."
Hotel Dispositions The company sold three hotels in the second
quarter and another hotel in July 2006, bringing to five the number
of hotel dispositions for the year. In May, the company sold the
146-room Wilmington, N.C. Comfort Inn; in June, the 242-room
Holiday Inn Select in Garland, Texas and the 95-room Hampton Inn in
Boone, N.C. and in July the 126-room West Springfield, Mass.
Hampton Inn. The aggregate net proceeds for the five dispositions
during 2006 totaled $32.9 million, resulting in an aggregate net
gain on sale of approximately $12.0 million, of which approximately
$3.5 million, net of minority interest, was recorded in the second
quarter of 2006. "The sale of these hotels, the addition of the
recently opened Courtyard by Marriott in Kansas City, and the
additional properties under construction are consistent with the
company's strategy to selectively prune our older assets that no
longer meet our strategic long-term growth objectives and to
reinvest the proceeds in properties that we believe have long-term
growth potential. The short-term effect of these sales may have a
negative impact on FFO, but we believe that recycling the capital
into newer, better located properties will allow us to quickly
regain and exceed our historic returns as these hotels open and
successfully ramp-up," said Green. Hotel Debt Financing Program
During the 2006 first quarter, the company closed on a $2.3 million
"B" note, as part of a total $12 million financing, with GE
Commercial Franchise Finance (GEFF) providing $9.7 million of
senior debt. The company has funded $1.4 million of the "B" note,
which is secured by a 140-room Hilton Garden Inn under construction
in Columbia, S.C. The construction-to-five-year permanent loan
bears interest at an all-in annual yield to the company equal to
90-day LIBOR plus approximately 6.12 percent. The company is
obligated to fund the remaining $0.9 million balance of the "B"
note ratably over the projected construction period, which is
expected to be completed during the fourth quarter of 2006. During
the second quarter, the company consummated and funded one loan and
closed on two additional loans for hotels under construction. The
company provided a $20.3 million "B" note, as part of a total $66
million financing originated by Canyon Capital Realty Advisors LLC,
to fund Downtown Resorts, LLC's $91.5 million refinance and
refurbishment of the 25,500-square-foot Lady Luck casino and
adjacent 627-room hotel, which is expected to be completed during
the second quarter of 2007. The loan bears interest at a fixed rate
of 12.63 percent for two years with two, one-year extensions. In
May 2006, the company closed on a $1.7 million "B" note, as part of
a total $7.5 million construction-to-permanent financing, with GEFF
providing $5.8 million of senior debt. The company is obligated to
ratably fund the loan over the projected construction period for a
122-room Hilton Garden Inn under construction in Tuscaloosa, Tenn.
with an estimated all-in cost of $9.3 million scheduled to be
completed during the fourth quarter of 2006. During the
construction period, the then outstanding "B" note bears interest
at a variable rate equal to 90-day LIBOR plus 7.63 percent per
annum; thereafter, the spread over 90-day LIBOR reduces to 7.43
percent. In addition, the "B" note accrues interest of 3.29 percent
per annum until maturity, which is five years from the date the
property opens to the general public. In June 2006, the company
closed on an $8.5 million first mortgage loan to Host Murfreesboro,
LLC, to finance the development of a 101-room Hampton Inn &
Suites in Murfreesboro, Tenn. with an estimated all-in cost of
$10.2 million. The five-year loan requires payments at an interest
rate of 30-day LIBOR plus 3.60 percent, with another 1.0 percent of
the original principal balance accruing until the loan is paid in
full. Payments are interest only during construction of the hotel
and the first 12 months of hotel operations and thereafter include
principal payments based on a 25-year amortization period.
Strengthened Balance Sheet In May 2006, the company closed a
10-year $176 million commercial mortgage backed security (CMBS)
loan facility with General Electric Capital Corporation,
collateralized by 16 of its hotels. The $176 million facility bears
interest only for four years at a fixed rate of 5.94 percent and
thereafter will amortize over a 30-year period. Under the terms of
the facility, the loans are not cross-collateralized and the loans
are assumable, should any of the individual properties be sold. The
net proceeds were used to defease and payoff the $61.3 million
outstanding balance of the company's 7.38 percent fixed rate
financing, which had an October 2008 maturity, and to pay down the
outstanding balance under the GE Line. This financing significantly
extends Winston's weighted average debt maturities and increased
its percentage of fixed rate debt to 67 percent. In May 2006, the
company borrowed funds under the GE Line to pay off the outstanding
balance of $11.3 million on the 30-day LIBOR plus 3 percent
mortgage loan collateralized by the Evanston Hilton Garden Inn. In
April 2006, the company modified its $50 million master repurchase
agreement with Marathon Structured Finance Fund. The modified
agreement reduced the interest rates from LIBOR plus 4.5 percent
for loans funding the acquisition of existing hotels to LIBOR plus
2.75 percent, and from LIBOR plus 5.5 percent for loans funding the
development or redevelopment of hotels to LIBOR plus 3.0 percent.
"We expect these financing changes to save the company
approximately $1.5 million in interest expense during the remainder
of 2006," Green pointed out. "The new CMBS loan structure locks us
into very attractive interest rates, while giving us great
flexibility with these hotels." Dividends During the 2006 second
quarter, the company declared a regular cash dividend of $0.15 per
common share and a cash dividend of $0.50 per share of Series B
Preferred Stock. "The company's board of directors evaluates our
dividend policy on a quarterly basis and is comfortable with the
payout level of our dividends," Winston said. Conference Call
Winston Hotels' 2006 second quarter investor conference call is
scheduled for 10 a.m. EDT today, August 8, 2006. The call also will
be simulcast over the Internet via the company's Web site,
www.winstonhotels.com. The replay will be available on the
company's Web site for 30 days and via telephone for seven days by
calling 800-475-6701, access code 836223. About the Company As of
June 30, 2006, the company owned or was invested in 53 hotel
properties in 18 states having an aggregate of 7,181 rooms. This
included 45 wholly owned properties with an aggregate of 6,110
rooms, a 60% ownership interest in a joint venture that owned one
hotel with 138 rooms, a 49% ownership interest in a joint venture
that owned one hotel with 118 rooms, a 48.78% ownership interest in
a joint venture that owned one hotel with 147 rooms, a 13.05%
ownership interest in a joint venture that owned four hotels with
an aggregate of 545 rooms, and a 0.21% ownership interest in a
joint venture that owned one hotel with 123 rooms, for which
substantially all of the profit or loss generated by the joint
venture is allocated to the company. As of June 30, 2006, the
company also had $59.7 million in loan receivables from owners of
several hotels. The company does not hold an ownership interest in
any of the hotels for which it has provided financing. For more
information about Winston Hotels, visit the company's Web site at
www.winstonhotels.com. Notes About Forward-Looking Statements In
addition to historical information, this press release contains
forward-looking statements. The reader can identify these
statements by use of words like "may," "will," "expect," "project,"
"anticipate," "estimate," "target," "believe," or "continue" or
similar expressions, including without limitation its acquisition,
disposition and development plans for hotel properties, its hotel
lending plans, its dividend policy, and its estimated net income
available to common shareholders, net income available to common
shareholders per share, FFO available to common shareholders, FFO
available to common shareholders per share and RevPAR. These
statements represent the company's judgment and are subject to
risks and uncertainties that could cause actual operating results
to differ materially from those expressed or implied in the forward
looking statements including, but not limited to, changes in
general economic conditions, lower occupancy rates, lower average
daily rates, acquisition risks, development risks including risk of
construction delay, cost overruns, occupancy and governmental
permits, zoning, the increase of development costs in connection
with projects that are not pursued to completion, the risk of
non-payment of subordinated loans, or the failure to make
additional hotel debt investments and investments in hotels. Other
risks are discussed in the company's filings with the Securities
and Exchange Commission, including but not limited to its Annual
Report on Form 10-K for the year ended December 31, 2005. Notes
About Non-GAAP Financial Measures This press release includes
certain non-GAAP financial measures as defined under Securities and
Exchange Commission ("SEC") rules. As required by SEC rules, the
company has provided reconciliation in this press release of each
non-GAAP financial measure to its most directly comparable GAAP
measure. We believe that these non-GAAP measures, when combined
with the company's primary GAAP presentations required by the SEC,
help improve our equity holders' ability to understand our
operating performance and make it easier to compare the results of
our company with other hotel REITs. A description of each is
provided below. FFO and FFO Available to Common Shareholders The
company reports FFO in accordance with the definition of the
National Association of Real Estate Investment Trusts ("NAREIT").
NAREIT defines FFO as net income (loss) (determined in accordance
with generally accepted accounting principles, or "GAAP"),
excluding gains (losses) from sales of property, plus depreciation
and amortization, and after adjustments for unconsolidated
partnerships and joint ventures (which are calculated to reflect
FFO on the same basis). The company further subtracts preferred
stock dividends from FFO to calculate FFO available to common
shareholders. FFO available to common shareholders is a performance
measure used by the company in its budgeting and forecasting
models, it is discussed during Board meetings, and is considered
when making decisions regarding acquisitions, sales of properties
and other investments, and is a metric in determining executive
compensation. The calculation of FFO and FFO available to common
shareholders may vary from entity to entity, and as such the
presentation of FFO and FFO available to common shareholders by the
company may not be comparable to other similarly titled measures of
other reporting companies. FFO and FFO available to common
shareholders are not intended to represent cash flows for the
period. FFO and FFO available to common shareholders have not been
presented as an alternative to net income, and should not be
considered in isolation or as a substitute for measures of
performance prepared in accordance with GAAP. FFO is a supplemental
industry-wide measure of REIT operating performance, the definition
of which was first proposed by NAREIT in 1991 (and clarified in
1995, 1999 and 2002) in response to perceived drawbacks associated
with the presentation of net income under GAAP as applied to REITs.
Since the introduction of the definition by NAREIT, the term has
come to be widely used by REITs. Historical GAAP cost accounting
for real estate assets implicitly assumes that the value of real
estate assets diminishes predictably over time. Since real estate
values instead have historically risen or fallen with market
conditions, most industry investors have considered presentations
of operating results for real estate companies that use historical
GAAP cost accounting to be insufficient by themselves. Accordingly,
the company believes FFO and FFO available to common shareholders
(combined with the company's primary GAAP presentations required by
the SEC) improve our investors' ability to understand the company's
operating performance. The company also provides FFO Available to
Common Shareholders excluding extinguishment of debt and other
unusual expenses as well as non-cash charges. We describe this
measure as FFO Available to Common Shareholders, excluding unusual
charges in the attached reconciliation schedules. The following
describes the unusual charges the company incurred during 2006 that
were added back to FFO when the company presented those results
alongside FFO in this press release: -- In May 2006, the company
borrowed funds under the GE Line to pay off the outstanding balance
of $11.3 million on the ten-year loan collateralized by the
Evanston Hilton Garden Inn. A prepayment premium and write-off of
related deferred expenses of $0.2 million are included in
"extinguishment of debt" in the Consolidated Statements of
Operations. -- In May 2006 the company defeased the remaining $61.3
million balance of the company's $71 million ten-year 7.375%
fixed-rate CMBS debt secured in part by the company's hotels. The
difference between the amount of securities purchased to defease
the debt and the debt paid down, which totaled $3.2 million, as
well as $0.5 million for the write-off of related deferred
expenses, were recorded as an "extinguishment of debt" in the
Consolidated Statements of Operations. -- The company adopted FASB
issued Interpretation No. 47, "Accounting for Conditional Asset
Retirement Obligations," ("FIN 47") an interpretation of SFAS No.
143, "Accounting for Asset Retirement Obligations" effective
December 31, 2005. Under the interpretation, an entity is required
to recognize a liability for the fair value of an asset retirement
obligation ("ARO") that is conditional on a future event if the
liability's fair value can be reasonably estimated. During the
second quarter the company recorded an ARO liability for one of its
hotels, which included a non-recurring, non-cash cumulative
adjustment of $0.2 million. -- One of the company's taxable REIT
subsidiaries provided development services to one of the company's
consolidated joint ventures, and recorded development fee income.
This income is taxable and therefore income tax expense related to
the development fees, totaling $0.2 million, is included in the
Consolidated Statements of Operations. Since the joint venture's
income is consolidated into the company's financial statements, the
development fee income is eliminated in consolidation. The above
adjustments are not in accordance with the NAREIT definition of FFO
and are not comparable to similar adjusted FFO measures reported by
other REITs. The company presents these adjustments to FFO because
it believes that the resulting measure provides investors a useful
indicator of the operating performance of the Company's hotels and
other investments in the first two quarters of 2006 as compared to
prior periods by adjusting for the effects of certain non-recurring
or non-cash items arising during the quarters. FFO available to
common shareholders excluding unusual charges is not intended to
represent cash flows for the period, is not presented as an
alternative to net income, and should not be considered in
isolation or as a substitute for measures of performance prepared
in accordance with GAAP. In addition to being used by management in
the annual budget process, the compensation committee of the board
of directors will consider these adjustments in its criteria for
performance-based executive compensation. Operating Margin Gross
operating profit margin, which is referred to herein as "operating
margin," is defined as hotel revenues minus hotel operating costs
before property taxes, insurance and management fees, divided by
hotel revenues. RevPAR RevPAR is an acronym for Revenue Per
Available Room, which is determined by multiplying average daily
rate by occupancy percentage for any given period. RevPAR does not
include food and beverage or other ancillary revenues, such as
parking, telephone, or other guest services generated by the
property. Similar to the reporting periods for the company's
statement of operations, hotel operating statistics (i.e., RevPAR,
average daily rate and average occupancy) are always reported on a
quarter to date and/or year to date basis. EBITDA EBITDA is an
acronym for Earnings before Interest, Taxes, Depreciation, and
Amortization, which is defined as GAAP net income (loss) adjusted
for interest expense, taxes, depreciation and amortization. The
company further subtracts gains (losses) from sales of property and
extinguishment of debt costs to calculate EBITDA. EBITDA is helpful
to investors and management as a measure of the performance of the
company because it provides an indication of the operating
performance of the properties within the portfolio and is not
impacted by the capital structure of the REIT. EBITDA does not
represent cash generated from operating activities as determined by
GAAP and should not be considered as an alternative to GAAP net
income as an indication of our financial performance or to cash
flow from operating activities as determined by GAAP as a measure
of our liquidity, nor is it indicative of funds available to fund
our cash needs, including our ability to make cash distributions.
EBITDA may include funds that may not be available for the
company's discretionary use due to functional requirements to
conserve funds for capital expenditures and property acquisitions,
and other commitments and uncertainties. -0- *T WINSTON HOTELS,
INC. UNAUDITED CONSOLIDATED BALANCE SHEETS (in thousands) As of As
of June 30, 2006 December 31, 2005
----------------------------------------------------------------------
ASSETS Land $ 55,957 $ 55,758 Buildings and improvements 410,379
422,081 Furniture and equipment 62,853 63,048
----------------------------------------------------------------------
Operating properties 529,189 540,887 Less accumulated depreciation
134,059 139,259
----------------------------------------------------------------------
395,130 401,628 Properties under development 20,851 25,139
----------------------------------------------------------------------
Net investment in hotel properties 415,981 426,767 Assets held for
sale 18,967 11,009 Corporate furniture fixtures and equipment, net
607 371 Cash 11,268 15,047 Restricted marketable securities 63,540
- Accounts receivable, net 3,602 3,820 Notes receivable 59,709
38,050 Investment in joint ventures 2,434 1,795 Deferred expenses,
net 9,833 6,807 Prepaid expenses and other assets 10,920 12,556
Deferred tax asset 10,879 11,471
----------------------------------------------------------------------
Total assets $ 607,740 $ 527,693
======================================================================
LIABILITIES, MINORITY INTEREST AND SHAREHOLDERS' EQUITY Lines of
credit $ 66,796 $ 157,896 Due to trust that holds marketable
securities 63,540 - Mortgage loans 214,087 99,874 Accounts payable
and accrued expenses 19,921 27,915 Distributions payable 6,055
6,011
----------------------------------------------------------------------
Total liabilities 370,399 291,696
----------------------------------------------------------------------
Minority interest 12,838 12,786
----------------------------------------------------------------------
Shareholders' equity: Preferred stock, Series B, $.01 par value,
5,000 shares authorized, 3,680 shares issued and outstanding
(liquidation preference of $93,840) 37 37 Common stock, $.01 par
value, 50,000 shares authorized, 26,801 shares issued and 26,490
shares outstanding at June 30, 2006 and 26,509 shares issued and
outstanding at December 31, 2005 265 265 Additional paid-in capital
324,951 325,238 Unearned compensation - (1,454) Distributions in
excess of earnings (100,750) (100,875)
----------------------------------------------------------------------
Total shareholders' equity 224,503 223,211
----------------------------------------------------------------------
Total liabilities, minority interest and shareholders' equity $
607,740 $ 527,693
======================================================================
WINSTON HOTELS, INC. UNAUDITED CONSOLIDATED STATEMENTS OF
OPERATIONS (in thousands, except per share amounts) Three Months
Ended June 30, 2006 2005
----------------------------------------------------------------------
Operating revenue: Rooms $ 42,326 $ 32,120 Food and beverage 3,459
2,251 Other operating departments 1,455 1,017 Joint venture fee
income 51 63
----------------------------------------------------------------------
Total operating revenue 47,291 35,451
----------------------------------------------------------------------
Hotel operating expenses: Rooms 8,639 6,915 Food and beverage 2,431
1,678 Other operating departments 971 629 Undistributed operating
expenses: Property operating expenses 8,553 6,502 Real estate taxes
and property and casualty insurance 2,008 1,687 Franchise costs
2,937 2,318 Maintenance and repair 2,142 1,713 Management fees
1,663 1,116 General and administrative 2,498 1,901 Depreciation
5,306 3,944 Amortization 516 387
----------------------------------------------------------------------
Total operating expenses 37,664 28,790
----------------------------------------------------------------------
Operating income 9,627 6,661
----------------------------------------------------------------------
Extinguishment of debt (3,961) - Interest and other income 2,020
1,227 Interest expense (4,938) (2,423)
----------------------------------------------------------------------
Income before allocation to minority interest in Partnership,
allocation to minority interest in consolidated joint ventures,
income taxes, and equity in income of unconsolidated joint ventures
2,748 5,465 (Income) loss allocation to minority interest in
Partnership 16 (153) Income allocation to minority interest in
consolidated joint ventures (353) (139) Income tax expense (965)
(267) Equity in income of unconsolidated joint ventures 42 29
----------------------------------------------------------------------
Income from continuing operations 1,488 4,935 Discontinued
operations: Income from discontinued operations 599 392 Gain on
sale of discontinued operations 3,479 449
----------------------------------------------------------------------
Net income 5,566 5,776 Preferred stock distribution (1,840) (1,840)
----------------------------------------------------------------------
Net income available to common shareholders $ 3,726 $ 3,936
======================================================================
Basic weighted average number of common shares outstanding 26,479
26,298
----------------------------------------------------------------------
Diluted weighted average number of common shares outstanding 26,479
27,611
----------------------------------------------------------------------
Income (loss) per common share basic and diluted: Income (loss)
from continuing operations $ (0.01) $ 0.12 Income from discontinued
operations 0.15 0.03
----------------------------------------------------------------------
Net income available to common shareholders $ 0.14 $ 0.15
----------------------------------------------------------------------
Per share dividends to common shareholders $ 0.15 $ 0.15
----------------------------------------------------------------------
WINSTON HOTELS, INC. UNAUDITED CONSOLIDATED STATEMENTS OF
OPERATIONS (in thousands, except per share amounts) Six Months
Ended June 30, 2006 2005
----------------------------------------------------------------------
Operating revenue: Rooms $ 77,972 $ 60,104 Food and beverage 6,012
4,072 Other operating departments 2,543 1,695 Joint venture fee
income 103 124
----------------------------------------------------------------------
Total operating revenue 86,630 65,995
----------------------------------------------------------------------
Hotel operating expenses: Rooms 16,232 13,051 Food and beverage
4,529 3,175 Other operating departments 1,802 1,234 Undistributed
operating expenses: Property operating expenses 16,848 12,695 Real
estate taxes and property and casualty insurance 3,823 3,291
Franchise costs 5,368 4,331 Maintenance and repair 4,200 3,382
Management fees 3,039 1,804 General and administrative 5,526 3,890
Depreciation 10,297 7,860 Amortization 1,007 635
----------------------------------------------------------------------
Total operating expenses 72,671 55,348
----------------------------------------------------------------------
Operating income 13,959 10,647
----------------------------------------------------------------------
Extinguishment of debt (3,961) - Interest and other income 3,406
2,747 Interest expense (9,350) (4,830)
----------------------------------------------------------------------
Income before allocation to minority interest in Partnership,
allocation to minority interest in consolidated joint ventures,
income taxes, and equity in income (loss) of unconsolidated joint
ventures 4,054 8,564 (Income) loss allocation to minority interest
in Partnership 31 (208) Income allocation to minority interest in
consolidated joint ventures (219) (267) Income tax expense (914)
(176) Equity in income (loss) of unconsolidated joint ventures 64
(33)
----------------------------------------------------------------------
Income from continuing operations 3,016 7,880 Discontinued
operations: Income from discontinued operations 1,102 510 Gain on
sale of discontinued operations 7,728 364
----------------------------------------------------------------------
Net income 11,846 8,754 Preferred stock distribution (3,680)
(3,680)
----------------------------------------------------------------------
Net income available to common shareholders $ 8,166 $ 5,074
======================================================================
Basic weighted average number of common shares outstanding 26,449
26,290
----------------------------------------------------------------------
Diluted weighted average number of common shares outstanding 26,449
27,607
----------------------------------------------------------------------
Income (loss) per common share basic and diluted: Income (loss)
from continuing operations $ (0.03) $ 0.16 Income from discontinued
operations 0.34 0.03
----------------------------------------------------------------------
Net income available to common shareholders $ 0.31 $ 0.19
----------------------------------------------------------------------
Per share dividends to common shareholders $ 0.30 $ 0.30
----------------------------------------------------------------------
WINSTON HOTELS, INC. RECONCILIATION OF NET INCOME TO FFO, FFO
AVAILABLE TO COMMON SHAREHOLDERS AND FFO AVAILABLE TO COMMON
SHAREHOLDERS PER SHARE ($ in thousands, except per share amounts)
----------------------------------------------------------------------
Three Months Ended Six Months Ended June 30, June 30, 2006 2005
2006 2005
----------------------------------------------------------------------
Net income $ 5,566 $ 5,776 $11,846 $ 8,754 Gain on sale (3,648)
(471) (8,103) (381) Minority interest in Partnership allocation of
income (loss) (16) 153 (31) 208 Minority interest in Partnership
allocation of gain on sale of discontinued operations 169 22 375 17
Minority interest in Partnership allocation of income from
discontinued operations 27 18 51 24 Depreciation 4,914 3,669 9,518
7,316 Depreciation from discontinued operations 244 782 658 1,613
Depreciation from joint ventures 265 189 523 380
----------------------------------------------------------------------
FFO 7,521 10,138 14,837 17,931 Preferred stock dividend (1,840)
(1,840) (3,680) (3,680)
----------------------------------------------------------------------
FFO Available to Common Shareholders $5,681 $8,298 $11,157 $14,251
======================================================================
Unusual Charges: Extinguishment of debt 3,961 - 3,961 - Asset
retirement obligation 195 - 195 - Tax on joint venture development
fees 159 - 420 -
----------------------------------------------------------------------
FFO Available to Common Shareholders, excluding unusual charges
9,996 8,298 15,733 14,251
======================================================================
Weighted average common shares outstanding assuming dilution 27,850
27,611 27,854 26,449
----------------------------------------------------------------------
FFO Available to Common Shareholders per share $ 0.20 $ 0.30 $ 0.40
$ 0.54
----------------------------------------------------------------------
FFO Available to Common Shareholders per share, excluding unusual
charges $ 0.36 $ 0.30 $ 0.56 $ 0.54
----------------------------------------------------------------------
Common dividend per share $ 0.15 $ 0.15 $ 0.30 $ 0.30
======================================================================
WINSTON HOTELS, INC. 2006 THIRD QUARTER AND ANNUAL GUIDANCE
RECONCILIATION OF NET INCOME TO FFO AVAILABLE TO COMMON
SHAREHOLDERS (a) ($ in thousands, except per share amounts)
----------------------------------------------------------------------
Quarter Ended Year Ended September 30, 2006 December 31, 2006
----------------------------------------------------------------------
Guidance Range Guidance Range Low High Low High -------- --------
-------- -------- Net income $ 8,500 $ 9,000 $21,700 $23,000 Gain
on sale (3,900) (3,900) (12,000) (12,000) Minority interest 100 200
500 600 Depreciation 5,600 5,600 21,700 21,700 Depreciation from
joint ventures 200 200 800 800 Preferred stock dividend (1,840)
(1,840) (7,360) (7,360)
----------------------------------------------------------------------
FFO Available to Common Shareholders 8,660 9,260 25,340 26,740
----------------------------------------------------------------------
Unusual Charges: Extinguishment of debt - - 3,961 3,961 Asset
retirement obligation - - 195 195 Tax on joint venture development
fees - - 420 420
----------------------------------------------------------------------
FFO Available to Common Shareholders, excluding unusual charges
8,660 9,260 29,916 31,316
----------------------------------------------------------------------
Weighted average common shares assuming dilution 27,800 27,800
27,900 27,900
----------------------------------------------------------------------
FFO Available to Common Shareholders per share $ 0.31 $ 0.33 $ 0.91
$ 0.96
----------------------------------------------------------------------
FFO Available to Common Shareholders per share, excluding unusual
charges $ 0.31 $ 0.33 $ 1.07 $ 1.12
----------------------------------------------------------------------
(a) Assumes no additional hotel acquisitions, dispositions,
developments or placements of hotel debt, except the July 2006 sale
of the West Springfield, Mass. Hampton Inn. WINSTON HOTELS, INC.
RECONCILIATION OF NET INCOME TO EBITDA ($ in thousands)
----------------------------------------------------------------------
Three Months Ended Six Months Ended June 30, June 30, 2006 2005
2006 2005
----------------------------------------------------------------------
Net income $ 5,566 $ 5,776 $11,846 $ 8,754 Add back: Minority
interest in Partnership allocation of income (loss) (16) 153 (31)
208 Minority interest in Partnership allocation of gain 169 22 375
17 Minority interest in Partnership allocation of income from
discontinued operations 27 18 51 24 Interest expense 4,477 2,182
8,434 4,382 Interest expense from joint ventures 315 185 624 340
Depreciation 4,914 3,669 9,518 7,316 Depreciation from discontinued
operations 244 782 658 1,613 Depreciation from joint ventures 265
189 523 380 Amortization expense 487 388 949 638 Amortization
expense from joint ventures 22 7 49 13 Expense from income tax 945
355 762 153 Extinguishment of debt 3,961 - 3,961 - Gain on sale
(3,648) (471) (8,103) (381)
----------------------------------------------------------------------
EBITDA $17,728 $13,255 $29,616 $23,457
======================================================================
Winston Hotels, Inc. Same-Store Revenue Per Available Room
Statistics Three and Six Months Ended June 30, 2006 and 2005 Three
Months Ended Six Months Ended Total for 41 Hotels June 30, June 30,
----------------------- ----------------------- 2006 2005 % CH 2006
2005 % CH -------- -------- ----- -------- -------- ----- Combined
Brands ---------------- Comfort Inn/Suites & Quality Suites
$59.79 $50.62 18.1% $54.97 $48.35 13.7% Courtyard, Fairfield Inn,
Residence Inn $72.55 $66.82 8.6% $70.28 $62.75 12.0% Hampton
Inn/Suites $73.53 $62.98 16.7% $68.04 $59.14 15.0% Hilton Garden
Inn $87.95 $81.55 7.8% $81.09 $74.80 8.4% Holiday Inn
Express/Select $80.64 $74.94 7.6% $70.65 $67.03 5.4% Homewood
Suites $76.41 $70.56 8.3% $75.94 $70.71 7.4% Region ------- South
Atlantic $70.67 $62.20 13.6% $66.60 $59.29 12.3% East North Central
$89.31 $85.35 4.6% $80.33 $72.11 11.4% West South Central $66.31
$60.56 9.5% $62.97 $56.88 10.7% Mountain $60.37 $51.46 17.3% $74.97
$66.42 12.9% New England $76.24 $72.64 5.0% $68.53 $64.38 6.4%
Middle Atlantic $96.65 $88.25 9.5% $83.80 $78.42 6.9% Segment
-------- Upscale $78.42 $72.38 8.3% $75.52 $68.97 9.5% Mid-scale w/
F&B $88.53 $79.87 10.8% $76.50 $69.67 9.8% Mid-scale w/o
F&B $67.02 $57.53 16.5% $61.88 $54.42 13.7% Service --------
Limited-service $67.10 $57.83 16.0% $62.13 $54.67 13.6%
Full-service $83.66 $77.16 8.4% $76.16 $69.35 9.8% Extended-stay
$73.30 $66.83 9.7% $75.84 $69.83 8.6% Total $74.64 $66.84 11.7%
$70.00 $62.96 11.2% ------ -----------------------
----------------------- Winston Hotels, Inc. Same-Store Average
Daily Rate Statistics Three and Six Months Ended June 30, 2006 and
2005 Three Months Ended Six Months Ended Total for 41 Hotels June
30, June 30, ----------------------- ----------------------- 2006
2005 % CH 2006 2005 % CH -------- -------- ----- -------- --------
----- Combined Brands ---------------- Comfort Inn/Suites &
Quality Suites $75.00 $71.21 5.3% $72.06 $69.53 3.6% Courtyard,
Fairfield Inn, Residence Inn $103.78 $90.50 14.7% $102.77 $89.59
14.7% Hampton Inn/Suites $96.69 $85.46 13.1% $93.83 $84.59 10.9%
Hilton Garden Inn $115.45 $111.42 3.6% $111.99 $109.08 2.7% Holiday
Inn Express/Select $108.77 $99.24 9.6% $104.79 $95.54 9.7% Homewood
Suites $94.64 $93.64 1.1% $95.65 $94.78 0.9% Region ------- South
Atlantic $91.37 $84.47 8.2% $89.60 $83.39 7.4% East North Central
$116.36 $106.99 8.8% $113.21 $101.94 11.1% West South Central
$105.15 $89.21 17.9% $103.39 $89.56 15.4% Mountain $90.41 $80.04
13.0% $98.21 $90.99 7.9% New England $105.48 $101.18 4.2% $100.75
$98.54 2.2% Middle Atlantic $124.52 $113.88 9.3% $119.71 $111.76
7.1% Segment -------- Upscale $104.56 $97.78 6.9% $103.15 $97.08
6.3% Mid-scale w/ F&B $109.96 $103.70 6.0% $103.15 $99.97 3.2%
Mid-scale w/o F&B $88.49 $79.24 11.7% $86.31 $77.98 10.7%
Service -------- Limited-service $88.82 $79.53 11.7% $86.66 $78.34
10.6% Full-service $111.13 $102.53 8.4% $106.96 $99.72 7.3%
Extended-stay $94.54 $91.95 2.8% $96.79 $94.57 2.3% Total $98.48
$90.71 8.6% $96.32 $89.43 7.7% ------ -----------------------
----------------------- The above presentation includes 39 of the
company's 45 wholly owned hotels as of June 30, 2006, as well as
two joint venture hotels the company held an ownership interest in
throughout the periods presented. These joint venture hotels
include the Chapel Hill, N.C. Courtyard by Marriott and the Ponte
Vedra, Fla. Hampton Inn. The above presentation excludes the
Hampton Inn & Suites Baltimore Inner Harbor in Maryland which
was acquired in September 2005 and the six hotels (five Towneplace
Suites hotels and one Courtyard by Marriott hotel) acquired in
October 2005. The above presentation also excludes the Stanley
Hotel in Estes Park, Colo., which was acquired in August 2005, in
which the company owns a 60 percent interest and the Courtyard by
Marriott in Kansas City, Mo which opened April 20, 2006. These
properties were not open throughout each of the periods presented;
therefore they are excluded from the table above. Winston Hotels,
Inc. Same-Store Occupancy Statistics Three and Six Months Ended
June 30, 2006 and 2005 Three Months Ended Six Months Ended Total
for 41 Hotels June 30, June 30, -----------------------
----------------------- 2006 2005 % CH 2006 2005 % CH --------
-------- ----- -------- -------- ----- Combined Brands
---------------- Comfort Inn/Suites & Quality Suites 79.7%
71.1% 12.1% 76.3% 69.5% 9.8% Courtyard, Fairfield Inn, Residence
Inn 69.9% 73.8% -5.3% 68.4% 70.0% -2.3% Hampton Inn/Suites 76.0%
73.7% 3.1% 72.5% 69.9% 3.7% Hilton Garden Inn 76.2% 73.2% 4.1%
72.4% 68.6% 5.5% Holiday Inn Express/Select 74.1% 75.5% -1.9% 67.4%
70.2% -4.0% Homewood Suites 80.7% 75.4% 7.0% 79.4% 74.6% 6.4%
Region ------- South Atlantic 77.3% 73.6% 5.0% 74.3% 71.1% 4.5%
East North Central 76.7% 79.8% -3.9% 71.0% 70.7% 0.4% West South
Central 63.1% 67.9% -7.1% 60.9% 63.5% -4.1% Mountain 66.8% 64.3%
3.9% 76.3% 73.0% 4.5% New England 72.3% 71.8% 0.7% 68.0% 65.3% 4.1%
Middle Atlantic 77.6% 77.5% 0.1% 70.0% 70.2% -0.3% Segment --------
Upscale 75.0% 74.0% 1.4% 73.2% 71.0% 3.1% Mid-scale w/ F&B
80.5% 77.0% 4.5% 74.2% 69.7% 6.5% Mid-scale w/o F&B 75.7% 72.6%
4.3% 71.7% 69.8% 2.7% Service -------- Limited-service 75.5% 72.7%
3.9% 71.7% 69.8% 2.7% Full-service 75.3% 75.3% 0.0% 71.2% 69.5%
2.4% Extended-stay 77.5% 72.7% 6.6% 78.4% 73.8% 6.2% Total 75.8%
73.7% 2.8% 72.7% 70.4% 3.3% ------ -----------------------
----------------------- The above presentation includes 39 of the
company's 45 wholly owned hotels as of June 30, 2006, as well as
two joint venture hotels the company held an ownership interest in
throughout the periods presented. These joint venture hotels
include the Chapel Hill, N.C. Courtyard by Marriott and the Ponte
Vedra, Fla. Hampton Inn. The above presentation excludes the
Hampton Inn & Suites Baltimore Inner Harbor in Maryland which
was acquired in September 2005 and the six hotels (five Towneplace
Suites hotels and one Courtyard by Marriott hotel) acquired in
October 2005. The above presentation also excludes the Stanley
Hotel in Estes Park, Colo., which was acquired in August 2005, in
which the company owns a 60 percent interest and the Courtyard by
Marriott in Kansas City, Mo which opened April 20, 2006. These
properties were not open throughout each of the periods presented;
therefore they are excluded from the table above. *T
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